Surfactants Monthly

October 2024

Paul Di’Anno died a couple of weeks ago, aged 66. This unleashed a lot of thoughts and memories, which, of course, we’ll address at the end of the blog.

Promos: You know what you have to. You really can’t miss our return to Asia for the first time since 2019, with the 10th ICIS Asian Surfactants Conference, Co-produced (and Chaired) by me. Register here: https://events.icis.com/website/14105/home/

I have some huge news for Malaysia residents. This entire event has been certified as HRDF compliant. You know what that means if you live and work in Malaysia. It is enormous. It also means we will sell out of the remaining space – fast. So get on over and register.

The News

Two big pieces of company news this month, BASF and Stepan

BASF restructures. I have a 5-minute video up on the Youtube channel about this here: Watch if you’d rather not read.

When I talked about this with an I-Banker friend, they said “Finally!” So, maybe this was long expected / hoped for in the financial community which may provide the answer to my question at the end here. By the way, you can read all about the restructure in the proceedings of the 2-day BASF Capital Markets event in this link. There are six things for you to know in the context of surfactants.

1. The company’s businesses are now grouped into two parts; core and standalone. Core includes i) Chemicals ii) Materials iii) Industrial Solutions iv) Nutrition & Care. Standalone has i) Surface Technologies ii) Agricultural Solutions. Note – Nutrition and Care is where the surfactants (most of them) are. In terms of Sales / EBITDA / EBITDA Margin % for each, the scorecard ( € Billions) is Core: 40.5 / 4.6 / 11% and Standalone: 25.2 / 3.5 / 14%

2. China’s a big deal for BASF’s future. They putting € 10 Billion into the Zhanjiang verbund site. It is expected to generate € 4 – 5 Billion in sales and € 1 – 1.2 Billion in EBITDA by 2030. That’s a far higher margin than the company historically has done and around a quarter of the EBITDA generated today by that Core group. The China project is key for surfactants with EO and a range of nonionics up to 215,000 tonnes of capacity (just for nonionics).

3. They share some interesting information on the Care chemicals business. Of the €4.8 Bn in sales here, 2.5 is in personal care, 1.3 in HI&I and 1 in Industrial. This slide for Nutrition and Care is also informative. Notice – targeting some healthier EBITDA margin there.

4. The verbund concept continues to be super-important for Care chemicals. Notice the EO – alkoxylation relationship. They also talked about the options to put bio-naphtha and or bio-gas in at the start of the value chain to get biobased or bio mass balance products out the other end. There was also a comment that they expected consumers to pay some premium for bio based products.

5. Innovation in Care chemicals. This slide talks about silicone and microplastic replacement products based on biodegradable wax dispersions. Good opportunity.

By the way, in the same segment, I loved this illustration of how the PCF (product carbon footprint) of one of BASF’s key petrochemical based building blocks was far, far superior to a bio-based equivalent. Just because it’s biobased, doesn't mean it’s better. In fact in can be more than twice as worse. Hey – let that sink in for a moment!

6. So what did all this do for BASF’s stock price? Not much at all. It’s a good plan in my opinion. So, maybe it’s a case of buy on the rumor and sell on the news. Maybe my I-banker’s comment noted above is indicative of that. These moves had been widely expected and so were already baked into the stock price. I really don’t know and would love some of my smarter readers to chime in on this point. Here's the stock evolution this year – as taken from BASF’s site.

So – you can see a slight uptick on the second day of the event (Sept 27) and then a drift down. Maybe also – as I think here – there’s a lot riding on China and so maybe execution risk is being baked in here. Memories of Sasol’s budget miss on their similar sized Louisiana project, perhaps are fresh in investors’ minds? C’mon clever blog readers, please opine!

Stepan Results: Here’s the Q3 results highlights.

First – as of October 30, Luis Rojo was promoted from CFO to President and CEO of Stepan. Scott Behrens who was in the role since April ’22 has left the company. Prior to joining Stepan as CFO in 2018, Luis had a long career in Finance at P&G. He is the second non-family member to head up Stepan. Scott was the first. I think that is quite big news.

