Surfactants Monthly Review
March 2016 – Of Kardashians and Canaries
This month’s blog posting, is brief primarily due to a heavy travel schedule during April. As many blog readers and conference attendees know, I am fond of working pop culture references into my analyses of the surfactant industry. For that reason, I was most impressed by the question raised in a recent issue of ICIS Chemical Business, i.e. “Could BPA be the Kim Kardashian of Petrochemicals”, referencing the controversy that rages whenever BPA (bis-Phenol A) is mentioned in polite company.
Attendees at 2015’s World Surfactant Conference in NYC will recall our discussion of certain members of the hip-hop fraternity and conclusion that Solvay could well be the “Kanye West of the Surfactant Industry”. West, of course as notorious for being married to Ms. Kardashian as he is for borrowing riffs and hooks from the pop music pantheon for his own work. Solvay was quite happy with this light hearted metaphor until earlier this year, when West got into some financial difficulties as a result of, let’s say, debt to various private and public entities. Solvay let me know, with surprising speed thereafter, that they carry very prudent levels of leverage. Point taken and now you know too! So at our next conference, coming up in NYC, I will be looking more deeply at some musical analogies that could be applied to our industry. However, I will stick to recently departed members of the music scene, whose history is already written and, hopefully, fixed in place.
Evonik’s CEO, Klaus Engel was interviewed by ICIS at the beginning of the month. He noted that the company will consider carefully any mergers and acquisitions (M&A) although the firm is not of the “adventurous type” and despite easy financing that can be obtained in “crazy times” it will not hasten any transaction. Such refreshing honesty and conservatism was of course followed by the market’s reaction of “no good deed goes unpunished”. Following the presentation of its annual results earlier in the day, the firms shares fell 12.75% in value by 09:30 GMT. Regarding potential M&A, Engel said despite something “going on in the chemical world” regarding consolidation he would not focus on “great headlines” and defined the global business community as “reluctant” to invest. “In times which are a bit crazy, it is quite easy to obtain finance [for M&A], but the question is what’s the price [of potential acquisition], and [there has been] nothing spectacular going on in the last two years. We are not of the adventurous type, we are quite critical and prudent to see what makes sense and creates value,” he added. Evonik is of course a substantial presence in specialty surfactants going back many decades to the old Goldschmidt amphoteric surfactants. More recently they have been very active in the field of sophorolipids and we’ll hear more about this first hand at the upcoming bio-surfactant seminar in Jersey City, in front of our 6th ICIS World Surfactant Conference.
More on Evonik: Air Products is reported to be in advanced talks to sell its chemicals spin-off to Evonik in a deal that could be worth $3.5bn. The companies are in “exclusive talks” according to the Wall Street Journal. Air Products is on course to split into two companies in September this year with a tax-free spin-off of its materials technologies business. That produces polyurethane catalysts and other additives for polyurethane foams; epoxy amine curing agents and other products for epoxy systems; specialty surfactants for formulated systems; and functional additives for industrial cleaning and mining in a performance materials division. The business also sells products used to make silicon and compound semiconductors and thin film transistor liquid crystal displays in an electronic materials division which is not expected to be acquired by Evonik.
Some interesting news on the EO front from ICIS: China’s ethylene oxide (EO) prices rose at the beginning of the month on tightening supply and cracker maintenance, and rising ethylene prices. Domestic Chinese EO prices increased by yuan (CNY) 300/tonne ($46/tonne) during the week ended 2 March to CNY7,200/tonne EXWH. Other ICIS analysis showed that Ethylene prices in Asia are underpinned by a dwindling pool of supply and rising import demand from Japan, Korea and Indonesia. Meanwhile, in China, Sinopec’s Maoming Petrochemical has shut its 360,000 tonne/year cracker in Guangdong from 1 March, with maintenance to end on 6 April.
