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Surfactants Monthly Short-Review – March and April, 2017

Decisions, decisions...

First the commercials: All the news this week is courtesy of ICIS. Consider subscribing to their dashboard to get the rest of the stories that are mentioned here.

And, of course, if you like what you read here, please consider our upcoming conference in New York, May 17-19 At this flagship event, hundreds of industry leaders will take part in the first surfactant industry awards. You will be amazed at the work and preparation which went into the nominations and entries to this event. “You gotta be there” at the conference to attend the awards. It will be a great time. You'll learn a lot, meet some great business contacts and make better decisions in your professional life as a result. Don’t miss it. We'll be spending time talking about decisions, why they are hard, even physically exhausting and how you can make better ones. I won't give too much away here, but I will examine what I have come to refer to as the "Oprah Effect". Love her or not, Oprah is talented, focused, driven, hard working, successful, influential and very rich. She's got a lot to teach the surfactant industry and its probably not what you think. End of Commercial.

This month’s blog is somewhat abbreviated due to the press of many projects undertaken by your author (see awards –above).

If we are taking Zlotys then it must be Rokita. They reported record profitability in 2016.
The company posted EBITDA)of zloty (Zl) 290m ($71.3m), against 2015’s Zl 133m, while consolidated net profit leapt to Zl 203m from Zl 85m.
Consolidated sales revenues moved up 5.6% year on year to Zl 58.4m.
“We believe the key to the success of our group has been an ambitious and consistent investment policy,” said Rafal Zdon, a vice president at PCC Rokita to ICIS. 
He noted that several corporate bond issues had proved important to the financing of investments in recent years.
“In the polyurethanes segment, both last year and in the current year, we are increasing production capacity while we have been expanding the portfolio of new products such as with polyester polyols,” said Zdon. 
“We’re also analysing the possibility of further investments to increase production capacity in the segment of organochlorine.” 
When making its stock market debut in 2014, PCC Rokita committed to expenditure of Zl 50m that over three years was earmarked for pushing up its polyols capacity from 20,000 tonnes/year to 50,000 tonnes/year and its PU systems capacity from 100,000 tonnes/year to 130,000 tonnes/year.

PCC Rokita is a subsidiary of Duisburg, Germany-based energy, logistics and chemicals group PCC.
Apart from polyols and PU systems, PCC Rokita manufactures chlorobenzene, chlor-alkali, surfactants, phosphorous derivatives and napthalene derivatives.

In more earnings news: Sasol’s base and performance chemicals sales volumes rose year on year for the nine months ended 31 March, by 6% and 2%, respectively. 

Higher performance chemicals volumes were unable to offset lower selling prices over the period, causing a fall in revenue at that division.
 Performance Chemicals saw July 2016-March 2017 revenues down by 3.9% to rand (R) 50.5bn ($3.77bn).
The fall in revenue was related to selling prices, lower than in the previous corresponding period, which could not offset a rise in volumes for the period – total sales volumes stood at 2.63m tonnes, up 2% year on year. 
“Performance Chemicals delivered a strong sales performance, with sales volumes increasing by 3%. However, in rand terms, sales revenue was negatively impacted by the stronger rand exchange rate,” said Sasol. 
“In euro terms, total sales revenue increased by 2%, with Organics contributing a 6% growth from the comparative period. Sales volumes increased by 3% mainly due to higher sales of comonomers and European-based alcohols and surfactants.”
Sasol added it is confident it will be able to start up its large-scale Lake Charles Chemical Project (LCCP) in the US, which will include a cracker and a petrochemical complex, in the second half of 2018. 
The company said capital expenditure (capex) to date stands at $6.72bn, adding that the engineering, procurement and construction (EPC) works stood at 68% as of 31 March. 
The start up date has not changed since the project was announced in 2014. At the time, the company said total capex would stand at $8.1bn. 
“During the course of the 2017 financial year, Sasol entered into a number of hedges to mitigate specific financial risks,” said Sasol about its move to protect itself against sharp changes in the currency. 
“In particular, we have entered into hedges against the downside risk in the crude oil price and rand strengthening against major currencies to increase the stability and predictability of our cash flows”

Stepan’s first-quarter net income rose 14% year on year to $31.9m on a 5% increase in sales to $468.3m despite a modest drop in volumes, the US-based chemicals producer said. 
The 5% increase in net sales was attributed to higher selling prices from higher raw material costs. This was partially offset by the 4% dip in sales volumes and negative impacts from foreign currency translations. 
Stepan had $0.6m of after-tax expenses from decommissioning costs connected to the closure of its Canadian plant in 2016. 
Operating income for its Surfactant segment rose almost 3% year on year in Q1 2017 to $38.3m, attributed to lower manufacturing costs, mainly obtained from closing plants in Canada and Brazil.
The Polymer segment saw an around 4% decrease in operating income over the same period to $21.4m on the back of to higher costs from a new production facility in China and higher raw material costs. 
First-quarter Speciality Products segment’s operating income dropped by 45% year on year to $1.3m on lower volumes and lower margins. Total operating income for the period stood at was posted at $46.1m, up 3% year on year. 
Stepan CEO F Quinn Stepan Jr said: "The quarter benefited from structurally lower manufacturing costs, enhanced internal efficiencies and higher Polymer volumes.
“We believe that benefits from our enhanced internal efficiencies, continued growth in our core polymer markets and our product and end-market diversification efforts should positively impact 2017.  Conversely, higher raw material costs may pressure margins.  Overall, we believe earnings for the year should grow," he added.

