Surfactants Outlook – 2014
For the first time, we have been persuaded to put forward an “Outlook” for surfactants in the coming year. All projections and predictions are, by definition, wrong as soon as they are made. What I provide here are some ideas about what could happen that I recommend you bear in mind as you plan and execute your business in the next 12 months. In some cases, I have been vague about the identity of companies that are mentioned. If you read closely enough and you are in the business already, you will likely guess who I am talking about. This post contains absolutely no confidential or inside information; just reading the tea-leaves, joining the dots and admittedly adding 2 and 2 to get 5. If you’d like to call me out in person for something I say here, I will see you at our 4th ICIS World Surfactants Conference in NYC, May 15 – 16th, 2014. You will also have an opportunity there to spend time face-to- face with practitioners far more expert than I am in their surfactants fields.
First the easy one: Huntsman will sell its European surfactant business, comprising sulfonation and ethoxylation plants. This has been announced and that is why it is an easy prediction. They will take the money and invest it in something that makes them a better return than what a non-integrated converter makes in an over-supplied commodity market when they are not a low cost producer. Who will buy the business? Clearly the opposite of Huntsman; that is a vertically integrated manufacturer that has a credible claim on being a low cost producer. There are a handful of them around and most are HQ’d in Southeast Asia. I won’t name the company I favor, but you know them already. Furthermore, the next steps for this company are further downstream and further West. Companies like Huntsman will therefore play to their strengths, which are to be found, in the case of Huntsman, on the US Gulf Coast, plugged firmly into an advantaged ethylene supply.
Here’s another easy one: The last of the major non-pipeline supplied ethoxylators in North America will set up a pipeline integrated EO supply. Not Solvay; that has already been announced. The completion of this move will set the clock ticking on the other stragglers, although there remains money to be made on high value specialty ethoxylation even when you are slap in the middle of the country and served by a railroad that would much rather be hauling cabbage or livestock or anything other than a highly explosive gas.
One more easy one: Oil and gas Chemicals will continue to be hot. Following Ecolab’s announcement of the acquisition of Nalco in July 2011 (followed by the acquisition of Champion), their stock shot up to outperform the Dow by 3X since then. Expect additional M&A in this field (pun intended) by companies like Sealed Air (new owners of Diversey) and surfactant companies looking to de-emphasize detergents and personal; Huntsman, Stepan, Sasol and BASF spring to mind.
Other non-detergent surfactant businesses will attract surfactant companies. These markets include, food, agriculture, emulsion polymerization and industrial lubricants. Small to mid-sized companies with a strong position in these markets may find it an opportune time to sell to their larger competitors. M&A will be a key factor here as getting into these markets, is easier said than done and, regardless, takes time.
We expect at least one merger between two of the Southeast Asian plantation based companies; one of whom has a significant and growing downstream presence in surfactants. The resulting giant will be active in investment in North America, particularly in ethoxylation and maybe also sulfonation. New projects are favored, although an acquisition in the US is not out of the question.
Europe continues to attract surfactant investment and something has to give. So we will see some significant surfactant and feedstock capacity being take off-stream by at least one of the old-line surfactant manufacturers in the field. This action will at least support a somewhat improved asset utilization rate in the industry as a whole. However, gross margins will at best hold level for the year.
Big chemical companies will continue to be flush with cash and therefore keen to do deals. Much of this money will be spent in areas relating to surfactants. We expect at least 2 or 3 private companies to be acquired in each of North America and Europe. Most by companies from Asia and a large Middle-Eastern acquirer who continues to move downstream into specialties where possible.
Thanks again for indulging these speculations. One final “prediction” I can make and that is we will have an outstanding time meeting, talking and networking at the 4th ICIS World Surfactants Conference in NYC, May 15 – 16th, 2014. I’ll see you there.
Surfactants Quarterly Review Q4 – 2013
For the last quarter of 2013, I have summarized key news from the surfactants market, aided as usual by the capable global news team at ICIS. A few of the links in the review point to ICIS articles (most of these need a subscription). As always, your inputs and critiques are welcome. For more exclusive surfactant information and networking, I will see you at our 4th ICIS World Surfactants Conference in NYC, May 15 – 16th, 2014.
Just as the quarter got underway, a little snippet caught our attention. Apparently, Bolivia’s state-owned EBIH is considering to build an ethylene oxide and glycol plant as part of a larger complex costing over $2.7 Billion to be built over the next 4 years. Interesting to hear how this develops and how it may shake up the cozy EO oligopoly in Latin America.
