Surfactants Monthly Review – May 2106
The Greatest of All Times Lands a Solid Right
May’s highlight for me was, of course our 6th ICIS Surfactant Conference in New York. I will make some observations about that in a separate post. If you missed New York, we are going to be in Berlin, September 15th and 16th for our European Conference. Speakers include L’Oreal, McBride, Reckitt Benckiser, Fair Trade (yes that one; talking sustainable coconut derivatives), Dow, Farabi and Nexant among many others. We will have a return exclusive talk from Modular Genetics whose platform could, just possibly, up-end our industry (and that’s not my hype, that’s Unilever talking – at our recent seminar in May). We’ll also be presenting the exclusive analysis of the 2nd annual surfactant value chain survey. We’re at a new venue, the Intercontinental and I am assured that the space will sell out fast. Please register while you’re thinking about it now. End of commercial.
Now onto the news. If you like what you read here, it is mostly provided courtesy of ICIS and so for real-time feeds across all markets, you should subscribe at www.icis.com. Yes, I’m a real user, not a paid endorser!
If you care about surfactants, you care about what’s going on at P&G. In May, P&G launched Tide Purclean. It’s 65% bio-based, USDA certified, works in cold water and both HE and regular machines. Huge branding move and clearly an endorsement that, in P&G’s mind at least, the mass market is there for this type of product. Honestly, what first went through my mind when I saw the product was “Purex, Persil, Purclean..” and sure enough Dial (a unit of Henkel) has started legal action to deny the use of the Purclean mark by P&G and filed an application for an injunction to stop P&G’s launch. Apparently Dial has been using “Pureclean” on its Purex packaging for some years already. Also, the USPTO apparently in February, bounced back P&G’s trademark application as being confusingly similar to Dial’s trademark "Pureclean. Purevalue. Purex". The term “phonetically identical” was also used. As we can see, P&G has gone ahead anyway with a direct punch straight to the chin of it’s huge global competitor Henkel. Clean fight? Can’t say, but I have to admit to some admiration for whoever at P&G, looked over all the legal analysis (and you have to believe there was mountains of it all couched in “worry-wart” legalese) and said …”the heck.. let’s launch..!” Not since the late great Muhammad Ali knocked out German heavyweight, Jurgen Blin in 1971 has such an attack been attempted.
So why did P&G do it? It’s more than bravado. Here’s what I think. The last thing that P&G wants for this brand extension is to cannibalise the mother-ship, Tide, brand. The heavyweight champ looks around and sees Purex with around a 12.5% share vs Tide’s 28% or so. If they can land a solid punch there and peel off a few percentage points while encouraging shoppers to trade up in price for the sake of bio-renewability, then great, why not? So, what is Henkel to do? Well of course, they have to sue, which they have done. But P&G is no stranger to the inside of a courtroom when trademark litigation is concerned – although they are usually on the other side. My advice would be, maybe consider something other than boxing. When Ali comes at you with a right to the side of the head, you’re probably not going to outbox the greatest of all times! Maybe Henkel has to emphasize the original and genuine “Pureclean” and that if P&G’s customer’s would like to save some money to boot, well – come on down. Time for a little judo down on the mat in my price sensitive world and get Ali out of the boxing ring if you can.
In the North American EO market, there has been a lot of talk about tightness, especially at our conference. Early May, Huntsman announced that it plans to bring down its ethylene oxide/ethylene glycol (EO/EG) plant in Port Neches, Texas, US for a major maintenance in the first quarter of 2017. The maintenance, carried out once every four years, is expected last for about two months. So, you’ve had plenty of warning but perhaps there’s not too much you can do about it once your storage tank(s) are full.
Meanwhile in European EO, INEOS Oxide has shut its ethylene oxide (EO) and ethylene glycol (EG) unit in Antwerp, Belgium, for routine maintenance. The timeframe for a shutdown is typically about a month but the company is not predicting when the unit will be back up. INEOS Oxide in Antwerp has a total nameplate capacity of 420,000 tonnes/year EO and 290,000 tonnes/year EG.
Asian EO derivatives seem stable. China’s fatty alcohol ethoxylates (FAE) deals and discussion levels were largely stable at the start of May. Northeast Asia-origin cargoes changed hands at $1,400/tonne CIF (cost, insurance and freight) China. Prevailing discussions for southeast Asia-origin cargoes were at $1,500/tonne CIF China. Drummed cargo prices were at $1,400-1,500/tonne CIF China in the week ended 27 April, according to ICIS data. Market players attributed the flat discussion levels to stable upstream ethylene oxide and fatty alcohol markets.
The AFPM publishes quarterly North American EO production data and we dutifully note it here. First-quarter production of US ethylene oxide (EO) rose by 10% year on year. EO production was down slightly quarter on quarter, with a 0.6% decrease in Q1 2016 from Q4 2015. An unexpected reactor issue at Indorama Ventures’ Clear Lake, Texas, plant during a scheduled turnaround in January delayed restart until early April. During Q1, Indorama implemented a force majeure on its purified EO and monoethylene glycol (MEG). The force majeure was lifted in mid-April.