Overall, despite lower sales quarter on quarter and year to date, mainly driven by pricing and product mix, the company did well on earnings and EDITDA. Most of the weakness was in the polymers business. Surfactants had some very strong bright spots. Here, more or less directly form the release…

Third Quarter 2024 Highlights

Reported net income was $23.6 million, up 88% versus prior year. Adjusted net income was $23.7 million, up 61% versus prior year, largely due to higher margins and a lower effective tax rate. The year-over-year change in effective tax rate positively impacted net income by $6.8 million, or $0.30 per diluted share.
EBITDA was $53.0 million and Adjusted EBITDA was $53.1 million, up 18% and 11% respectively, year-over-year.
Global sales volume was down 1% year-over-year. Double digit growth in several Surfactant end markets was fully offset by demand weakness in Polymers.
Cash from Operations was $22.7 million during the quarter. Free cash flow for the quarter was a negative $4.0 million.
The Company is on track to deliver its $50 million cost out goal for 2024 and recognized $13.3 million in pre-tax savings in the third quarter.

YTD 2024 Highlights

Reported net income was $47.0 million, up 14% versus prior year. Adjusted net income was $47.7 million, up 10% year-over-year.
EBITDA was $151.0 million and Adjusted EBITDA was $151.9 million, up 8% and 7% respectively, year-over-year.
Global sales volume was up 1% year-over-year.

Here's the scorecard

And here are the segment results for Sales:

And EBITDA

Some additional color on the surfactants business: Surfactant net sales were $382.7 million for the quarter, a 2% increase versus the prior year. Selling prices were up 1% primarily due to improved product and customer mix. Sales volume was up 3% year-over-year primarily due to double digit growth within the Agricultural, Oilfield and the Construction and Industrial Solutions end markets along with our distribution partners. This growth was partially offset by lower demand within the Consumer Products end markets. Foreign currency translation negatively impacted net sales by 2%. Surfactant operating income for the quarter increased $10.9 million, or 71%, versus the prior year. Surfactant adjusted EBITDA(2) increased $12.6 million, or 40%, versus the prior year. This increase was primarily driven by the 3% growth in sales volume and margin improvement that was partially offset by pre-operating expenses at the Company's new alkoxylation facility being built in Pasadena, Texas.

The analyst presentation gave good further illustrations of the surfactants business which I will share here:

They also highlighted two very important large recent capex investments related to surfactants – that is the Pasadena, TX alkoxylation project and of course, investments in dioxane reduction to meet the requirements of various US regulations (and potentially global).

And finally, I always enjoy the analyst questions on these things. So here’s an interesting selection.

Agricultural Surfactants – double digits growth 22% Q on Q 3. Q4 is looking good – longer term also.

Europe has been a big driver in surfactants earnings – and in line with Agriculture surfactants. Consumer side had some weakening. Down in PC but laundry and cleaning grew 4% in the quarter – and that is their core piece and good consumer indicator.

Cyber fraud in Asia cost them $3.3 M.

Construction is weak. If interest rates come down 2025 should be good and back to high single digits (drives their polymers business).

In surfactants – focusing on Tier 2 and 3 (40,000 customers) and has been growing double digits. Serving direct and via distributors. Keep reaching more of these customers and improving customer share at each of these tier 2 and 3’s.

Marketing: Tiers 2 & 3 – yes important for growth - but what about focused growth with Tier 1’s – where is the opportunity here? Two types i) Consumer – a lot recent investment in Latam / Mexico also ii) Functional – eg Ag and ii) Low dioxane capability – will really be leveraged at the tier 1’s.

[my comment – Focusing on increasing share at Tiers 2 and 3 is good but it costs effort below the line in SG&A. Have to be smart about it and use distributors to their best effect. Tier 1’s are where the volume is but gross margins are slim there for sure. This will be an interesting process to keep an eye on]

After the recent heavy capex period (dioxane and Pasadena ethoxylation), they will return to the lower baseline capex of around $120 Million/yr. EG in oilfield they are still growing 30 – 40% this year and still have a low share. And the investments are pretty low – mainly blending in this sector.