After teasing us with the prospect of, finally, another Latin American EO supplier, Bolivia revealed details for the GTL, polyolefin and methanol complex later in the month (download the report here). Bolivia’s ministry of hydrocarbons and energy released a report detailing an ambitious petrochemical construction programme that seeks to kick-start a new era through the industrialisation of the nation’s huge natural gas reserves. Industrialisation of natural gas became a reality in May this year following the inauguration of the Rio Grande liquids separation plant in the eastern Bolivian department of Santa Cruz. The plant will process around 5.m cubic metres (mcm)/day of natural gas and produce 361 tonnes/day of liquefied petroleum gas (LPG) and 195 bbl/day of isopentane. The LPG and isopentane will be used as feedstocks to supply the petrochemical chain. A second liquids separation plant in the Gran Chaco province of Tarija department in southern Bolivia is due to come on line in the second half of 2014. The plant will process natural gas to produce ethane, propane, butane among other products. The ethane and propane will serve as feedstock for the nearby Gran Chaco petrochemical complex. The projects in the report are divided into “current” and “future”, and will be developed by state-run energy company Yacimientos Petroliferos Fiscales Bolivianos (YPFB) and Empresa Boliviana de Industrialisation de Hidrocarburos (EBIH), a subsidiary of YPFB created by the Bolivian government in 2008 to develop domestic gas-fuelled heavy industry. As noted aboce, the possibility of building an ethylene oxide (EO) and ethylene glycol (EG) plant close to the Gran Chaco liquids separation plant, with capacities of 260,000 MT/yr of monoethylene glycol (MEG), 26,000 MT/yr of diethylene glycol (DEG) and 3,000 MT/yr of triethylene glycol (TEG), is currently being studied. The plant would use ethane and LPG feedstock, and require an investment of $580m.
The big, but perhaps not surprising, news of the quarter was that Huntsman plans to restructure its surfactant business in Europe. As anyone in the market knows (or if you’ve been to one of our training courses), it is tough to make money in surfactants in Europe, especially in detergents and personal care. Huntsman, accordingly plans to get out of assets that are focused on commodities in the region and focus on specialties. The process could take until the end of this year, said Stu Monteith, president of Huntsman’s performance products division which the surfactants business falls under. Around 250 employees in its European performance products division could be affected by the changes. If the restructuring takes the form of a sale (a logical objective) then there is no shortage of candidates to buy this business, including companies with a more vertically integrated position in the supply chain than Huntsman.
Shortly after the announcement of what sounds like a “retreat” in Europe, Huntsman announced a big advance with the addition of ethylene and EO capacity in North America. Huntsman is debottlenecking its Port Neches, Texas, ethane cracker and adding about 10% more ethylene capacity to take advantage of the shale gas boom. The company also is continuing in its plans to add 25% more capacity to its ethylene oxide (EO) plant in Port Neches. According to ICIS Plants & Projects database, Huntsman’s ethane cracker has a nameplate capacity of 193,000 tonnes/year, while its EO plant has a capacity of 460,000 tonnes/year. Huntsman is a major buyer of ethylene for its EO and ethylene glycol (EG) production, and the company is still weighing whether it makes economic sense to build a new cracker for its own ethylene consumption or wait and see if the ethylene market grows long as a result of the other planned projects and thus keeps it cheap. If Huntsman decided it wanted to get in on the new cracker rush, it likely would be as a partner in a project, according to the company.
In an interesting twist to the Huntsman EO expansion plan for North America, 5 years after Hurricane Ike tore a path of destruction through southeast Texas, a structure that fell victim to the storm was officially tasked in October with helping its current owner, Huntsman, grow its EO capacity. The unit in question was originally an ethylene glycol (EG) facility in Beaumont owned by DuPont-Lyondell joint venture PD Glycol. But the plant ceased operations after Ike made landfall in September 2008, soon followed by the severe economic recession of 2009. PD Glycol decided to put the facility up for sale, and Huntsman saw an opportunity, so they purchased the EG unit, took it apart and moved it by barge a few miles down the Neches River to the company’s Port Neches facility, where the company is retooling it for EO production and integrating it into the site, which currently has two EO reactors. When the former PD Glycol unit is fully up and running by the second quarter of 2015, the facility will become the largest single-site producer of EO in North America, Huntsman said, with capacity increased by 265m lbs/year, or about 25%. Currently, about 1bn lbs/year (453,600 tonnes/year) is produced at the facility, according to the company. All of that EO will be consumed by the US-based producer to make a variety of ethylene-based derivatives such as glycols, surfactants and amines, with more than 90% of the EO used at the Port Neches facility. Huntsman is investing up to $150m (€110m) in the expansion.
At a groundbreaking ceremony for the expansion, Peter Huntsman took the opportunity to lay out his company’s vision for the EO value chain in North America in this way: According to Huntsman, transportation safety issues will lead to further expansion of Huntsman’s ethylene oxide (EO) facilities in Texas. “I would imagine 5 or 10 years from now you’re going to see a totally different EO derivatives facility being built and expanded here, I think just for transportation safety issues and so forth,” said Peter Huntsman at the site. As more EO is produced as a result of the influx of ethylene production soon to come as part of the shale gas/ethane cracker boom, more integrated facilities will be necessary to handle and move EO safely. “Ten years from now we’re going to be hard pressed to move EO out of a plant, and so you have got to have singular locations that have ethylene oxide,” Huntsman added.
