Surfactants Monthly Review – January 2016
January was ACI month of course, when the final week held the 90th anniversary meeting in Orlando, FL. You will not read any reports or analysis of what happened at ACI here in this blog. Why not? Regular readers know I have a philosophy that can be summed up as “You gotta be there”. If you want to benefit from some event or conference or tradeshow then, you know, be there. So no gossip or tidbits or what have you from ACI in this blog. ACI themselves has published some news from the meeting here. If you really want to be involved in the cleaning industry, then sign up and or join for next year. End of sermon.
What we do write about here is news from a variety of sources, drawing heavily on ICIS News. We co-produce a series of conferences and training courses with ICIS on surfactants, but otherwise I have no specific interest in promoting ICIS News, except that it is a great product which I use on a daily basis. Interlaced among the news here is my own opinion, which I try to clearly label as such. I hope you find it informative and even entertaining. I’m always interested in your feedback and if you feel like you want to write a guest blog post for this site, drop me a line and let’s see. We’re going to start something new with this blog. I will send out an email to our contact list with a link to each new blog posting. So if you are on our list, expect to get an email with a blog link at least once per month. This is in response to a number of people that have asked me if there is some way they can get a “reminder” to look at the blog. Despite my initially taking offense that anyone would need reminding to come here, I thought it was a good idea. If you don’t want to receive the emails, just click unsubscribe at the bottom and ConstantContact takes care of the rest.
Building on last months observations, let’s start with an update on January’s Forces Majeure. Toward the end of the month, Shell noted that its Pulau Bukom cracker in Singapore was unlikely to restart in the first quarter considering the extent of equipment replacement at the plant. The cracker has a 960,000 tonne/year ethylene capacity. Market sources have, according to ICIS, been expecting the shutdown could last four to six months. Shell declared a force majeure on the supply of base chemicals from its Singapore site on 1 December, and this was progressively extended to the supply of high purity ethylene oxide (HPEO), ethylene glycols, propylene oxide (PO), monopropylene glycol (MPG) and polyols.
In last month’s blog, I pondered whether the spate of surfactant industry Forces Majeure was due primarily to old, worn-out plants or just to extremely high operating rates (and thus good business conditions). Inputs since then on this matter have convinced me that it is in fact, the former, that is the major factor. The plants aren’t getting any younger and no matter how hard you run them, they are going to break down with greater frequency. It’s like that trusty old Volvo; you can clock it once, twice, even three times, but eventually concerns about reliability and, ultimately, safety are going to convince you that, no matter how lovingly you care for it, it may be time for a new one. I remember in the late 90’s and early 00’s looking at a number of potential acquisitions in North America and Europe and thinking how old and, well, scary, some of these plants were that we looked at and eventually decided to leave for someone else to worry about. Now, 15 years later, I know some of those plants are still there and I cannot imagine they have improved with age. Now, replacing capacity is an extremely tough sell. Believe, I know. I’ve run the spreadsheets and can never make them work on a strictly financial basis. But when you consider, as I said, reliability of supply and safety, the decision becomes a bit easier. Don’t forget also to lay on top of that, the issue of competition. You may have a fully depreciated plant with a workforce that can make the products in their sleep, but when a competitor comes along with a brand new plant, state of the art quality and service levels like Amazon, it’s too late. The cost of not investing in state of the art capacity to replace your 50 year old plant may be hard to calculate but it needs to be considered.
As if on cue, to validate my “decrepit plant hypothesis” the inimitable Petroleos Mexicanos (Pemex) admitted recently to an almost 13% decrease in output in 2015 vs 2014. The company posted production drops in every petrochemical line bar one, LLDPE. ICIS, without any prodding from me, went on to observe, delicately that “The result could be interpreted as further evidence of Mexico’s faltering chemical industry and the urgent need for investment that the country’s recent energy reforms – which ended Pemex’s monopoly by opening up the oil and gas sectors to private capital for the first time in over seven decades – have promised to deliver.” Hmm… you think? Anyone who has done any business with Pemex knows exactly what the problem is. By product line, ethylene output last year totaled 917,000 tonnes, down by 7.2% from 988,000 tonnes in 2014, while ethylene oxide (EO), fell by 3.7% to 338,000 tonnes. Personally, I do not miss the days of waiting, Oliver Twist – Like, in line for just a little more EO from Pemex!. Meanwhile, the drop in petrochemical output corresponded with a yearly decline in sales and a widening Mexican trade deficit in chemicals.