How will Luis leadership differ from recent predecessors in terms of strategy and philosophy? Not going to change big strategies. But surgical changes and investments to accelerate growth and more focus. Not hundreds of projects. [Luis – I wish you much success!]

So – again I find myself going to the stock price. At 4.30 PM on October 29th(the close before the day of the earnings call) SCL was at 72.96. The following day, on the day of the call, it hit an intraday high of 76.76 (5.2% up) but by the closing bell it was 74.45 and by the close of the week on Friday it was at 72.89 – all gains surrendered, and well off the year’s high of 96.68, very close the year’s low of 69.78. Interesting right? Similar to what happened with the BASF stock. Let’s see what happens next week.

Macroeconomics: This month we go to Evercore for our Macro roundup. And the reading is mixed but definitely trending negative. How are you seeing things?

The headlines include :

· Weak company pricing power survey; data at record lows with weak demand and competitive pricing

· Evercore ISI proprietary surveys of company sales in China, Europe, and US remained at a depressed 36.9. This helps explain why commodity prices have remained fairly tame

· Germany’s headline CPI in September declined -0.1% m/m and slowed to just +1.6% y/y. China’s headline CPI in August increased just +0.6% y/y

· Weak Eurozone Manufacturing Orders results

· Evercore ISI US Trucking Companies Survey ticked down and is now lower in ten of the past twelve weeks and the lowest since July 2023

Having said all that, US consumer net worth and spending looks really strong. Check out this pair of charts.

But US trucking still depressed. This one still worries me. Someone tell me it shouldn’t!

In addition to all this, I continue to read about layoffs and closures in the chemical space as China demand slumps and seems not to have the demographic potential to recover.

More news:

World’s Most Popular Vegetable Oil Is No Longer the Cheapest was the headline of a Bloomberg article that noted Palm oil has lost its position as the world’s cheapest edible oil, thanks to shrinking output in the biggest growers and plentiful supply of the main alternative. The tropical oil, which traded at a discount of $782 a ton to soyoil as recently as November 2022, is currently commanding a rare premium. In contrast to soy, sunflower and rapeseed crops, palm is harvested year-round and needs less land to produce, meaning it’s usually cheaper. Indonesian and Malaysian palm plantations, which account for 85% of global supply, are facing challenges. Smallholders are reluctant to cut aging trees and replant as it can take four to five years for new trees to bear fruit, compared with around six months for soybeans. Palm prices have risen 10% this year, while soybean oil is down about 9% on better crop prospects in countries such as the US. Still, a structural shift is unlikely in the near- to medium-term because of palm’s unique qualities that make it attractive to many sectors.

Amphistar. We’ve covered this biosurfactants company a lot recently and I continue to admire their momentum. PMV magazine has a nice-looking feature on them here https://www.flipsnack.com/6AFE575569B/pmv-magazine-nr-2.html . It looks like it may be written in Dutch however, so..

A great old brand – Alberto VO5, some news. Alberto Culver used to belong to Unilever before they sold it after acquiring Helene Curtis. HAPPI reported that HRB Brands has a new owner, Sodalis Group, an Italian personal care company. HRB has sales of about $200 million, according to industry estimates. It’s brands include Zest, Alberto VO5, SGX NYC, Coast, Salon Grafix, LA Looks, Rave, Sea Breeze, Pert, Infusim, Sure, Brut and Thicker Fuller Hair.

HAPPI also reported on one of our low water / no water companies, Dropps, which recently launched new UltraWash Plus Biobased Power Dishwasher Detergent Pods.

UltraWash Plus joins Dropps’ suite of recently reformulated, biobased dish and laundry products with curbside recyclable retail packaging. UltraWash Plus Biobased Power Dishwasher Detergent Pods are available Oct. 15 in-store at Meijer, SaveMart and Wegmans and online at Walmart, Amazon, Thrive Market and Dropps.com in lemon citrus and unscented starting at $15.69.