In keeping with Huntsman’s integrated ethoxylation theme, in November, Solvay announced a new alkoxylation facility project for North America. Solvay will build and operate a large-scale alkoxylation unit in Pasadena, Texas, at an integrated industrial facility of LyondellBasell’s Equistar Chemicals affiliate.
Solvay will invest nearly €40m ($54m) into the unit, which is expected to be operational in 2015. Equistar will supply the ethylene oxide via pipeline. The investment follows Solvay’s announcement in April this year that it will build an on-pipe alkoxylation facility in Singapore.
In the fatty alcohol market, prices settled up by a few cents per lb at the beginning of the quarter due to expectations of tight supply. Little did the market realize what was to come as a result of the Philippines typhoon which had a later outsized effect on the lauric value chain, including detergent range alcohols.
Thus at the end of November, Asia mid-cut fatty alcohols hit one-year high due to firm PKO prices. On 27 November, C12-14 fatty alcohols were assessed at $1,650-1,880/MT (€1,221-1,391/tonne) FOB SE Asia for December loading, up by $100-180/tonne from the previous week, according to ICIS data. On 27 November, PKO prices stood at $1,057.80/MT, up by $37.56/MT from the previous week.
Another big move for Solvay was announced early in the Quarter – the acquisition of Chemlogics (an oilfield chemicals company) at a prices of $1.35bn (€999m). Chemlogics, whose US assets include three production sites with annual capacity exceeding 300,000 MT/yr, offers products and technologies which enable oilfield service players worldwide to extract oil and gas. Chemlogics previously reported last-twelve-month sales of around $500m and has 277 employees. Pricing of the deal, therefore looks quite nice for selling shareholders, including Bill Frost who came to prominence by starting Chemron and selling it to Lubrizol. Solvay said that Chemlogics’s expertise in friction reducers, non-emulsifiers and extraction technologies perfectly fit with Solvay Novecare’s know-how in surfactants, natural polymers and eco-friendly solvents
Solvay’s Novecare continued on a roll with an announcement of an acquisition of the Brazil specialty chemical assets of ERCA Quimica. The acquisition will allow Solvaty to more than double its (admittedly small) production capacity in surfactants in Brazil. The deal includes ERCA‘s Brazilian specialty chemical assets and its portfolio of agrochemicals and home and personal care products.
Sasol announced some personnel changes involving names familiar to the surfactant industry. However these are unlikely to result in any significant strategy changes in surfactants due to the very strong bench in this area at the company. Andre de Ruyter, senior group executive for global chemicals and North American operations, resigned to join South Africa-based Nampak, according to a filing by the packaging and plastics producer on the JSE. He is to serve as executive director and CEO-designate from 1 January 2014, and will take over as CEO on 1 April 2014, following the resignation of current CEO Andrew Marshall, Nampak said. De Ruyter will stepped down from Sasol as of 30 November this year. He will be succeeded by Fleetwood Grobler, current manager of Sasol’s olefins and surfactants business.
In more big news from Sasol, the company appears to be making good progress on its significant investment plans in the US, and in proving that its gas to liquids (GTL) technology works effectively. An investment decision on the Westlake, Louisiana ethane cracker is expected in the middle of next year, the company said in a late November release. The go-ahead for the first planned GTL plant at the same location is likely to be given 18 to 24 months later.
Sasol’s ORYX GTL joint venture in Qatar produced 1.5m bbls of product in the three months to the end of September. That is an average 101% of design capacity. The plant is expected to operate at 90% on average in the current Sasol 2014 financial year. Sasol wants to invest more than $21bn in Louisiana in the US on chemicals and GTL plants, taking advantage of the increased availability of natural gas and ethane from shale. This is a huge bet on shale and the US market for the world’s largest synthetic fuels producer. The investments represent around 73% of Sasol’s current market capitalisation. Sasol is fracking in Canada but production is constrained because of low natural gas prices. It is making fastest progress on the 1.5m tonne/year, $5bn-7bn ethane cracker and downstream projects. Downstream from the cracker, Sasol will make LLDPE, low density polyethylene (LDPE), ethylene oxide (EO), mono-ethylene glycol (MEG) and Ziegler and Guerbet detergent alcohols. Contracts for basic engineering packages and services and for various technologies on the cracker and the planned downstream production units have been agreed. Front-end engineering (FEED) is underway for both the cracker and the GTL plant in the US. Fluor is the main FEED contractor for the cracker. Worley Parsons will manage the project alongside Sasol’s own people. Separately, a 100,000 MT/yr ethylene tetramerisation unit at its production site in Lake Charles, Louisiana is being commissioned. The project in on budget and schedule, Sasol said. This is the world’s first commercial unit using proprietary Sasol technology to convert ethylene to 1-octene and 1-hexene, both important co-monomers for linear low density polyethylene (LLDPE). The plant will be part of the company’s olefins & surfactants (O&S) reporting group. The US investments have the potential to underpin profitability in olefins & surfactants and in polymers for the group. Sasol’s US operations currently are the company’s cost leaders in chemicals benefitting from low US ethane prices. This is certainly true in Olefins & Surfactants (O&S) where the European businesses are under pressure from reduced volumes and lower margins.