In Asia, export activity for alcohol ethoxylates, according to ICIS, continues to be muted and may remain so for another month as producers turn to domestic markets, or have stopped production of the surfactant amid weak downstream demand. Spot prices of FAE – 7 and FAE – 9 were previously assessed at $1,050 – 1,150/tonne CIF China drummed, while FAE-2 were at $1,050-1,100/tonne CIF China bulk. Market activity is apparently slowing down ahead of the Chinese New Year, which start early February. China will be closed for a week from 8 February while several other Asia countries will also have public holidays around that time.
We don’t often write about Baerlocher here. However in an interesting snipped from Brazil, the company has finished the 2nd phase of its Brazil oleochemical plant expansion with over 30,000 tonnes of added capacity. Markets for the output include chemicals, cosmetic manufacturing, hygiene and cleaning industries within Latin America, according to the company. Baerlocher has invested nearly $20m since 2013 in extending. Despite Brazil woes, the market remains relatively (to Europe and Asia) uncluttered and somewhat vulnerable to fresh competition locating in-country to avoid tariff barriers.
We don’t often write about Clariant either, though perhaps we should. In any event, German investment bank Baader Bank mid-month gave the company a big boost specifically with respect to activities in Care Chemicals. The bank’s analyst, Markus Mayer buys into the narrative that Clariant is successfully transforming its Care Chemicals business from a "commodity-based surfactants to a high premium personal care business" . I agree, by the way. Baader Bank then went on to recommend a ‘Buy’ on Clariant’s stock, based on a 12-month share price target forecast of Swiss francs (Swfr) 23 (€21), representing an upside of 36% compared to its closing price of Swfr16.94 on 14 January. That is a gutsy call in today’s market environment. Apparently, the lower oil price is net positive for Clariant (negative for its oil and mining services business but highly positive for its raw material cost bill). Bader then went on to discuss the glucamide product launch, which is the company’s largest launch over the next five years for applications in Personal Care, Industrial & Homecare, Crop Solutions and Oil Services. Again, without commenting on the share price analysis, I have to agree with the overall sentiment on this company and its activities in consumer products and specialty surfactants in particular. Kudos to Baader Bank for digging in this deep (and to ICIS for reporting it).
We had some discussion in our LinkedIn Group about Sadara last month and some reasonable questions as to whether the economic situation in Saudi Arabia might impact the timing or scope of the project. Around mid January, the company announced that. it will continue to start up the rest of its new plants throughout the year in 2016. According to the statement, Sadara will continue to focus on producing high-value speciality products for its customers. The 26 manufacturing assets at the Sadara site in Jubai are scheduled for a sequenced start-up process, beginning with polyolefins followed by ethylene oxide/propylene oxide (EO/PO) and their derivatives, with the polyurethanes (PU) portfolio in the final phase. In December, Sadara announced it started up a linear low density polyethylene (LLDPE) plant at its Jubail complex in Saudi Arabia. So, let’s continue to watch. The last time Sadara spoke at one of my conferences was in Berlin in 2014. Maybe time for an update this coming year?
Ethylene oxide (EO) contract prices in the US for December declined by 3.9% from November because of a 9.6% drop in the feedstock ethylene contract price, ICIS assessed. EO contract prices were assessed at 49.60-59.10 cents/lb ($1,093-1,303/tonne) FOB, down 2.20 cents/lb from 51.80-61.30 cents/lb FOB in November. Like ethylene, EO contract prices settle at the beginning of the month for the previous month. EO supply is returning, according to ICIS, as some producers are back online and production issues are being resolved. EO supply was tight because of plant turnarounds in September and because of recent production issues due to unexpected plant outages (Forces Majeure!) in late October.