Exemplifying the general tightness, China’s Sanjiang Fine Chemicals shut a 60,000 tonne/year EO line in Zhejiang province as a result of insufficient feedstock ethylene. The line in Jiaxing went down ahead of a shutdown at its upstream unit methanol-to-olefin (MTO) plant at the site. The MTO plant is operated by Zhejiang Xingxing New Energy. Meanwhile, Sanjiang Fine Chemical’s 380,000 tonne/year EO/monoethylene glycol (MEG) swing plant and two 200,000 tonne/year EO lines have remained operational at reduced rates. Its other two 60,000 tonne/year EO lines were shut since last year because of weak economics. Zhejiang Xingxing had said on 3 March that its MTO unit, which is 75% owned by Sanjiang, was down for maintenance.
Back in the USA, ethylene oxide (EO) contract prices for February moved up by 1.5% on the back of a 4.0% increase in the feedstock ethylene contract for February. February EO contract prices were assessed at 49.60-59.10 cents/lb ($1,093-1,303/tonne) FOB, up by 0.8 cent/lb from 48.80-58.30 cents/lb FOB in January. The majority of EO contracts today are formula-based. Like ethylene, EO contracts settle at the beginning of the month for the previous month’s price. Market participants anticipate that EO supply may go tight by the end of the first quarter (Q1) on the back of a prolonged outage at Indorama’s Clear Lake, Texas plant. Demand is expected to improve as the downstream monoethylene glycol (MEG) market picks up in the spring. Spring and summer are the seasonally strong period for polyethylene terephthalate (PET).
Long term positive news for EO in the US from an ICIS interview with Croda. Their Delaware EO plant is on schedule to be commissioned in March 2017. The company announced the investment in December 2014. The plant will be at the company’s existing Atlas Point facility in New Castle, Delaware, and upon completion will be the first North American plant to produce 100% sustainable non-ionic surfactants. The company is spending approximately $170m on the facility. The project enables manufacture at Atlas Point to move away from petrochemical ethylene as a new manufacturing plant will be built on site, consuming bio-ethanol. The plant also reduces the reliance of a pipeline to feed the site with EO and risk connected to needing one. Croda was forced to close production at the ethoxylates unit it operated at Wilton, in the UK, in 2010, after Dow Chemical decided to stop output of feedstock EO at the same site.
Also in the US, Huntsman will start up its 265m lb/year (120,000 tonne/year) ethylene oxide expansion at Port Neches, Texas, in April, as reported by ICIS. The plant, which was originally located in Beaumont, Texas, and owned by MEGlobal, was taken apart and shipped to Neches, where it was reassembled. The reactor has been refurbished, and new equipment has been added. The company also reaffirmed that it has no plans to increase feedstock ethylene capacity.
The beginning of the month saw the influential Price Outlook Conference (POC) in Malaysia. During this event, prices of spot fatty alcohol cargoes were mostly stable accoriding to ICIS. C16-18 alcohol prices were stable to firm at $1,200-1,250/tonne FOB SE Asia and C16 alcohol prices were stable-to-soft at $1,200-1,250/tonne FOB SE Asia. Some POC participants mentioned a shortage of C12-14 alcohol in China with buyers in the country looking to import cargoes from Southeast Asia due to lack of domestic materials. Some Chinese producers were short on feedstock lauric oil as they did not stock up earlier when palm oil prices started on a strong uptrend. In addition, some Chinese buyers, which have been operating on lean inventory, did not restock before the Lunar New Year period on anticipation of price correction after the festive holidays. As a result, there was a noticeable uptick in demand as the buyers resume their production operations.
In line with alcohol trends, Asia’s spot alcohol ethoxylates (FAE) price stabilised in the first week of March. As ICIS reported, selling indications from various producers were heard at $1,160-1,180/tonne CIF SE Asia and $1,250-1,270/tonne CIF SE Asia. In China, selling indications were at $1,250-1,270/tonne CIF China.
