Surfactant Monthly Review – August 2019

Monthly Blog August 2019

Back to work. Back to School. Back on the Road. September. Time to execute what you’ve been thinking about all summer. If it you don’t do it now, it won’t get done, because you don't want it enough. Let someone else who wants it succeed… sorry I’ve been listening to motivational lo-fi hip hop all summer. It gets a bit intense. More about that later.

Some folks didn’t wait until the end of the summer.

Oxiteno’s parent, Ultrapar is now looking at opportunities for investments in Brazil’s refining sector. The company,during Ultrapar’s Q2 earnings call, pointed to changes in Brazil’s oil and gas value chain in the wake of Petrobras’ exit from the refining business, along with divestments of Petrobras natural gas infrastructure assets. Any investment by Ultrapar would depend on opportunities to integrate refining with its downstream fuels distribution and storage businesses. The company is active in fuels and liquefied petroleum gas (LPG) distribution, and in bulk liquids storage - through its Ipiranga, Utragaz and Utracargo businesses.

[caption id="attachment_1497" align="aligncenter" width="764"]Finding the Right Combination in Brazil[/caption]

As for Oxiteno, it looks like they had a bit of a rough quarter. Figures are in millions of reais.

 As ICIS reported right at the beginning of August: A significant $1bn-plus ethylene oxide (EO) and derivatives investment in the US is the next publicised planned major strategic move for INEOS Oxide. The company confirmed at the start of July that it wants to build a 1.2bn lb/year (about 520,000 tonnes/year) EO and derivatives capacity at Chocolate Bayou in Texas.

INEOS has two steam crackers there as well as polypropylene (PP) and linear alpha olefins (LAO) units. It says the EO and derivatives facility will reinforce on-site integration to the benefit of the crackers and the other plants on site. The idea of an EO “campus” is being floated similar to that at its major Oxides production site in Zwijndrecht, near Antwerp, in Belgium. It would provide the opportunity for third party players to co-locate and consume EO by pipeline.

“We are looking at what’s going to make a worldscale unit for purified EO,” INEOS Oxide CEO Graham Beesley told ICIS after the announcement. Earlier, publicised capacity ideas had doubled. INEOS Oxide had been talking to customers and, being well received, was looking to maximise on the downstream advantage of adding value to its EO stream. The company has 200,000 tonnes/year of ethanolamines capacity at Plaqemine in Louisiana, where it buys EO from Dow, and is one of the top three ethanolamine suppliers in the US.

Adding capacity on a large integrated site, however, fits into the broader INEOS theme of running from upstream down to add value. Over the past few years in Europe, for instance, INEOS Oxide has debottlenecked its downstream products and started up a sixth alkoxylation unit. It has significantly increased EO storage capacity at Zwijndrecht. In France, the company has acquired ethoxylates capacity from Wilmar which is connected by pipeline to the INEOS unit at Lavera.

One of the company’s biggest ethoxylation plants is in Cologne, Germany, a significant unit with 150,000 tonnes/year of finished product. It is planning a seventh alkoxylation plant (AO 7) which will almost certainly be built in Antwerp.

INEOS Oxide is interested in having a more global footprint over the longer term possibly with production capacity in the Middle East and in Asia. INEOS is currently looking into investing $2bn in a 2m tonne/year production complex in Saudi Arabia.

[caption id="attachment_1480" align="aligncenter" width="540"]INEOS Bulks Up[/caption]

Speaking of EO: US ethylene oxide (EO) contract prices for July rose by 0.6 cent/lb ($13/tonne) on the back of an increase in the July ethylene contract settlement. July EO contracts were assessed at 48.4-57.9 cents/lb FOB (free on board). US EO demand into polyethylene terephthalate (PET) and other EO pure derivatives is steady, but has faced a delayed peak season and slow growth in demand.

More action in EO and M&A. Huntsman agreed sell its surfactants and chemical intermediates businesses, including LAB, Ethoxylates, propylene oxide and methyl tertiary butyl ether to Thai company, Indorama Ventures for $2.076bn. Indorama will acquire Huntsman’s US manufacturing facilities in Port Neches, Texas; Dayton, Texas; and Chocolate Bayou, Texas; as well as Ankleshwar, India and Botany, Australia. The transaction is expected to close near the end of the year, pending regulatory approvals. As I noted in our Vlog below, this feels like the end of an era. It’s also the major step by an Asian company into the US surfacants market, but not exactly the step I had predicted. That’s OK. Things continue to be exciting. Get smart. Get Savvy, Wake up early. Be prepared (sorry – there’s those motivational aphorisms coming through again. True though..)