In the world of oleochemicals, Oleochemicals producer Oleon has acquired a majority stake in A. Azevedo Óleos, a Brazilian oleochemical company specialised in castor oil and its derivatives. Castor seed cultivation is a major industry in Brazil, particularly in Bahia.

Like many of you, I enjoy reading The Digest, a daily newsletter about all things bio. I like this recent headline : Sustainea’s $400M MEG Monster heads for Indiana and Primient. So apparently, In Indiana, Sustainea will build a $400 Bio-MEG (ethylene glycol) plant and will co-locate the project at the Primient facility in Lafayette, Indiana. The two companiues also announced a supply agreement for corn dextrose from the Primient plant. Groundbreaking is set to begin after conclusion of engineering and final investment decision, with production expected to start in 2028. Sustianea is a joint venture between Braskem and Sojitz Corporation,created with the ambition to be the global leader in Bio-MEG, which can be used as a drop-in product, delivering high quality and functionality while significantly reducing the carbon footprint. Sustainea’s business plan includes the construction of three industrial plants with annual production capacity of 700,000 tons of Bio-MEG. No word on whether the project might include purified EO.

Also from the digest, we hear that Indonesia, the Indonesian Palm Oil Association (GAPKI) will take advantage of the delayed implementation of European Union Deforestation-Free Regulations (EUDR) to improve the ecosystem of palm oil in Indonesia. Recently, the association said the delay of the EUDR implementation will give time for the palm oil industries, especially smallholders, to make some needed adjustments to comply with the EUDR. “During that one year, we’ll try to improve the palm oil industries so that all players can comply with the international requirements,” said GAPKI’s chairman.

Wait, what?!?! EUDR’s been delayed? Well, probably, but not quite officially yet. According to a bunch of sources, all collated helpfully for me by the tireless Perplexity: The European Commission has proposed a one-year postponement for the implementation of the EUDR. This proposal came in response to concerns expressed by global partners and stakeholders about their readiness to comply with the new regulations

If approved, the new implementation dates would be:

December 30, 2025 for large companies
June 30, 2026 for micro-undertakings and small companies

This is a 12-month delay from the original dates of December 31, 2024 for large companies and June 30, 2025 for smaller firms

It's important to note that this delay is not yet finalized. The proposal needs to be approved by both the European Parliament and the European Council. The European Council has already agreed to back the Commission's proposal. The European Parliament is expected to vote on the proposal during its plenary session on November 13-14, 2024.

The Commission cited several reasons for proposing this delay: Concerns from global partners about their state of preparedness. The need for more time to prepare, especially given the novel obligations included in the due diligence requirements. To allow for better implementation of the regulation and potentially stronger impact on deforestation.

While the delay seems likely to be approved, forest campaigners are concerned that this extra time might give commodity companies and exporting nations an opportunity to weaken the law's requirements. As such, they are developing strategies to lobby for stronger regulations in the EUDR. In the meantime, the Commission has published further guidance documents, updated FAQs, and an international cooperation framework to support global stakeholders, member states, and other countries in their preparations for implementation.

I read on Linkedin that Unger Fabrikker (Norway) is launcing a dry sodium LAS with CEPSA bio mass balance LAB as the raw material. Kudos. Here’s the link and here’s a photo. Pretty cool.

I also read that CEPSA is changing its name to Moeve (pronounced, I think, Moi-vay. Like “Oy Vey another company changing its name!”) – so you can read more here and practice saying the name right, by clicking on the video here.

I’ve recently been saying (courses and conferences mainly) that petrochemical detergent range alcohols, from companies like Shell, Sasol and Exxon, will be doing much better in surfactants around the world due to cost and this whole EUDR business. Check out how Shell is marketing their products here:

Hallstar continues to bulk up by acquiring Sytheon. More here.

I’m a big fan of energy – lots of it and cheap. And so I was delighted by this headline for an article by the US Energy Information Administration: “United States produces more crude oil than any country, ever” Oh yeah! ‘merica! And check out this chart.