By mid-month in the US, feedstock pressures were pushing up sentiment around Q2 pricing for North America fatty alcohols. According to ICIS, buyers and sellers are discussing alcohol price increases of 10-18 cents/lb ($220-397/tonne), with settlements said to have taken place within this spread over the last several negotiating weeks. First-quarter C12-15 fatty alcohol contracts were assessed at 53-62 cents/lb, bulk delivered, dropping only 1 cent/lb on the high side from the fourth-quarter assessment. PKO prices rose from about $800/tonne in December to over $1,100/tonne in March, and that is what is pushing prices up. Supply is also a driver, pushing up offers on mid-cut alcohols, as ample inventories in Asia are moderating because producers are throttling back on utilisation rates.
In Europe, by contrast, more of a trader mentality prevails. According to ICIS, European fatty alcohol consumers are holding off from settling second-quarter contracts in the hope that feedstock palm kernel oil prices will decrease. PKO prices have increased substantially since late February, posting weekly gains totalling $404/tonne, and buyers do not disagree that some degree of increase to fatty alcohol prices are in order. However, many buyers consider the PKO increases to be largely the result of trader speculation, and not genuine market fundamentals. As such, consumers do not believe the PKO increases should be fully reflected. Furthermore, they believe that, because the inflated PKO prices have been pushed up by traders, they can also be pushed down again, and so are waiting for a turn in the market before settling alcohol contracts under lower feedstock costs. A producer insisted that the high prices are the result of tightness in the PKO market and that decreases in the near term are unlikely. It believes that consumers playing the waiting game will soon be forced into action by the need to resupply, but thought it likely that buyers would then only secure volumes for a shorter time period, say one month rather than the whole quarter, unless of course PKO have indeed decreased by that point. One buyer conceded that upcoming maintenance turnarounds at European plants may indeed shorten supply and justify higher prices to some extent, and also that PKO price may be partly based on supply and demand in Asia, but remained adamant that alcohol prices offered by sellers are unacceptable. One producer said current PKO values should, in theory, result in mid-cut fatty alcohol prices of €1,900/tonne, although it accepts that such a drastic increase will not be accepted. Instead it is proposing prices in the region €1,770-1,800/tonne. The producer said a buyer’s suggestion of €1,500/tonne would result in its plant being closed down. Contract prices for the first quarter are €1,100-1,250/tonne FD northwest Europe
No surprisingly, in the aforementioned POC, there was steady talk of doom and gloom for the markets. Oleochemicals prices in Asia should continue to face strong downward pressure due to overcapacity and weakening demand, according to a number of commentators. Crude palm oil (CPO) is expected to trade at around $550-600/tonne this year, while palm kernel oil (PKO) is forecast to be locked in the $950-1,000/tonne range this year, as palm yield in Indonesia and Malaysia will be affected by environmental factors, according toThomas Mielke, of consultancy firm ISTA .Organic demand growth for oleochemicals was almost static last year as a result of more efficient detergents and slower adoption of natural products, according to UR Unnithan of Carotino. Fatty alcohols will continue to face strong pressure from competitively-priced synthetic materials in certain regions.
Back in 2014, we reported on PCC of Poland’s venture in the Philippines to make fatty alcohols. This will now be dissolved, according to reports by ICIS. PCC Exol Philippines, located in Batangas on the northern Filipino island of Luzon, will cease operations as of the end of this month. At the end of February 2014, the subsidiary entered into a $26.5m agreement with United Coconut Chemicals which, under a 10-year lease, gave it access to production facilities. The cost of the deal included required capital expenditure. The agreement was, however, struck on the proviso that certain conditions were met before production could commence. Those conditions were not realised and thus the Polish company is to withdraw from the Philippines, PCC Exol told ICIS. It did not specify what the conditions were. The purpose of the enterprise was to produce intermediates such as fatty alcohols and fatty acids. PCC Exol, a producer of surfactants, said the demise of the project would not have a significant impact on its financial situation.
