Surfactants Monthly – November 2016
Of Snowflakes and Status Quo
Word of the month for me in November was “snowflake”. It seemed that, starting November 9th, the term snowflake came to describe those, mostly young, individuals prompted to weep openly in large groups at the prospect of things turning out, not quite as expected. One wonders how they might fare in the world of chemicals or indeed, surfactants or oleochemicals, where the status quo shifts with alarming irregularity. In my view, the only status quo on which one can rely to deliver expected outcomes is the creator of the following 4 minutes of 3 chord bliss:
Similarly reliable is the ICIS news team who provides most of the raw material for this blog. Please check out their dashboard and subscribe. I do.
Now to the news..
Finally some better news out of Brazil: As ICIS reported from the Oxiteno earnings call, they are seeing a firming of the Brazil economy starting in the third quarter of 2016. The firming was reflected in Oxiteno's sales volumes for the third quarter. The company's Brazilian sales reached 145,000 tonnes, up 7% from 135,000 tonnes from the same time last year. Compared with the second quarter of 2016, sales rose by 9%. Total sales volumes were 200,000 tonnes, compared with 191,000 tonnes from the same time last year. For the Brazilian economy as a whole, Oxiteno said that consumer and business confidence has been rising and inflation rates have been falling. In the spirit of every silver lining having a cloud, however, Oxiteno still reported a decline in third-quarter operating income because of a stronger real and higher feedstock costs. Operating income was reais (R)61.9m ($18.2m), down 64% (ouch!) from R173.3m from the third quarter of 2015. This has to be extremely frustrating for the company, as it continues to carve out an increased international presence. For Oxiteno parent, Ultrapar, third-quarter net income was R376.8m, up 27% from R295.9m from the time last year. Income rose apparently because sales rose faster than costs (yep that’ll do it in an asset heavy business of primarily fuel distribution and drugstores). Third-quarter sales were R19.4bn, up from R19.2bn from the same time last year.
Another petro mega-project with direct impact in surfactants was updated in ICIS News as CNOOC and Shell Petrochemical Company (CSPC) announced their intention to start up facilities at the new petrochemical complex in Huizhou, China, around Q4 2017. 50:50 joint venture partners Shell and CNOOC finalized the investment plan for the complex in March last year. The facilities being built next to CSPC’s existing petrochemical complex in Huizhou will increase ethylene capacity by 1.2m tonnes/year. The expansion project will also include the largest styrene monomer (SM) and propylene oxide (SMPO) plant in China. Shell will apply its proprietary OMEGA, styrene monomer and propylene oxide (SMPO) and polyols technologies to produce 150,000 tonnes/year of ethylene oxide, 480,000 tonnes/year of ethylene glycol, 630,000 tonnes/year of SM, 300,000 tonnes/year of propylene oxide, and 600,000 tonnes/year of high quality polyols at the new complex, they said. This more than doubles the volumes CSPC’s products to around 6m tonnes/year. The Nanhai complex in Huizhou has capacity to convert 950,000 tonnes/year of ethylene into 2.7m tonnes/year of derivative products to supply to the Chinese domestic market.
Those of you who, like this blog, don’t generally like government interference in our business, “buckle up” (to coin another post 11/9 phrase) and get used to it. Germany’s “climate protection plan 2050”, as proposed by the government, will lead to a “doubling of regulations” to the detriment of the competitiveness of Germany-based chemicals and other energy-intensive industrial producers, chemical trade group VCI said. Utz Tillmann, director general of VCI, told ICIS that Berlin’s “Klimaschutzplan 2050” (it sounds so benign doesn’t it?) is aiming to introduce national reduction targets for industrial sectors. but, the EU’s emissions trading system (ETS) already provides for such targets, Tillmann said. C’mon Utz! Plans are good, so two must be better than one right?
Dow’s earnings call yielded some snippets of interest to the surfactants The Sadara joint venture project between Saudi Aramco (65%) and Dow Chemical (35%) in Jubail, Saudi Arabia, has completed all parts of its integrated PE chain. 2017 will be a big start-up year for Sadara, as the rest of the projects come on line including EO (ethylene oxide) and derivatives (surfactants!) . Expect regular updates in the second half of ’17 at our surfactant conferences in Europe and Asia.