What’s even more impressive is that, despite the number of oil rigs dropping to less than a third of the level 10 years ago and the workforce shrinking in the same period, too, oil has become one of the most productive industries in the US over the past decade. That production boom is expected to run into next year as well, with some predicting that we’ll be making an extra 600,000 barrels each day in 2025.

Pricing Section: We are updating our collaboration with ICIS around pricing data and so next month we will have more on that. In the meantime, I strongly encourage you to discuss subscription options with them for various commodities and the overall news services. They are the best in the business.

Musings

We haven’t had one of these sections for a while. This is not the music section. Keep scrolling down for that ⟱⟱⟱. And there’s not really any big news in this section, so if you’re not a follower of the music, your blog reading duty for the month is complete. But if you’re into thought provoking, slightly surfactant related, stuff then consider sticking with us and reading on.

I love a good juxtaposition don’t you? Yes. Of course. Here, I’ve googled it so you don't have to: “Juxtaposition is a literary device that implies comparison or contrast. Writers use juxtaposition by placing two entities side by side to create dramatic or ironic contrast.” It’s like, I remember, I was on the board of a fairly conservative organization for a long while – not political but definitely conservative, trust me on this. And the parent organization published a monthly statewide magazine, supported by sponsors who ran ads in there. One month, the topic of the editorial on the first page was modesty – you know, in appearance and comportment and how it was generally a good thing and how (this was some years ago) the spread of social media was kinda eroding this concept to the detriment of society. All good points, well-articulated. Opposite this column on the inside front cover of the magazine, in full color, was an ad from one of the big sponsors, a clothing shop, featuring, with models, their brand new prom dresses. Now I don't know how it is in the rest of the world, but in New Jersey, the words modest and prom dress are never, ever, found together in the same sentence. That was a juxtaposition.

Now, having said all that, I’m not even sure if this, what I’m going to tell you, is a juxtaposition, but it fascinated me. So I saw in the Cosmetics Design newsletter of 10/23/24 (here’s a web link) the two following items, right next to each other .

So L’Oreal needs new stuff to get consumers excited - you mean after you’ve exhausted flogging anti-aging products to 12 year-olds? Now relax L’Oreal people. I’m not accusing you of exploiting pre-teens with your marketing. But come on, you know what I’m talking about. To be fair, L’Oreal’s CEO didn't mention 12 year olds in his remarks but he did say “Young Gen Z’s want to try other brands. It’s up to us to recruit them” Hmm – Google tells me that Gen Z is aged 12 – 27. So - young Gen Z – well I’m sure he didn't mean the bottom of the range. Probably like the 16 – 17 year olds, something like that. The ones wearing the prom dresses. So – cool then, maybe.

And of course, I can’t leave it there. This wonderful juxtaposition called to mind an interview the great Lex Fridman did with a champion poker player, called Liv Boeree on the subject of Moloch (stick with me. I’ll explain it). If you can spare 15 minutes, this video which Liv recorded, specifically addresses the concept of Moloch in the beauty industry. It’s worth watching. Give it a go.

There’s a longer explanation of Moloch in this blog post which I don't expect you to read. I’ll try and summarize. It's like the Nash equilibrium in game theory. In a competitive environment (Which 4 billion years of earth history, says we are in), players will gradually and ultimately sacrifice all values except those required for survival and growth at the expense of their competitors and whoever else may be in the way – even at the expense of their own long term good. Thus not even serving themselves but this mythical creature, Moloch. I’ll not pick on the beauty industry now. In such a world, cigarette makers would market to kids in order to ensure a growing market for their goods and riches for their owners even at the risk of their own kids becoming smokers. Hmm.. also - just substitute the word cola for cigarette and the word diabetics for smokers in the prior sentence. It’s the world in which we live. Look – maybe just watch the video. It does a much better job than I am at the moment.

New stuff. Excited consumers. Anti-aging for 12 year olds. Moloch?