Stepan continued its steady march forward with Q3 net income announced up slightly on higher polymers profits. Stepan said that its net profit for the third quarter of 2013 had increased by 1% year on year, to $20.4m (€14.9m). Net sales for the period increased by 8% year on year to $475.5m as a result of improved sales volumes, particularly in North America, where volumes increased by 2% compared to the same period a year earlier. Demand for agricultural products continued to increase globally, while sales of functional surfactants used in oilfields declined, the company added. “Despite the challenging operating environment, we delivered improved earnings,” said CEO Quinn Stepan. “Our businesses delivered volume growth and we continue to invest strategically for future global growth,” he added. Gross profit grew by $3m year on year to $74.3m, as lower surfactants profits were offset by a 30% increase in performance of the polymers division, driven by sales growth in Europe and a $3.7m business interruption insurance recovery related to a 2011 fire at a plant in Germany. Total third-quarter gross profit for the polymers division was $26.6m, while surfactant division gross profit fell by 2% year on year to $45m, and specialty products gross profit dropped 33% to $3.8m due to lower margins, the company added. Quinn Stepan said that the slow start to the year made achieving its planned full-year earnings growth “difficult”, adding that the realisation of acquisitions and capacity expansions are expected to buoy 2014 performance. He said: “We delivered slightly improved results in the third quarter, and we remain optimistic about our long-term growth. “The slow start to the year has made achieving full year earnings growth difficult, but we continue to pursue investments that will accelerate our growth. In 2014 we will realise the benefits of our recent acquisition and other capacity expansions,” he added.
With respect to investments: “We will look to make additional investments in Latin America to support the projected growth that we see in that market,” said Quinn Stepan during the same earnings call. Stepan did not elaborate on what those investments could be.
Earlier this year, Stepan said his company was looking to further expand its surfactants production capacity in Brazil, adding that the producer might build a second plant there or expand its existing facility at Vespasiano, near Belo Horizonte. The CEO also said it is not just the surfactant market that continues to grow but also the agricultural and oil field markets for which Stepan produces chemicals.
As follow-up to a prior announcement Evonik started up their 80,000 MT/yr surfactants facility in China at the end of October. The facility is located in the Shanghai Chemical Industry Park (SCIP) and its investment volume was in the “upper two-digit million Euro range”, the company said in a statement but did not specify the exact amount.
Over to China where the EO tidal wave just keeps coming as Oxiranchem announced that it looks to its Yangzhou EO plant start-up in July 2014. The plant has 200,000 MT/yr ethylene oxide (EO) capacity. The company is also looking at building another line with a similar capacity at the same site but this has yet to be confirmed, the source said. Oxiranchem is expected to import the bulk of its ethylene requirements next year although the company is looking to source the raw material domestically as well, the source said, without providing details.
In more China EO tidal wave news: China’s Fujian Refining & Petrochemical (FREP) has started construction of an ethylene oxide (EO)/ethylene glycol (EG) plant at Quanzhou in Fujian province in late October. The unit will have an EO capacity of 180,000 MT/yrand an EG capacity of 400,000 MT/yr, Sinopec said in an online newsletter.The plant, located at Quangang Petrochemical Industrial Park, will be operational in November 2014. FREP is a joint venture between Sinopec, Saudi Aramco and Exxon Mobil.
More from China, this time in oil-soluble surfactants, Chemtura started commercial operation at the Nantong facility for the production of lubricant additives including sulfonate grease. The building of a high-performing lubricant production plant, the second phase of the facility, will be completed in the middle of 2014, and the third phase which can produce urethanes is expected to be completed in 2015. Chemtura began construction of the Nantong facility in March 2012. Total investments for the three phases were $100m (€73m).
In Latin America, Brazil’s Ultrapar Q3 net income was announced up 13% year on year. Ultrapar posted a Q3 net income of Brazilian reais (R) 328m ($144m, €107m), up about 13% compared with R291m in the prior-year quarter. Sales and services revenue for the quarter reached R15.9bn, up by about 13% from R14.1bn, while earnings before interest, tax, depreciation and amortisation (EBITDA) totalled R765m, up almost 18% from R651m, the company said. Ultrapar attributed the growth to higher sales volumes in the company’s fuel distribution subsidiaries Ipiranga and Ultragaz and an increase in operating scale due to recent investments. The company’s surfactants and solvents subsidiary, Oxiteno, saw a 6% drop in sales volumes due to lower sales of glycols in the domestic and overseas markets
In more North American investment news with relevance to surfactants, US-based Chevron Phillips Chemical (CP Chem) has completed a study to expand its capacity for normal alpha olefin (NAO) at Baytown, Texas, US by at least 20% and it plans to seek final project approval in the first quarter of 2014. Construction could begin in the first quarter, and the project could be completed in the second quarter of 2015.