At the end of the long article in ICIS Chemical Business on the ethylene expansions due in North America, it mentioned that in February, Shell announced it made a final investment decision at the end of 2015 to build a fourth alphaolefins (AO) unit at Geismar, Louisiana, with 425,000 tonnes/year of capacity, bringing total capacity there to 1.3m tonnes/year and making it the largest AO producer in the world. Shell also produces AO in Stanlow, UK, at a plant operated by Essar Oil. We remain fascinated by alpha olefins as surfactant feedstocks and so we will hear more abot this oft-neglected building block at the 6th ICIS World Surfactant Conference on May 12 – 13th in NYC.
The low price of oil in recent 18 months has caused a slow-down in some of the downstream investments planned in the US. There are six new ethane crackers under construction in the US – by Chevron Phillips Chemical, Dow Chemical, ExxonMobil Chemical, Formosa Plastics, Occidental Chemical/Mexichem and Sasol. All the crackers have start-up dates in 2017, with the exception of Sasol, which will start in 2018. However, certain derivative units could be delayed, bringing into question the timing of the cracker operations that are meant to feed into downstream production. Sasol’s new 1.5m tonne/year cracker and polyethylene (PE) units in Lake Charles, Louisiana, US, are still expected to start up in 2018, while production at smaller derivative units will be delayed until 2019, a spokesperson said on 14 March. “We expect the ethane cracker, LDPE (low density PE) and LLDPE (linear low density PE) to come online during 2018,” said a Sasol spokesperson. “Our view is that beneficial operation of some smaller derivative units will move into calendar year 2019.” Sasol’s $8.1bn project includes units that can produce 450,000 tonnes/year of LDPE; 450,000 tonnes/year of LLDPE; 300,000 tonnes/year of EO/EG (ethylene oxide/ethylene glycol); and 300,000 tonnes/year of ethoxylates and detergent alcohols. On 7 March, Sasol noted that work on some of derivatives units at the complex may be slowed in light of the uncertain economic environment, and may not be completed until 2019. Sasol did not disclose which units are likely to be delayed. On 14 March, the spokesperson reiterated that a detailed review of the project cost and schedule is underway and likely to be completed by mid-2016, by which time more details would be provided.
A large distributor of surfactants in North America, Nexeo Solutions is merging with WL Ross Holding in a deal valued at nearly $1.6bn. The new company will be publicly traded on the NASDAQ. WL Ross will buy Nexeo for about $1.3m in cash and 35m shares of its common stock, and plans to change its name to Nexeo Solutions after the merger. Global alternative asset firm TPG, the current majority owner of Nexeo, expects to retain an approximately 35% stake in the new company.
Finally, in personnel news, Huntsman’s Performance Proudcts Division (the part which houses surfactants and feedstocks) got a new head, Monte Edlund, in July. In an interview with ICIS, he said he wanted to increase EBITDA at the divisions 17 plants and increase efficiency. No surprises there. They will also decrease the number of projects in order to focus better, and (uh-oh suppliers..) lower the divisions working capital needs. Interestingly, at the AFPM breakfast, Peter Huntsman focused a lot on working capital demands and the strains introduced by extended payment terms forced onto Huntsman by large customers and putting Huntsman into the unwanted position of being a bank for these customers. I think we all have been on either or both sides of this equation in our time in this industry. On the face of it this seems like, at best, a zero sum game and, at worst, a game where the weakest members of the supply chain are forced to borrow at the most unfavorable terms, often from those same customers who are stretching out the payables (i.e. the dreaded 2% Net 10). By the way, I see this happening in society at large, with the lovely check-cashing shops, but that is another philosophical debate. How come now, when interest rates are historically low, this is an issue? It is clearly something looming large at Huntsman, and therefore one must assume at many other chemical companies. Peter is always clear to note that these are his personal opinions but they would not be his opinions if he were, let’s say, a hip-hop artist and not CEO of a large chemical company. Maybe banks are just not as inclined to lend today, whatever the interest rate? Perhaps this is a canary in the credit coal mine? Readers, please opine if you like.