Cepsa is to expand its linear alkylbenzene (LAB) production capacity in Brazil by almost 20% as the country’s recession did not affect basic consumer products like detergents, the main end market for LAB, the head of petrochemicals at the Spanish energy major said. 
The revamp’s capital expenditure totalled €64m, said Cepsa, adding its global capacity for LAB production stands now at 600,000 tonnes/year. 
The plant, located at the petrochemicals complex of Camacari in Salvador de Bahia, will have now a production capacity of 260,000 tonnes/year, compared to the former 220,000 tonnes/year. 
Cepsa’s head of petrochemicals Jose Manuel Martinez said that despite the severe economic crisis Brazil went through in 2015 and 2016, LAB growth rates remained positive albeit slow at between 1% and 2%. 
However, the Brazilian middle class growth since 2000 has led to around 60% of households currently having washing machines, compared to around 20% at the turn of the century. 
LAB is used mostly in powder detergents, more commonly used in emerging markets, according to Martinez, who was speaking at a press conference in London on 3 April. 
“While the situation of the country’s economy is not good, the market for LAB is okay. Currency and crude oil prices have also played a part – LAB is linked to crude and when prices fell from $120/bbl to $40/bbl these surfactants were more competitive than palm oil-based ones,” said Martinez. 
“Our variable costs at this plant needed to be improved. With the revamp, the site has become more competitive in what is a global product and at a time of new capacities coming online in the Far East. Brazil offers the chance to tap into the local market as well as neighbouring countries, especially Colombia.” 
Spanning back to 1999 when Cepsa acquired a 72% stake at LAB producer Deten, the enterprise is a joint venture with Brazilian energy major Petrobras, which controls a 28% stake. 
While the Brazilian economy was generally seen in the 2000s as one of the upcoming emerging markets, thanks to a boom in commodity prices which buffered the state’s coffers and allowed a notable reduction in extreme poverty, Martinez said the country still needs to liberalise its economy. 
“It’s a question of being competitive [globally]. If you have a protective market in many areas, and high interest rates and high inflation, the country stops being competitive,” he said. 
“However, I am confident about the country’s prospects. Unemployment is at 12%, which is manageable, and the economy is returning to growth, while the country continues offering a lot of possibilities and a large, educated population.”

Good friends of the blog, 2M are in the news again. 2M Holdings will likely defer its planned initial public offering (IPO) to 2018 as it focuses on two potential acquisitions, chairman and CEO Mottie Kessler said.
“We think the value of the company will be higher after the acquisitions. One will be focused on a new business area, and the other on geographic expansion,” said Kessler on the sidelines of the International Petrochemical Conference (IPC).
“While the US is an important market for us, our immediate focus is on strengthening our presence in continental Europe,” he added.
The smaller acquisition is expected to close by the end in April, and the larger one 2-3 months later, said the CEO.
2M Holdings, which includes subsidiaries Banner Chemicals and Surfachem, as well as Packed Chlorine and 2M Services, will have sales of around GBP107-108m ($134-136m) in its fiscal year ended April 2017 with around 30% of sales outside the UK, said Kessler.
Surfachem focuses on surfactants for personal care and household cleaning, while Banner Chemicals distributes precision cleaning chemicals (degreasers).
Its Surfachem Brazil joint venture with Brazil’s Metachem, which owns 35% of the entity, is starting to have a meaningful impact on sales, he noted.
“We are selling Surfachem know-how in formulations for personal care and home cleaning in Brazil while Metachem provides the infrastructure and local market knowledge. Brazil is the second largest market in the world for personal care,” said Kessler.
2M Holdings also produces certain specialty chemicals such as Pigmentan, a green corrosion prevention pigment used in paints and coatings as a replacement for zinc chromate, and a more environmentally friendly AdBlue diesel exhaust fluid.

AkzoNobel has rejected an unsolicited takeover bid made by US-based PPG Industries, and has decided to review strategic options to separate its specialty chemical business, the Dutch paints and coatings firm said on 9 March.
PPG was offering to pay €54.00 in cash and 0.3 of its own shares for every AkzoNobel share, corresponding to a value of €83.00 per share as per 28 February, AkzoNobel said.
“The unsolicited proposal we received from PPG substantially undervalues our company and contains serious risks and uncertainties,” said Ton Buchner, the CEO of AkzoNobel. The proposal is not in the interest of AkzoNobel’s stakeholders, including its shareholders, customers and employees, and we have unanimously rejected it,” he added.
AkzoNobel will now consider various alternative ownership structures for the specialty chemicals business (including surfactants) as part of the separation plan, including, but not limited to, “the establishment of an independent listed entity”, the company said.

A merger between PPG and AkzoNobel would be “credible and potentially powerful” but higher pressure for the Netherlands-based company to perform after rejecting a takeover bid is also good news for shareholders, analysts Bernstein said on 9 March.
AkzoNobel announced plans to review strategic options for the separation of its specialty chemicals business on 9 March after rebuffing an unsolicited takeover bid by its US-headquartered rival.
There would be strong advantages for both parties in the event of a merger, Bernstein said, combining the two global leaders in a fragmented market with $600m of annual savings – 2% of sales for a combined company – and limited decorative paints sector divestitures likely to be required. However, the rejection of the takeover places greater pressure on Akzonobel to perform as a standalone entity, which is good news for shareholders, Bernstein said. 
The announcement by AkzoNobel of plans to spin off its specialty chemicals division, representing around 40% of the company’s earnings before interest, taxes, depreciation and amortisation (EBITDA), is a first step in that process, Bernstein added.
“We expect management will continue to deliver operational improvements while shifting focus to profitable growth… volume growth, especially in EU, will be a positive catalyst for stock re-rating,” Bernstein said in an investor note.
“We could see the merit of a tie-up with PPG, which is feasible in our view. Alternatively, AkzoNobel will now be under greater pressure to perform,” the researcher added.

That is it for now. Normal service resumes in June. In the meantime, I hope to see many of you in Jersey City next week.

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