In a rare display of market initiative from Pemex, the Mexican government owned petrochemical company announced late November that it is seeking a joint venture for ethylene glycol, EO and aromatics. The putative project also involves expanding cracker capacity in Mexico to align ethylene supply for EO. Pemex has two ethane crackers in Cangrejera and Morelos, Mexico, each with a capacity of 600,000 MT/yr. The company would like to expand these existing crackers to get another 200,000-300,000 MT/yr of ethylene. The project, including the construction of EO/EG and aromatics facilities, could take two to three years to complete. In September 2013, Pemex completed its first ever joint venture – a partnership with the dynamic private company, Mexichem to double vinyl chloride monomer (VCM) production to 400,000 MT/yr by 2015. Apparently this JV opened Pemex’s eyes to the benefits of operating more like a real company than as a ward of the state. There is talk of an amendment to the Mexican constitution to allow Pemex to move more into the North American commercial mainstream with the sort of operational independence enjoyed by its peers in the industry.
Clariant continue to maintain a solid profile in ethoxylation with an early December announcement that it will further expand US ethoxylation capacity at Clear Lake, TX. This second-phase expansion will include new reactors and additional storage facilities, bringing the overall ethoxylation capacity to more than 125,000 MT/yr from the current 95,000 MT/yr. The new project is scheduled to go on line in mid-2015. The second expansion brings Clariant’s total investment over the last five years to Swiss francs (Swfr) 65m ($72m), according to the firm. Products manufactured at the US site includes high molecular weight polyethylene glycols (PEGs), alcohol ethoxylates, sodium isethionates and ethoxylated specialties.
In a rare piece of growth-oriented news from Europe, Germany’s PCC announced a 42,000 MT/yr Mono-Chloro Acetic Acid plant in Poland The unit, PCC P4, will build the plant at a cost of zloty (Zl) 272m ($89.2m, €64.9m) on the grounds of another group subsidiary, surfactants producer PCC Exol, creating around 100 jobs in the Walbrzyska special economic zone near the border with Germany. Poland’s economy ministry is subsiding the construction of the MCAA plant with a grant of Zl 67m. In October PCC Exol said it would invest in constructing a new production line for high-margin amphoteric surfactants in the Walbrzyska special economic zone at an investment cost of Zl 10.75m
Just before Christmas, we heard that Thailand’s PTT Global Chemical (PTTGC) is proceeding with capacity expansion at its home production base in Map Ta Phut. This includes a plan to boost its ethylene oxide (EO) output by 2015.
Thanks again for reading and I look forward to seeing you at the 4th ICIS World Surfactants Conference in NYC, May 15 – 16th, 2014. Quinn Stepan, CEO of Stepan Co. Ltd. is keynote speaker!
Review of 2nd ICIS World Surfactant Conference
NYC – April 25th and 26th, 2012
I was again very pleased to be able to co-produce and chair the third surfactant conference in our series with ICIS. This time, we upgraded and expanded our venue – at the Grand Hyatt, Jersey City, with a stunning view across the Hudson River of the Manhattan skyline.
200 friends and colleagues from all parts of the surfactant value chain spent one and a half days listening to outstanding speakers and networking with each other in the breaks and drinks reception. The proceedings were reported in ICIS Chemical Business and, of course, in Doris De Guzman’s outstanding Green Blog, which live-tweeted essentially the entire conference. A special mention should also go to our friend Sarah Gorback at Elsevier, who tweeted extensively and was instrumental in supporting our partnership with “Focus on Surfactants” newsletter to which all delegates received a free subscription.
Here, I make a point or two regarding each of the speakers and hopefully give you a flavor of the type of event that we will produce coming up in Budapest, September 13th and 14th at the First ICIS European Surfactants Conference. Some of the links in my notes below may require a subscription to ICIS in order to view.
Keynote speaker, Mark Miller of BASF, gave a wide-ranging overview of that company’s challenges and opportunities in the field, pointing out that a balanced portfolio of renewable and petrochemical feedstocks is essential to the BASF’s success. He noted that refined EO is tight in the USA and speculated on who would take the plunge to invest accordingly.
Our M&A Speaker this time was the well known investment banker, Peter Young of Young and Partners. M&A activity is slowing according to Peter. The shaping of our industry, however, by M&A is likely to continue as opportunities for M&A abound in the surfactant value chain.
Martin Herrington of IP Specialties gave a stimulating and thought provoking overview of the fatty alcohol market, pointing out that “natural ” products’ growth may be hard to sustain in the face of cheap shale gas and ethylene in North America.