At the beginning of the month, ICIS reported that US ethylene oxide contract prices for October fell by 0.3% on the back of a 0.7% decrease in feedstock ethylene contracts for October. October EO contract prices were assessed at 57.40-66.90 cents/lb ($1,265-1,475/tonne) FOB from 57.60-67.10 cents/lb FOB in September. The decrease in EO contracts is based on the settlement in October ethylene contracts. US ethylene contracts settled at 35.50 cents/lb DEL (delivered), a 0.25 cent/lb decrease from 35.75 cents/lb in September.
ICIS has reported extensively on the woeful state of ethane production in Mexico and this blog has railed against the government’s baleful influence on the same. This month, Mexico’s Grupo Alfa was tipped as the most likely partner for Pemex’s planned new ethane/propane (E/P) cracker. Alfa is already negotiating with Pemex on broadening the capacity of the Morelos cracker to supply a, much needed, EO/EG plant. The difference is that now they will be using propane feedstock as well,” according to Eduardo de la Tijera, the general manager of Mexico-based consultancy Grupo Texne as told to ICIS. On 8 November, Mexican state producer Pemex called for the construction of a propane cracker and a glycols plant in 2018-2019 as part of its business plan. Alfa is a major player in EO/EG, and importantly, also polypropylene (PP) through its Indelpro subsidiary, making it a natural partner for a Pemex ethane/propane cracker.
A new era at the ACI: We reported earlier that Ernie Rosenberg announced his retirement and this month we learned that Melissa Hockstad joins ACI as its next CEO and president, effective 1 January. Hockstad joins ACI from the American Fuel & Petrochemical Manufacturers (AFPM) trade association, where since 2013 she has been vice president, petrochemicals. Much success to Melissa as she shepherds a truly great organization through some unpredictable times.
As reported by the excellent ICIS Pricing service, spot fatty alcohol ethoxylate (AE) prices in Asia are likely to remain flat in the near term amid stabilising signs of feedstock fatty alcohol (C12-14) costs. Most AE sellers kept their offers at similar levels, with deals heard concluded at around $1,550/tonne CFR China and $1,580/tonne CFR Southeast Asia mid month. Some market participants are expecting slower demand nearing the year-end, as the transition to cooler weather in some regions may weaken the downstream demand for cleaning agents and shower foams. However, producers expressed a reluctance to lower offers to recover more margins, amid steadily high C12-14 costs. According to ICIS data, AE prices were last assessed at $1,540-1,560/tonne CFR China and $1,550-1,600/tonne CFR China on 9 November.
Meanwhile upstream, volatility continues to cause havoc. With palm kernel oil (PKO) prices seeing day-to-day increases and drops of $20-40/tonne, some suppliers of C12-14 alcohols have withdrawn their offers mid month as they await greater clarity in feedstock price trends. PKO prices jumped by around $40/tonne from 9 November to 11 November, but lost around $60/tonne at closing on 15 November. As a result of the volatility in raw material costs, some suppliers have withdrawn their offers and stopped offering the C12. Early November, C12-14 alcohol prices were assessed as $2,120-2,200/tonne FOB SE Asia.
In other news, the Estee Lauder Future Beautiful sourcing report is worth a read. Pages 13 & 14 cover RSPO certified PKO and their usage of it. As expected Aveda is at 100% RSPO mass balance, PKO derivatives.
KLK pleased the markets with more than double net profit in their fiscal Q4, driven mainly, as we expected, by the plantation business. Despite lower volumes and higher costs, price trumped everything to deliver record profits.
A lot of Henkel news this month: In a November 8th statement (that’s pre-11/9), their CEO hoped for a stable outcome of the US elections. While I imagined millions of voters carefully taking note of Herr Van Bylen’s kind counsel, I am not sure if he got what he expected. However, no evidence of snowflakes emerged at the Henkel HQ as they also announced solid results on the back of emerging markets. Deeper into the post 11/9 era, the company announced Stamford, CT (yes, that’s Connecticut, not Arizona) as the site of their North American HQ following acquisition of Sun Products (Mega-kudos to CT! – confirming again that the state is about much more than hedge funds..). Still deeper into post-11/9 the announced a focus on the top 10 brands and ecommerce and more acquisitions in emerging markets (source of a lot of their growth).
But coming back to snowflakes for just a minute; or more accurately snowmen and a more uplifting message: If you really want to weep openly, with no shame, this Christmas, check out this Raymond Briggs classic and tell me if there’s a dry eye in the house.
And if you really want to dig deeper into the Raymond Briggs canon, I highly recommend this book. It’s a clever and beautiful look into changing times and events in recent history. No snowflakes, Ethel and Ernest…
That’s it for now. We’ll put together some end of year thoughts for December.