Surfactants Monthly Review – July 2019
Surfactants Monthly – July 2019
Happy summer. It’s hot and humid, as it should be, on the East Coast. Down the shore, there’s the occasional cool breeze and chilled brew to provide relief. By the way, did you know there are some tremendous beers being brewed now in NJ? Kane and Icarus are world class, in my amateur opinion.
[caption id="attachment_1457" align="aligncenter" width="1024"]Silly Name. Outstanding Beer.[/caption]
There’s a lot going on at work but not that much I can talk about just now, so I’ll plug the fact that we have been working hard to bring you an outstanding program of surfactant events in Amsterdam (September 18 – 19), Mumbai (October 17 – 18) and Singapore (November 14 – 15). I should also mention that directly after Singapore, we head to KL, where arrangements have been finalized for the P2 Science triple header speaking engagement at PIPOC with Anastas, Foley and Burns on the podium (spread over 3 days you’ll be relieved to learn). I’ll also note that we have recorded a few new videos including a series with ICIS which is being released in parts over a month or so (and quite professionally produced I have to say, because they’ve managed to make me look and sound cogent and articulate).
End of Commercials. Start of News:
The month kicks off with the expected news that Arkema has completed the acquisition of US-based specialty surfactants firm Arrmaz (for an undisclosed fee.) ArrMaz offers tailored and sustainable solutions for customers in the crop nutrition, mining and infrastructure markets – as we reported last month.
"Present in North America, South America, Asia and in the fast-growing countries of the Middle East and Africa, ArrMaz achieves around $290m of sales," Arkema said in a statement.
So this is the latest in a long line of acquisitions for Arkema, stretching back for over 10 years. In fact in 10 years the company has added over 4 Billion Euros in sales – quite a big chunk considering they have 8.8 Billion Euros in sales today. An interesting outline of the strategy can be found on the website, here. And, you may not be familiar with their Surfactants and Additives business which includes surfactants polyols for applications like packaging, construction, agrochemicals and paints & coatings.
More in M&A : HB Fuller has completed the previously announced sale of its surfactants, thickeners and dispersants business to Tiarco, a subsidiary of Textile Rubber and Chemical Company, for $71m.The divested operations are a non- strategic and non-adhesive business Fuller acquired when it purchased Royal Adhesives & Sealants 2017. Fuller will use the net proceeds from the divestment to reduce its debt. Good for them.
Over in the LAB Asian Market - according to the latest data from ICIS Supply and Demand database – China LAB exports rose in May :
[caption id="attachment_1448" align="aligncenter" width="810"]Tarrifs be Darned..[/caption]
Back in the US ethylene oxide (EO) market, contract prices for June fell by 0.6 cent/lb ($13/tonne) on the back of a decrease in the June ethylene contract settlement. June EO contracts were assessed at 47.8-57.3 cents/lb FOB (free on board). US EO demand in polyethylene terephthalate (PET) remains weak for this time of year, according to ICIS. There may be limited upside in demand for pure EO derivatives as certain sectors have faced slower growth.
[caption id="attachment_1449" align="aligncenter" width="668"]Downward EO Trajectory[/caption]
We write a lot here about Sasol’s huge investment in Lake Charles, LA (see also below). But, just this month they opened a new 150,000 tonne/year alkoxylation plant at Nanjing in China’s Jiangsu province. The plant located at the Nanjing Jiangbei New Material Hi-Tech Park (formerly, Nanjing Chemical Industrial Park) reached “beneficial operation” in Aprilthis year. Construction of the plant, which is Sasol’s biggest expansion in Asia, started in June 2017.
The new plant can operate using either branched or linear alcohols to meet differentiated customer requirements in applications such as detergents, personal care, textile and leather, metalworking and lubrication, inks, paints and coatings, as well oil and gas, enhanced oil recovery and industrial cleaning, according to the company. The alkoxylation plant in Nanjing is the first fully Sasol-owned production facility in Asia. Sasol has been in China producing surfactants - including non-ionic alcohol ethoxylates, as well as anionic alcohol ether sulfates - since 1992 [I did not know that]
Elsewhere at Sasol, however, the company is projecting lower earnings for its fiscal year ending 30 June despite higher oil prices because of weaker chemical margins and cost overruns at its Lake Charles, Louisiana, cracker complex, according to ICIS. The firm is projecting a 4-14% year on year drop in earnings before interest, taxes, depreciation and amortization (EBITDA) compared to South African rand (R) 51.5bn ($3.63bn) during the previous fiscal year.