Next up was the widely known expert on EO, Doug Rightler, who proceeded to give a beginner’s crash course and advanced level seminar on EO economics – all compressed into 40 minutes. A highly rated speaker and sought after consultant, we were fortunate to have him speak at our event.
In the tradition of breaking some news at our conferences, Harish Davey of Reliance came to the podium and announced Reliance’s entry into the surfactants market in India – in order to support their growing consumer products and retail business. This is a huge piece of news and we were honored that Reliance chose our conference to announce it first.
After lunch, Victor Zubb of WheatOleo (a Soliance company) reviewed some interesting new developments in I&I cleaning ingredients. Biomass from wheat used in sophorolipid surfactants for I&I.
Rhodia’s speaker, Chris Houston (new to the company and a veteran of the industry) delivered some novel insights the oil and gas field and its importance for surfactants. Overall the oilfield chemicals market is worth $53Billion (!)
L’Oreal’s Jeanne Chang gave us a look inside the raw material innovations at the major global personal care company. She referenced the company’s adoption of the 12 principles of green chemistry and the outstanding work in glycoside chemistry in the Proxylane range of anti-aging products.
Heliana Kola of the Battelle Memorial Institute generated substantial discussion and debate around her presentation on the ingredients in laundry detergents in North and South America. Quite astounding, the impact of enzymes on the level of surfactants used in detergents.
Our focus on Latin America was kicked off by Todd Nelmark of Oxiteno. His survey of the surfactants markets in Mexico and Latin America was simply unique for a market heretofore little analyzed deeper than the macro level.
Colombia’a emerging palm industry was the focus of our next presentation. Colombia is the fourth largest palm producing country in the world, behind Malaysia and Indonesia (natch) and Thailand. Monica Perez was a stand-in speaker at the last minute and really opened our delegates eyes to the potential right here in the Americas for palm derivatives. Colombia is clearly in the running to be the “next Malaysia” just a few hours flight from Houston.
Wrapping up the first day, was Jim Heaney of Colgate, who gave us an encouraging but realistic assessment of the political challenges in South America, especially in Argentina and Venezuela and the cost pressures of doing business in the region where customers appreciate renewability but will not pay extra for it.
Opening up day two of the conference, I set the stage for the “What it Takes” mini-conference which took its name from a book by Richard Ben Cramer about the 1988 US presidential race. The book looks at the then candidates, Bush Sr., Dole, Dukakis, Hart, Gephardt and Biden and tracks the campaign through the lens of who really has what it takes to become president of the USA. In the same way, on our second day, we focused in on the leading new technologies in the surfactant supply chain and invited the delegates to consider who, if any, among them really has what it takes to impact our industry and become the “third leg” of the supply chain stool alongside petrochemical and oleochemical feedstocks. To tee up the discussion, we invited P&G and Seventh Generation to relate from their perspective what it takes to get an ingredient into their consumer products and onto the supermarket shelf.
After the challenge was laid down by P&G and 7th Generation, first into the lion’s den was Tim Dummer of Solazyme, a favorite of prior conferences, who reported on the continued solid progress of the company in commercializing engineered oil derived from sugars via the action of heterotrophic algae. THe company’s first plant in Brazil is slated for start-up in the second half of 2013.
Next up, Wei Huang of LS-9 described the company’s one-step conversion of sugars directly into oleochemicals, via enzymatic routes. A different approach to that of Solazme and very interesting to our delegates.
Another ICIS conference, regular, Elevance, then took the stage to update the group on their progress with their two announced bio-refineries, 180KMT/yr in Indonesia and 270 KMT/yr in the US. Ambiitious goals for their blend of commodity olefins and specialty building blocks derived via metathesis of vegetable oils.
BIll Rothwell of Codexis, a newcomer the ICIS conference speaker circuit, but with deep experience in the global surfactant supply chain, spoke next. They are entering the market for fatty alcohols with their Codexol brand product made from sugars via a microbial route.
My colleague, Patrick Foley, was next with a change of pace, getting in-depth with some novel, patented chemistry that has formed the basis of a brand new 6 month old company, P2 Science. P2 is commercializing a range of specialty ingredients, both novel and drop-in, for consumer products.
Last to enter the arena to convince the crowd that they had what it takes, was Amyris, ably represented by Frederik Ngatung. Amyris synthetic biology platform seeks to employ the versatile farnesene intermediate to enter the fatty alcohols market in the near future.
In summary, I can say that I have never enjoyed myself more at an industry event. It was again and honor to chair a meeting as content-rich and important as this and I hope the delegates got as much out of it as I did. Registration for Budapest , September 13 & 14th is open now. I am told the venue is outstanding and that we will sell it out. I hope to see more friends and colleagues there.
The First ICIS World Surfactants Conference
(May 12th and 13th Weehawken, NJ)
I was honored to chair the first ICIS World Surfactant Conference, which took place last week after about 7 months of planning between myself and the ICIS conference team. Based on the feedback I got from many people, whose counsel and opinion I value, the event was a success. The ICIS folks agreed and some preliminary planning has already been done around the next conference. Nothing has been finalized, but I can give you an early hint about one aspect. The venue will be much bigger! Why? Because last weeks conference actually sold out twice – even after getting more space – and the people on the waiting list are already vowing to register early next time.