On to the hydrlophobe side of the molecule, ICIS’ immensely talented and highly networked Judith Taylor, reported that US mid-cut fatty alcohols were stable in August and expected to remain steady throughout the third quarter. Good surfactant demand is upholding the third-quarter assessments for the mid-cut alcohols. Flat demand remains in place for the C16-18s and is not expected to change. Third-quarter contract prices were assessed down on high feedstock inventories for the natural alcohol sector and overall ready supply of both natural and synthetic alcohols in the US.

ICIS assessed the mid-cut C12-15 alcohol third-quarter contracts at 63-72 cents/lb, a 5 cent/lb drop on both sides of the spread from the second-quarter assessment. The heavy-chain C16-18 blended alcohol contract assessment for the third quarter also moved down. The ranges shed 1 cent/lb from the previous low and 2 cents/lb from the previous high for a 77-81 cent/lb third-quarter assessment.

The following graph shows price trends for the C12-15 mid-cuts and for the C16-18 alongside the comparative southeast Asian spot range trends for these alcohols.

Rumbles continue in the market about Asian natural alcohol producers cutting back on alcohol production rates in favour of other oleochemical products. Underpinning this move are the low alcohol prices now prevailing, especially in the mid-cuts. Only vague confirmation of Asian production changes or rates has surfaced in the US,  while low demand in China is cited as the leading factor for the Asian cutbacks. Comparative prices on mid-cuts and on the C16-18 blend reveal the US market continuing to be the most attractive global price option. This factor appears set to maintain throughout the third quarter and into the fourth.

The following graph shows the mid-cut C12-15 US contract prices alongside the natural C12-14 spot prices in southeast Asia and the European C12-14 alcohol range assessment.  Please note the European price is given in US cents/lb for this chart.

In the US, Following several quarters of short supply, mid-cut synthetic alcohol production has improved during Q3 2019. This has added supply into the US domestic market as well as offering material into Europe to sustain requirements following the closure of alcohol production at the Stanlow refinery in the UK.

Sasol’s asset struggles continue as the company resumed start-up at its 1.5m tonne/year ethane cracker in Lake Charles, Louisiana.

The issue that initially interrupted start-up activities has been resolved, and a beneficial operation test run is halfway complete, the company said. Sasol defines beneficial operation as production of on-spec material for at least 72 hours continuously. On Saturday August 24th , the cracker produced ethylene that meets the requirements of some downstream derivative units but is "marginally below" polymer-grade specification as the acetylene reactor system is not performing up to expectations, the company said. Sasol is upgrading the ethylene to specification. The cracker is running at 50% and will ramp up further as operational issues are resolved, which Sasol said is in line with its plan.

The delay in the cracker has delayed the start-up of derivative units at the Lake Charles Chemicals Project (LCCP). The 420,000 tonne/year low-density polyethylene (LDPE) plant, which was previously pushed back to mid-October, is now expected to achieve beneficial operations in November. The Ziegler alcohols production unit and the ethoxylates unit should achieve beneficial operations in January 2020. The Guerbet alcohols unit should achieve beneficial operations in March 2020.

[caption id="attachment_1484" align="aligncenter" width="530"]Struggling in Louisiana[/caption]

What else? I guess I missed this but back in June, Ajinomoto announced that they are planning to build a facility to produce surfactants from amino acids derived from plant-based resources. The new plant at Pederneiras, Brazil will cost approximately $21 million and begin production in fall 2020. The site will increase Ajinomoto’s production capacity for the surfactants, trade named Amisoft, by 60%. The new facility closely follows an Amisoft expansion at Tokai, Japan and is the largest investment in history of the company’s personal care business. Interesting.

Also – one of our favorite companies, Galaxy Surfactants of India reported a 15% year-on-year increase in net profit for the fiscal first quarter, which ended on 30 June. The company’s net profit reached 530 million Indian rupees ($7.3 million). Revenue was down 6.6% YOY to Rs6.6 billion owing to lower prices of fatty alcohol, a major raw material for the company’s performance surfactants.

The company’s production volume for the first three months increased 4.3% YOY to 54,767 metric tons. Performance surfactants volume remained flat at 33,771 metric tons. Specialty care product volumes increased by 11.5% YOY to 20,996 metric tons.