A 19% year on year increase in the rand price for Brent crude was offset in company performance by softer chemicals margins and expenses at the company’s Lake Charles Chemicals Project (LCCP).
An original cost estimate of around $9bn for the LCCP has ballooned since then to $12.6bn-12.9bn according to company estimates in May this year, due to engineering failures, worker absenteeism, and excessive rainfall. Sasol pushed backcompletion dates for the cracker and most of the downstream units by around five months in February. [Hey, I’m just reporting here. It gives me no schadenfreude or anything like that to note this. I ‘ve been there, believe me.]
The start-up sequence has been initiated at the cracker and the unit is expected online by the end of the month, keeping to Sasol’s revised timeline, but the low density polyethylene (LDPE) unit to be delayed by four to six weeks, as construction is not yet complete. The unit had been expected online in August.
The Ziegler alcohols production unit has also been hit by delays due to slower piping hydro-testing completion, which has pushed back the schedule by one to two months, from the estimated November start date, the company said.
Ethoxylate and Guerbet alcohols production units, expected online in December 2019 and January 2020, remain on track, Sasol added. The complex is overall 98% complete Sasol added, and linear LDPE and ethylene oxides and glycols units have already started up at the site.
An independent review [I’m not sure what that’s all about . All I could find is in the original press release ] of the project, announced in May when Sasol disclosed the latest cost estimates, is underway, with a report expected to be submitted to the board by the end of August this year.
In the ever-exciting and occasionally depressing, detergent range alcohol market, US C12-15 mid-cut fatty alcohol third-quarter contracts have fully settled, moving down 5 cents/lb on both sides of the assessed spread, as reported by ICIS. The C12-15 third quarter contracts were assessed at 63-72 cents/lb, bulk delivered. The assessment was down 5 cents/lb at the top and bottom ends from second quarter levels. Buyers and sellers said the assessed range was representative for most third-quarter contracts. There was at least one significantly lower outlier contract that settled below 60 cents/lb, but was not included as a factor in the assessment.
Low feedstock prices for palm kernel oil (PKO) were a factor in pushing down third-quarter contracts and remain a concern for natural alcohol price perspectives. A strong harvesting season is expected for palm oil and PKO, adding to already ample inventories. Market participants said synthetic [i.e. petrochemical] alcohol supply is readily available. Prices on the petros are said to be competitive with the natural alcohols for the third quarter. In the US, sellers’ contracts are on an account-by-account basis rather than announced price changes. The following graph shows price direction for the C12-15 mid-cut alcohol contracts.
[caption id="attachment_1450" align="aligncenter" width="668"]The laws of supply and demand, still working[/caption]
This month, Judith Taylor published one of her periodic and outstanding profiles of the fatty alcohol market. For the whole thing I have to point you to ICB, but I’ll give you a snippet “Lacklustre prospects for the remainder of this year are based on ample inventories of feedstock PKO, also supported by neutral demand factors in the US market and weak economics in the markets in the rest of the world. In the US, surfactant demand is holding steady. However, it is not boosting growth expectations.” [grist for your planning mill, I think]
[caption id="attachment_1451" align="aligncenter" width="320"]Important Crossing[/caption]
Jackie Wong also published a fatty acid profile. Again – just snippet here: “Fatty acids prices are likely to continue to face downward pressure from sluggish demand unless there is improvement to the current economic outlook.
China and the US may find a resolution to the ongoing trade war between both countries and that would provide a boost for the market, although the effects may only be felt towards the end of 2019.”
[caption id="attachment_1452" align="aligncenter" width="320"]Clear Trend[/caption]
Do you know I have 20 of those long sleeved sports shirts that Stepan gives away at the ACI. I recently took a bright red one on a cycling tour of Croatia in June. Its’ highly visible and wicks the sweat away very nicely. The green one, I wear pretty much every St. Patrick’s Day. Most of the others I wear at work so frequently that many folks assumed I worked there at some point. Far from it. Anyway, not sure why I told you that, except to highlight that I have a fondness for Stepan not least because of the shirts but also by virtue of having competed with, bought from and supplied to the company over the years.
So I was a bit disappointed to see that Stepan’s second-quarter net income fell year on year as a result of lower surfactants volumes and currency “headwinds” [headwinds? Is that a thing. I don't remember that from my Forex class].