To give you a flavor of what around 150 people experienced in the room over 11/2 days, I note below, the line-up of speakers and just one interesting point that I took away from each while chairing the conference. More comprehensive coverage of the event will no doubt appear in ICIS Chemical Business magazine over the coming weeks and in the ICIS Green Chemicals Blog, penned by our good friend and colleague, Doris De Guzman who pretty much live-tweeted the entire proceedings (complete with “twitpics”) from the front row.
Neil Burns of Neil A Burns LLC: I tried to give an overview of the key issues that would be explored during the conference – which I summarized as Value Chain, Volatility, Sustainability, Globalization and M&A. Not as catchy as Tom Nelsons “VUCA” but set the tone for the rest of the event.
Pascal Juery of Rhodia : Company is focusing on sustainability and growing regions of the world. They have been in Brazil for 100 years. Still lot of room to grow and consolidate as the specialty surfactant market is still very fragmented.
Bill Tittle of Nexant: North America set to become a net exporter of EOD’s as advantaged ethylene is converted to purified EO for ethoxylation.
Mohammad Al-Bibi of Farabi Petrochemicals: Farabi will commission a second 120 KMT/yr LAB plant in 2012 helping ensure the middle east remains a net exporter of LAB going forward.
Kongkrapan Intarajan of Emery Oleochemical: Emery’s aggressive growth strategy is driven by vertical integration (Sime Darby and PTT parents), Global Presence and Technology Access (recent ventures with Aekyung in Korea and ERCA in the Netherlands). By 2015, the business mix is expected to be 50:50 base oleochemicals : specialty derivatives.
Janet Crawford of Akzo Nobel: Tallow now costs 60% more than crude oil on lb for lb basis. At this point, expect to see demand destruction in surfactant markets.
Gillian Morris of Kline and Co. : $800 Million market for specialty surfactants in personal care with still 45% of that in Europe!
Jochen Flucht of Henkel: Henkel will play at all stages of the supply chain; including, for example, hedging kerosene for their LAB/LAS purchases.
Brian Chung of Rhodia: 100% naturally derived SLES, uses ethylene oxide made from ethylene derived from ethanol made from molasses via fermentation.
Tom Nelson of P&G: P&G is working with LS-9, Amyris, Braskem and others to try to mitigate the volatility and price pressures from traditional petrol and oleo raw material supply chains.
Icilio Adami of Desmet Ballestra: The new enhanced loop ethoxylation technology represents a breakthrough in terms of efficiency, throughput and capital cost effectiveness for ethoxylation.
Chris Cerimele of Houlihan Lokey: The surfactant industry continues to eb shaped by M&A. Western companies tending to divest oleochemicals while Asian oleochemicals companies tending to seek technology driven investments.
Alessandra Lancellotti of Frost and Sullivan: There are 15,000 companies in personal care in Brazil and the country is the number three consumer of such products in the world.
Bob Moser of Brenntag: Distribution is a fragmented market with plenty of room to grow. Brenntag has a 6.9% market share followed by Univar at 6.0% and Nexeo (formerly Ashland) with 2.8%.
Walter Rakitsky of Solazyme: Walt opened up the “surfactant revolution” part of the conference with a vision of designer oils produced via genetically engineered algae from a variety of biomass feedstocks. Technology is proven and being scaled up by this company that has already filed for a $100 Million IPO after being funded by VC and strategic investors.
Andy Shafer of Elevance : Andy rounded out the surfactant revolution with his vision of the Elevance metathesis technology as implemented in a series of biorefineries (180 KMT/yr first unit to commission this year in Surabaya). These plants to provide surfactant feeds from sourced uncoupled with crude or palm oils.
In summary, I was very pleased with the quality of speakers and participation by the delegates. Given that, I regarded myself as very fortunate to be able to chair the event and to work with such a talented team at ICIS in putting it together. Next year – a bigger venue and a continued focus on high profile, interesting speakers.
The Green in Green Chemistry
March CM&E Lunch Report
The ACS York CM&E group hosted another outstanding lunch last Thursday at the award-winning Aureole restaurant in New York City. The theme was a panel discussion on green chemistry and we were honored to have as co-moderator the ICIS Green Blogger, herself, Doris de Guzman. I was the other moderator and the panel was a tremendous mix of banker, mature company and new company – i.e.