The Music Section

So two things about Paul Di’Anno. Actually I guess, three things. First - Di’Anno was the lead singer with Iron Maiden from 1978 – 81, on their first two albums. We’ve written a fair bit about Iron Maiden in the blog (most of it may be in the archive now). They were one of the champions of the snappily named New Wave of British Heavy Metal (even more snappily referred to as NWOBHM) in the late 70’s / early 80’s. At that time, the likes of Deep Purple and Led Zeppelin were getting a bit, well, old, for us young lads back then, so Iron Maiden was a vigorous blast of fresh young air. The music was excellent – and original with a sort of a punk crossover vibe. Here’s my favorite song off each of the first and second albums.

First: Phantom of the Opera from the first album – a live version recorded in ’81:

You’ll notice the ever-present Eddie behind the drum kit, about whom, more, later.

Second: The title track off the second album. You’ll get a sense of the Halfordesque range of Di’Anno and the operatic sensibility that would be taken up to such great effect by his successor.

And you’ll see band mascot, Eddie, again up to some rather distasteful no good on the cover.

So – that’s the first thing: Excellent frontman for a tremendously exciting and important fresh new heavy rock band. And by the way, you can imagine just how much fun those concerts were.

OK then; the second thing about Di’Anno. I got to wondering about what he’s been doing for the last 40 odd years and went to YouTube where I found he’d been performing live shows right up until a couple months before he died. Here’s one of the most recent from a concert on the 21st of August, 2024 at the Brudenell Social Club in Leeds (England) – No I’ve never heard of it either. And yes, that’s a wheelchair. And yes, that’s an Iron Maiden song off the first album.

And here’s how it was 44 years ago.

So – here’s the thing. I felt sad. Very sad. I mean, for obvious reasons right? But another view: A young lady of my close acquaintance who is a singer, a proper one, said: “Wow – that’s great. Doing what he loved to the very end, no matter what.” And of course, it’s the no matter what that captures what's going on here. I mean yeah I get it – doing what you love to the end. Who wouldn't want that. But the no matter what- That’s the thing isn’t it? I got to thinking. What’s my equivalent of this? I can state unequivocally, that my dying wish – although it’s not really that is it? It’s not a dying wish thing – it’s like what is the thing that you are going to keep doing, no matter what – your Brudenell Social Club – well anyway that for me has nothing to do with said Social Club in Leeds. In fact it has nothing to do with Leeds (no offense). So what is it then? I dunno right now, honestly. I have some ideas and maybe they could be part of a future blog. What about you? What is your Brudenell Social Club? Do you have one? Do you know it? And does knowing it affect how you live today? Something to think about. Yeah, we’re a bit deep and a bit melancholy today.

And I could have left it there. But there’s one more thing, the third thing, about Di’Anno and Maiden. I was thinking about the aforementioned Eddie and dug through my old record collection. I bought the first two albums when they came out and a few singles at the very beginning, including this one:

Yes, that is who you think it is (although, frankly, with slightly nicer legs than I remember on the original at the time). And yes, even four decades ago in jolly England, it was fashionable to fantasize about killing conservative politicians. And yes, I was a bit put out by the artwork, but not enough to not buy the single. Hmm political speech? Maybe. Commercial speech? Probably. Free speech – Yeah, that’s it. No-one was prosecuted or jailed because of this drawing. Good. Definitely. Good. Our victim miraculously survived the attack and went on to run the country for another ten years. And Eddie and his bandmates went on to enjoy the fruits of a resurgent economy in a free Western society. I mean look, of course, the cover art gives rise to mixed feelings. But for me, for some complex mix of reasons, the net net is – good. Is that bad?

Oh hey – one last bit of trivia. The B side of the single (the A side of which was Sanctuary) included a cover of I’ve got the Fire by Montrose. Check them both out on YouTube. Extra credit for those who only read the blog for the music.

So here’s the Montrose original

The homage

That’s it until Kuala Lumpur. Register now. Spend the week there. Have a bunch of meetings and take some time off also. https://events.icis.com/website/14105/home/

Surfactants Monthly - October 2024

Surfactants Monthly - November 2024

Surfactants Monthly - September 2024