More earnings news from Oxiteno. Despite woeful economic and social conditions in Brazil and just terrible news coming out of that country, Oxiteno posted some decent numbers. They reported a first-quarter operating income of reais (R)160.3m ($46.5m), up 45% from R110.7m reported for the same time last year because “sales rose faster than costs” (yup that’ll do it). First-quarter revenue at R1.00bn, was up 18% from R853m in the same period last year. Revenue increased because of higher sales volumes and a weaker real. These trends were partially offset by the weak Brazilian economy and commodities making up a greater mix of the company's sales volumes. During the quarter, Oxiteno sold 147,000 tonnes of specialty chemicals, down from 155,000 tonnes during the same time last year. It sold 35,000 tonnes of glycols, up from 20,000 tonnes during Q1 2015. Oxiteno attributed the increase in glycol sales to lower raw-material costs. If sales are divided by geographic region, Oxiteno sold 128,000 tonnes in Brazil, compared with 127,000 tonnes during the same time last year. It sold 54,000 tonnes outside of Brazil, compared with 48,000 tonnes in Q1 2015. Cost of sales were R696.2m, up 16% from R602.2m from the same time last year. In all, Q1 gross profit reached R307.8m, up 23% from R250.6m from the same time last year.
At mid-month, ICIS reported Q2 fatty alcohols prices firming up. Prices for C12-14 fatty alcohols were assessed up €400 on the low end and €450 on the high end bringing the range to €1,500-1,700/tonne FD (free delivered) NWE (northwest Europe). That’s over a 40% hike for some customers! Discussions for the third quarter, in this quaint quarterly pricing system, are expected to begin in a couple of weeks, i.e. mid-June. They’ll be done well before Europe’s holiday season though.
The speculated “Asian Invasion” of the US surfactant supply chain progresses quietly but not led, yet, by the usual palm suspects. In fact it is PTT (Thailand) who previewed an investment decision by Q1 quarter of 2017. The subsidiary, PTTGC America, is considering a 1m tonne/year ethane cracker in Dilles Bottom, Ohio. The complex will also include a high-density polyethylene (HDPE) unit and an ethylene oxide/ethylene glycol (EO/EG) unit. PTTGC America is among two companies that are considering integrated PE complexes in northeastern US. Shell may also build one in Monaca, Pennsylvania.
After touting it’s conservative acquisition strategy in recent months and also touting it’s commitment to surfactants via two speakers at our conference in New York, Evonik made a $3.8Bn purchase of Air Products performance chemicals business (including the old Tomah surfactants business). The deal was priced at 15.8 X EBITDA (whew!). However, when Evonik’s expected “savings and synergies” (i.e. good old-fashioned job cuts and some real estate sales) are applied, the multiple would come down to 10.5 X, according to Baader Bank’s analysis. Mayer. Taking a parochial surfactant view, I would say that this is a great home for the surfactants business and can only imagine Evonik will continue to invest in this area for specialties growth – so congrats to all our friends in Milton, WI and Reserve, LA. !
An excellent article in ICIS profiled the Asian LAB market. Here are a couple of snippets. South Asia remains a key engine of growth in Asia’s 1.6m tonnes/year linear alkyl benzene (LAB) market, as demand in India alone is projected to hit more than 600,000 tonnes/year by 2017, representing nearly 38% of Asia’s market share and a 5% improvement from 2015. The comparatively low CFR India prices for LAB do not gel with rosy prospects for demand. Indeed, India is expected to consume increasingly more LAB. Current consumption stands at around 550,000 tonnes/year and is expected to grow by at least 5% per annum, according to projections from the Chemical and Petrochemical Manufacturers’ Association of India. As there are no signs of any near-term expansion in India’s domestic LAB production capacity, market players believe that the country’s reliance on imports will, therefore, only continue to climb uphill too. India has a total installed LAB capacity of 530,000 tonnes/year, but the total functioning capacity only tops 470,000 tonnes/year. A Reliance Industries Limited (RIL)-owned 60,000 tonne/year line in Vadodara, Gujarat, has been shut since March 2015. Built in the late 1980s, this facility was taken off-line mainly due to wear and tear, and industry sources said that there are no signs that it will be restarted anytime soon. Actual output from the four major Indian producers will, thus, be, at best, only 460,000 tonnes/year, assuming that all plants operate at full rates around the year. The influx of competitively-priced cargoes from a whole array of foreign suppliers seeking new outlets in India has weighed down import prices. LAB is severely over-supplied in Asia. Although Asia collectively consumes at least 1.6m tonnes of LAB each year, the total nameplate capacities across the region – from South Korea, China, to southeast Asia, India and the Middle East – topped at least 2.64m tonnes/year as of end-April 2016, based on ICIS data. This includes the 100,000 tonne/year facility in Thailand that came on-stream in March 2016. Some Chinese producers had cut back on production rates to minimize surplus. For instance, two major producers, namely the Nanjing-based Jin Tung Petrochemicals Co and the Liaoning-based Fushun Petrochemicals Co are each running only two of their three production lines. Between them, about 180,000 tonnes/year of production capacity is currently idle. Even so, Asian producers still need to find outlets to stomach an estimated excess output of 800,000 tonnes/year. This is increasingly challenging, especially since domestic demand for LAB in many matured northeast/southeast Asian and Middle Eastern economies seems to have plateaued, with limited room for growth. For a first hand view of the LAB market from a major and relatively new player, be sure to attend our 5th ICIS European Surfactant Conference in Berlin, September 15 – 16th.