The following headline caught my eye recently: SOUTH GERMANY CHEMS FACE HIGH POWER PRICES. Apparently, chemical and other industrial producers in southern Germany could end up paying much more for electricity than firms in the country’s northern states, according to a report by German chemical producers’ trade group VCI. The disparity could emerge from 2022, when the country is due to take its last nuclear power plant off line. In order to guarantee sufficient supplies of wind energy from the north to the south after the nuclear exit, new power supply infrastructure has to be put in place. Two thoughts come to mind. First, as I look at Ludwigshafen on the map, it seems to me that it is in the Southern half of Germany. Is this indeed how it is considered? If so, this is a serious matter for BASF, the chemical industry as a whole and the entire German industrial base. Second, I have just started watching on Netflix a series made in Norway, called “Occupied”. Power distribution in Europe is an underlying catalyst of this political thriller. Set in the very near future, it is thought provoking and worth checking out.
Our favourite Polish bio-surfactant company announced in January that it has finished construction of its first bio-surfactant plant. Boruta-Zachem has completed the construction of the plant in Bydgoszcz (pronounced “Bid-Gosh”, according to someone who has been there), northern Poland. The company has not yet given an annual production target for the installation, but it has signed a contract for the sale of the first six months of output – estimated at 100 tonnes – to an undisclosed buyer in the United Arab Emirates. The cost of the plant, as well as a research and development unit, amounted to zloty (Zl) 33.4m (€7.8m), with Zl 19.4m of the financing drawn from the state’s Polish Agency for Enterprise Development. The firm plans to produce its bio version of surfactants from rapeseed. There is extensive rapeseed cultivation around Bydgoszcz. As I think I observed before 7.8 M Euros is a lot of Capex for a 100 MT/yr plant, especially if it makes surfactants. Let’s say you were happy to achieve a 10 year payback on the investment (which no-one is), you would have to clear a 78 Euro per Kg margin on your surfactant. Clearly not possible. This means, of course, not that Boruta is a vanity project, but that it is a pilot plant. The economics of this as a pilot plant are perfectly in line with industry norms. We look forward to continued news out of Bydgoszcz on further scale-up and of course I reiterate my prior offer of a bottle superior Scotch for whoever can provide to the blog verified proof of the mystery buyer’s identity.
Here’s another company that I am pretty sure we have never mentioned on the blog: Bertschi. The Swiss logistics firm was profiled recently in ICIS. A surfactant related snipped included a S$20m investment in Singapore for a new dangerous goods warehouse, which is expected to be completed in the second half of 2017 and will serve the specialty chemical producers along the ‘ethylene oxide corridor’ on Jurong Island.
As we count down to the Superbowl (Feb 7) and the premier of the new Henkel Persil ad, Henkel announced its new CEO as of May 1, Hans Van Bylen. Van Bylen, currently responsible for Henkel’s beauty care business, will succeed Kasper Rorsted, who is leaving after eight years as CEO. By the way, Rorsted is moving to head up Adidas (another UK childhood mega-brand; no-one had heard of Nike back – OK I exaggerate little). But how come Rorsted left Henkel, with 2 years left on his contract to join the smaller Adidas? Challenge maybe, money obviously but probably not only. In any event, Bloomberg seems to think Henkel’s loss is Adidas’ gain. I don’t know, honestly. I get the impression that the bench is deep enough at Henkel that the transition will not be felt as a loss at all.
Finally on a somewhat lighter note, as Persil is clearly now a US mega-brand, is it too late to agree on pronunciation? Where I come from, Persil is pronounced with the emphasis on the first syllable (it’s Purr sul) right? By the way it’s “A deed as” for those footy boots OK?
If I don't see you before, see you all in May!