Another of our favorite companies Godrej Industries of India reported a 31% rise in net profit for its fiscal first quarter ended 30 June. The company reported a net profit of 1 billion Indian rupees ($14.3 million), compared with a net profit of Rs790 million year-earlier. Net sales stood at Rs29.4 billion, down 3% year on year (YOY). Profit before tax at the chemicals sector increased 41.6% YOY to Rs340 million, and sales at this sector was Rs4 billion, up by 4% YOY. The fatty acid business constituted 41% of sales; fatty alcohols, 30%; surfactants, 22%; and glycerin, 7%.

For more insights from India, you should join us in Mumbai, October 17th – 18th for our third conference there. But before that, of course, I’ll see you in Amsterdam.

Finally: New name, old company (Akzo Chemicals) Nouryon will invest €12m to double its capacity at its surfactants plant in Stenungsund, Sweden to support the growth of several existing products, the specialty chemicals firm late this month. The expansion will also support growth of several new sustainable technologies for markets including oil and gas, lubricants and fuels as well as asphalt. Not a lot of detail was given on chemistry. As far as I can glean the site does ethoxylation and makes amines and derivatives and so that is probably where they are expanding.

Did I ever mention that the first surfactant I ever touched, outside of my daily ablutions, was a Berol (Akzo) nonionic used as an Iron Blue pigment dispersant in my first job out of college at Manox in Manchester. Funny how some things stick in your mind. The sales-guy from Berol was Tony Service. Yes; his real name and aptly named. He was attentive, professional, unflappable and listened so intently that you could literally feel all the information in the room being sucked through his brain first; like an overzealous air-conditioner but the effect was anything but chilling. It was exhilarating and confidence building. With Tony for us, who could be against us. I’m serious. R&D at Manox was on a war footing 24/7. We needed to solve a problem before the company was crushed by a competitor with a superior product. I remember sitting in the lab one Saturday afternoon, hungover head in blue pigmented hands, after realizing we probably needed a surfactant but that the world of surfactants was improbably complex and nichey and hard to figure out quickly. My boss, on hearing the predicament, immediately relaxed and said “well, look lad, we’ll just call Tony on Monday and see what he’s got”. That’s it. Chaos begins to coalesce into some sort of order. Doesn’t every company wish that their commercial effort had a Tony Service; the first person you contact when a problem arises? Of course, but only one company, one person can be the first and you need to be that company, that person if you are to be all you can and should be. And you know what else, you don’t just wake up one morning and decide you’re going to be the Tony Service of your field. Maybe you could pull it off for a day or two but then you go back to your old comfortable ways and most people leave it there. 10% or less try again then 10% of those keep at it after failing twice and before you know it, there’s one guy left and he’s got his 10,000 hours under his belt and what started as a chore is now a good, unshakeable habit. I like to think that Tony actually started life as, like, Tony Smith. And after a decade of perfecting his craft, he actually earned his real name. I never asked him that. I didn’t have to. What would you be like if you earned your real name?

[caption id="attachment_1485" align="aligncenter" width="1024"]What Would You be Like?[/caption]

So wrapping all this up: Last month I mentioned that I’d just started digging into the works of Akira the Don and we sampled one of his meaningwave pieces. As alluded to in the opening paragraph, I spent August listening to everything of his that I could get my hands on. The dude is weird, of that there is no doubt, but some of these mash-ups of anime, hip-hop and philosophy are really quite moving. We had a management retreat earlier this month at P2 and I played a couple of the Don’s Meaningwave videos as a warm-up.

First this:

I love this idea of “what would you be like?” (see Akzo-Berol true story above) . It’s worth thinking about.

Then this: where he mashes “a spaceman came travelling” with a gut-wrenching anime and a challenging message.

Honestly, just in your day-job, making, using or flogging surfactants, the things that you and you don’t are more important than you think. Are you ready to act accordingly?

And then to actually kick off the meeting, I played this. Rudyard Kipling needs no introduction:

Every line, of course, is bursting with meaning but it’s that last one that really fit the occasion. “If you can fill the unforgiving minute with 60 seconds worth of distance run, yours is the earth and everything that’s in it…” In this coming week, if you spent just one day – not even – just one morning focused on what you came to do, trying as hard as you can, no distractions, no facebook, no instagram, no idle chit chat, no daydreaming, just being present, mindful and there to do what you came to do. What would you be like? Like Tony, actually.