Stepan continued its mission to improve asset utilization and thus profitability. It announced its intent to close the surfactants plant in Longford Mills, Ontario, by the end of the year. The company previously announced the discontinuation of ethoxylation production at the site during the first quarter of 2016.
Our good friends and parent company of Surfachem, 2M Holdings, expects to file for an initial public offering (IPO) in October 2017, as long as acquisitions do not increase their debt load. The group wants to list on the UK’s AIM market for smaller companies, which has a lighter regulatory touch. 2M’s long-term targets are based on the size of the global distribution market. If it floats with 25% stake on day one – assuming October 2017 – then within seven years sales could reach £1bn. Kessler aims to dilute the free float, with the proceeds used for acquisitions, to no less than 25% (the level required to prevent takeover bids) during that period. The company seeks opportunities now in continental Europe whilst in the mid-term it could target the US.
Further force majeure problems in EO in Europe: May 23rd, Shell declared force majeure on a number of products out of the Moerdijk ethylene oxide (EO) and derivatives unit in the Netherlands. The fm sent ripples through the European EO and downstream ethylene glycol (EG) markets. The market has been further disrupted by, surprise, strikes in France (well it is that pre-holiday Summer season, after all). Speaking of that Summer pastime as French as garlic and red wine, the strikes caused INEOS’ EOD plant to shut down due to a lack of upstream ethylene from the Lavera platform which is downdue to the strike. Adding to the pressure, and I am not making this up, was a planned rail strike for the last week in May in Belgium. INEOS Oxide’s Antwerp site in Belgium is in the process of restarting over the weekend of 28-29 May, after a month-long turnaround. Aah Europe, I still have a soft spot for that continent in which I was born, but really, after all you’ve been through this past year, this is what you do? I do really have a deep sympathy for the Brexit supporters.
Despite the turmoil in Europe, I was so pleased to read that sanity has broken out in the UK as Shale gas operations have been approved in Yorkshire. Exploration and potential extraction of shale gas in the UK’s northern region of Yorkshire will be done safely and hazardous products which “might have been used in the US will not apply in England” (ok fine, we get the obligatory dig at those fraccing cowboys), said Peter Sowray, councillor at North Yorkshire County Council. Sowray is also chairman of the planning committee which on 23 May approved the permit for Third Energy’s application. As I said, Brexit is looking very sensible.
Right at the end of the month the ACI announced the retirement of Ernie Rosenberg after more than 16 years as CEO of the great trade group. Kudos to Ernie for a great record in our industry and good luck to ACI in filling those shoes. I have every confidence that Tom O’Brien and the rest of the ACI board will dig in and find the very best person to carry on where Ernie leaves off.
I know it seems like I shill a bit too much for the ICIS news team, but in a masterful piece of investigative journalism, Al Greenwood exposed the sorry state of the government run Mexican chemical industry, with a story on Pemex. Apparently, Mexican production of ethane is falling right when demand is increasing with the start-up of Braskem Idesa's Ethylene XXI cracker. Mexican state energy company Pemex is the sole producer of ethane and other natural gas liquids (NGLs) in the country. NGLs production has been declining for years, according to a review of Pemex's quarterly earnings statements. It stood at 306,000 bbl/day in the first quarter of 2016, down 21% from 388,000 bbl/day in Q1 2010. Production could decline further because of the large spending cuts being adopted by Pemex. Given the prospects for further declines in oil and gas production by Pemex, Pemex may be unable to produce enough ethane to run all of its crackers at full capacity – especially with Braskem Idesa ramping up production. Any further declines in ethane production will curb ethylene production, and that will trickle down to a host of ethylene derivatives produced in Mexico including EO. Read the whole story at ICIS. It is cautionary tale of Venezuela-style mismanagement of a commercial supply chain by government jobsworths. So sad. And unnecessary.
That’s it for May. I’ll see some of you at the WPC in a couple of weeks and then at NEPIC’s meet the members event in June. But if you really like what you read here, you need to be in Berlin in September for our 5th and greatest, European Surfactants Conference.
All the best,