A remarkable feature of the session was – no powerpoint! It may be just me but I get the impression that people just simply pay more attention when there are no slides. We had a rapt audience of over 50 in the room and another 10 or so on the webcast. Just a sample of some of the highlights of the discussion:
If you missed this lunch, you have an opportunity every month – the first Thursday – to join us. On April 7th, we have a presentation on Growth Opportunities in Specialty Pharma by Michael Higgins, Managing Director of Rodman & Renshaw. In May, we have the long awaited Latin American event, sponsored by CM&E’s own cachaça distiller, Sagatiba of Brazil (yes, that is free caipirinhas for all attendees – and we haven’t yet figured out how to deliver those via the webcast). Senior executives from Blackrock Latin America and Petrobras will discuss opportunities in Brazil and Latin America in general.
A few notes to update you on our activities in private equity and advisory for the chemicals industry. If you have not had a chance to check our updated website, please do so and let me have your comments www.neilaburns.com
As always, please feel free to reach out if you think we can help with anything. Our equity capital program combines a patient outlook with good understanding of the chemical industry. We like to support management teams with a growth agenda and to enable owners realize their ambitions for their businesses.
Our best wishes for a happy and prosperous New Year.
Chemical Distribution – Why so Attractive to PE Funds?
The recent announcement that TPG will acquire Ashland’s chemical distribution business was no surprise to most of the North American distribution community. What is noteworthy however, is that, again, a major chemical distributor has found a home in a private equity fund’s portfolio. Ashland now joins Brenntag (BC Partners investment – recently IPO’d), Univar (Clayton, Dubilier and Rice recently joined CVC as investors) and Azelis (3i) as a PE owned chemical distributor.
In addition to these large (USD Billion +) deals there have been a number of recent smaller deals in which PE firms have invested in chemical distributors. These include Post Capital’s investment in BHS and AEA’s investment in Reladyne. Reladyne is a consortium of four regional lubricant distributors.
Other deals in the distribution space are rumored to be in the pipeline and we’ll comment on those as they are announced. Coincidence? No. So, what’s the attraction of distribution for PE firms? In our view, it’s three major of factors:
The case for chemical distribution as an interesting investment is made fairly convincingly by the data in a paper by BCG, published earlier this year.
Looking forward, we see continued acquisitions by the North American big three, Ashland, Brenntag and Univar and by others. Consolidations driven by the scale related factors above will continue to be financed by these PE sponsored companies. Owners of small, regional and specialized chemical distributors may therefore find 2011 a good year in which to sell – or to compete in the interstices left between the ever larger market leaders.
Carving out the “Trapped Asset”
My colleagues and friends at GenNx360 Capital Partners, get most of the credit for this weeks blog entry which looks at how a corporate owner can deal with a non-core business in a way that maximizes value for the shareholders and preserves long-term viability of the business for employees, management and other stakeholders.
In a recent white paper, Art Harper, Founding Partner and Chuck Castine, Operating partner at GenNx360 put forward a method for corporate owners of non-core businesses to work with an operations oriented private equity firm in freeing up the value of “trapped assets” as they term them. The white paper can be read directly from the home page at the GenNx website.
In summary, many businesses have one or more trapped assets, although they almost certainly will not refer to them as such. The trapped asset is a business that perhaps was once core to the strategy of the parent, but is no longer. It is delivering cash to the bottom line, so is not causing particular pain to anyone in the organization. However, as it is not core it is not receiving management attention and is getting maintenance levels of investment at best. As a result the business is losing ground to competition and not participating in the growth technologies or geographies that the market leaders are. There is, however, no great rush to sell the business as it is still cash positive and there is a concern that an adequate value will not be realized for the business, but neither capital not nor management time is going to be invested in “sprucing up the non-core business for sale”.
In the trapped asset play, a private equity investor will buy a majority share, 50% +, of the non-core business and then work with the units management to restructure the business, putting in additional capital as necessary to bring the unit up to a point where it becomes a much more attractive acquisition target for the other competitors in the market. At this point, the asset is off the parent’s balance sheet. After the restructuring period, the business is sold and both owners (i.e. The PE firm and the original parent) cash out together. In this way, the owner gets two bites at the apple and the business is preserved and grown to a much stronger position. Of course, not any PE firm is capable of doing this. Operational skills and experience are essential and much more important than the financial skills associated with the carveout itself.
Some of our work in identifying such trapped assets has found situations such as that described in the charts below. The trapped asset started life as the core business of the company. Gradually, over a period, often of decades, but sometimes as little as 5 years, the focus of the parent changes and the once core business finds itself less and less important from an earnings perspective to the parent.
EBITDA Contribution to Parent:
As a result, the investment in the business slacks off and the performance of the business lags relative to the market in which stronger players are dominating. The chart below shows how a recent “trapped asset” failed to keep up with a market growth that its competitors were enjoying.
Trapped Asset “Growth”:
In light the of the above situation, the parent faces a dilemma, keep the asset (i.e. “do nothing”) or sell it. Neither option is appetizing for the reasons outlined above. Now, there is a third option which is made possible by working with an operationally adept private equity investor.
In summary, the trapped asset play is not for every parent and certainly not for every PE company. We encourage our readers to go to the original GenNx white paper and consider whether this may be of interest to them.