Here’s the box-score:
Stepan ($)Q2 2019Q2 2018Change
(%)
Net sales473m520m-9Operating income41.1m45.4m-10Net income30.2m33.5m-10
Key points
- Surfactants operating income dropped almost $2m year on year from $34.0m to $32.1m on the back of an 8% decline in global volumes and foreign exchange wiping out margin improvements.
- Stepan’s exit from its German sulfonation business in 2018 and lower personal care market demand weighed on division earnings.
- The operational issues at its Ecatepec, Mexico, facility has been resolved and the company expects its insurance provider to cover the issue, after equipment failure led to a $2.3m operating loss in the first quarter of the year.
- Polymer division operating income rose year on year due to higher volumes and slight margin improvements, while specialty product income rose on medium chain triglyceride volumes and margins.
Outlook
- The company remains optimistic about the 2019 performance, according to CEO F Quinn Stepan, who declined to give specific guidance on relative group year on year earnings projections for 2019.
- Polymer and specialty product division margins are expected to improve this year versus 2018, he noted.
My Prognosis – They’ll be back. There’s nothing systemic here.
As we noted in last month’s blog, INEOS is plunking down a chunk of change in the US, to build EO and EOD capacity. 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 and linear alpha olefins 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. Interestingly, according to ICIS, 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. The company also has 200,000 tonnes/year of ethanolamines at Plaqemine in Louisiana, where it buys EO from Dow, and is one of the top three ethanolamine suppliers in the US.
Generally, INEOS is pursuing a strategy of downstream value addition. 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.
Pushing downstream has certainly been a help with the market for monoethylene glycol (MEG) this year under extreme pressure – the start of 2019 was particularly difficult as far as margins were concerned. The idea clearly is to move further into markets that are less exposed to commodity cycles.
INEOS said in its second quarter trading statement, issued last week, that demand for the Oxide business was generally flat. It said profit margins had been impacted by reduced glycol margins “due to weak Asian demand”.
The agriculture, construction and consumer goods markets remained fairly robust while MEG took its downturn. “We are looking at market need (for purified EO and for derivatives),” their CEO, Graham Beesley, said, as well as INEOS’s own derivatives such as glycol, PEGs (polyethylene glycols) and ethoxylates.
“The customer base is very welcoming about [us] being a new producer,” Beesley said of the US investment plans adding that the company would like to replicate what is being done at Zwijndrecht where third parties take raw materials from INEOS Oxide to process further. Currently INEOS has about a dozen third parties on its Zwijndrecht site.
‘As we advance the project and move towards [a] final investment decision (FID) that will sharpen what the array and the capex is,” Beesley said of the US project plans. The project may be stage, also, with downstream units added before EO capacity starts up. 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 Oxide would benefit from being ‘East of Suez’ he said. INEOS is currently looking into investing $2bn on a 2m tonne/year production complex in Saudi Arabia but Beelsley thinks that there may be other locations in the region that might be of more interest to the Oxide business. [That’s a phrase you don’t hear often “ East of Suez” – first coined by Rudyard Kipling (according to Wikipedia). Beesley’s in good company there alongside the author of the Jungle Book. ]
That’s it for July. We’ll do an August blog and then I’ll see you, perhaps, in Amsterdam.
Books, music, podcasts, TV this summer? I’d be interested to hear what you’re watching or listening to. I just finished reading The Once and Future King by T. H. White. First published in 1958, it’s about King Arthur and the Knights of the Round Table. It starts out as basically a kids book that covers the childhood of Arthur, then known as “Wart” and his adventures after falling in with an absent minded magician, Merlin. The second half of the book, however, when Arthur becomes king deals with incredibly weighty philosophical and metaphysical matters at a pretty high intellectual level (in your bloggers view, anyway). It deals with Arthur’s realization and that “might should not mean right”. Right should mean right and force should only be used in the pursuit of justice not in the pursuit of personal gain. This principle became his life’s mission and the underpinning of the development of English common law. This principle animated the creation of the round table and the initiation of the quest for the hole grail. I won’t retell the whole book here, but Wow! I had to remind myself that in fact Arthur was a mythological character. One who lives nonetheless in the collective psyche via archetypal stories like these:
and this from the 2017 movie
and, go on then..
I’ve also just started to dip into the work of Akira the Don. His picture is in the blog header. He’s a British DJ who has popularized, perhaps even coined, the term “meaningwave” for a style of hip-hop that mixes the words of certain modern philosophers / thinkers with various beats. It’s pretty weird stuff but I have to admit a certain fascination with this one. ….”If you have to choose.. be the one who does things…” Can’t argue with that.