Surfactants Monthly Review – May and June 2019
Surfactants Blog – May and June 2019
As I took a summer vacation early this year, we are doing the summer double-header blog a little earlier than usual. This blog covers key events in May and June. As a bonus, we have also published a special Independence Day Blog, which features how we might consider the day’s relevance to our business.
Something really significant happened to me recently. I got some criticism, offered in a constructive way. It was also heartfelt. I will not go into detail. However, I can say that it really hit me hard and made me realize the magnitude of the time, energy and attention that many people put into reading what I write here and engaging with what we produce in our conferences. With this attention comes appreciation (for which I am truly grateful) and an expectation that a high standard will be met. Earlier this year, it was brought to my attention, respectfully, that, on one occasion, I missed the mark and fell short of that standard. Initially, my defensive hackles went up but then I realized the point was valid. What really brought this home was the heartfelt way in which the message was conveyed. Every time I open my mouth or fail to, or put, metaphorical, pen to paper, more people take more notice than I really imagined would be the case when we started this surfactants project almost 10 years ago. I appreciate all the compliments for what we do here, of course. I love hearing that. But constructive criticism, from the heart? Priceless.
Keep an eye on Sadara, as we do here at the blog. ICIS reported that Saudi Arabia-based Sadara expects polyethylene (PE) demand in China to rebound in the second half of 2019. “Q1 was a rough part of the year but we believe we will see a rebound. In China, spot prices are up and we’re seeing less pushback from customers,” said a company official at a Saudi Aramco press tour. Sadara consists of 26 petrochemical units in Jubail Industrial City and is 65% owned by Saudi Aramco and 35% by US-based Dow.
The site runs three linear low density PE (LLDPE) units with capacities of 970,000 tonnes/year, and a low density PE (LDPE) unit with capacity of 350,000 tonnes/year, according to the ICIS Supply and Demand Database. Around 38% of Sadara’s PE output is exported to China, with much of it being C4 LLDPE for food packaging and film wrap. The rest of Sadara’s PE exports are going into Europe, Africa and other countries in the Middle East. For Sadara as a whole, 95% of its production are exported, a level it seeks to decrease as it develops the local Saudi Arabia market and attracts downstream customers to the adjacent PlasChem Park.
Sadara’s other products include ethylene, propylene, ethylene oxide (EO), butyl glycol (BG), amines, propylene oxide (PO), propylene glycol (PG), polyols and isocyanates. On the feedstock side, Sadara operates 12 furnaces in its mixed feed cracker – seven using gas, and five liquids with three of those five able to switch between feeds. Sadara is currently processing around 85,000 standard cubic feet (scf)/day of ethane, and 53,000 bbl/day of naphtha, for an approximate 60/40 ethane/naphtha mix, he added.
[caption id="attachment_1432" align="aligncenter" width="1024"]Keep an eye on it[/caption]
Early May, Sasol informed ICIS that the company has reached beneficial operations at its new 250,000 tonne/year ethylene glycol (EG) plant in Lake Charles, Louisiana, ahead of schedule, according to market sources. The company defines beneficial operations as production of on-spec material for at least 72 hours continuously. [3 days on spec. seems about right for this sort of metric although as any seasoned plant manager will tell you – let’s see how on-time stats stack up after a year or so of customers shipments before declaring “mission accomplished”] The EG unit is part of the company's Lake Charles Chemicals Project (LCCP), which will also include a 1.5m tonne/year ethane cracker and downstream units of 470,000 tonnes/year linear low density polyethylene (LLDPE), 420,000 tonnes/year low density polyethylene (LDPE) and 300,000 tonnes/year of ethylene oxide (EO).
[caption id="attachment_1433" align="aligncenter" width="640"]At Least in Ethylene Glycol[/caption]
Just along the Gulf Coast from Sasol, Indorama Ventures (Ltd) began trial runs at its 440,000 tonne/year ethane cracker at Westlake in Louisiana. The cracker is operated by IVL's indirect subsidiary Indorama Ventures Olefins.
"IVOL has stabilized production of on-spec ethylene and its byproducts at five of its seven furnaces and will ramp up gradually during the course of the second quarter of 2019," the company said in a filing to the Stock Exchange of Thailand."This project...creates an exciting new platform of growth as well as affording stability and supply chain advantages to our EO/EG business by its pipeline integration," it said. Once normal production starts, the company aims to capture around 75% of the ethylene output for its internal ethylene oxide (EO)/ethylene glycol (EG) production "and merchant the remaining output", the company added.
Separately, the the company announced that its indirect subsidiary Indorama Ventures Oxide & Glycols on 2 May lifted a force majeure at its 550,000 tonnes/year production site at Clear Lake, Texas, site which produces EO, PEO and glycols. Unfortunately this was not before the outage impacted earnings for the patrent company. Indorama Ventures Ltd's (IVL) first-quarter net profit fell, weighed partly by the unplanned shutdown of its ethylene oxide (EO)-ethylene glycols (EG) production site in the US, the Thai conglomerate said in a press release.
Thai baht (Bt) millionQ1 2019Q1 2018% changeSales95,81076,14325.8EBITDA8,39310,863-22.7Net profit3,7335,841-36.1
Key points
Core EBITDA margin for the group fell to 10% in Q1 2019 from 14% in Q1 2018, weighed by lower margins at olefins and specialty chemicals units.
Q1 group production volume rose by 28% year on year to 2.97m tonnes, despite a 77% drop in olefins output.
Outlook
The strength in IVL's core businesses (integrated PET [polyethylene terephthalate], fibers and packaging) is likely to remain for the rest of 2019.
Earnings from the olefins and specialty chemicals businesses are expected to remain weak for the rest of 2019.
"This changed ecosystem necessitated a comprehensive review of our 2019 EBITDA guidance. At this juncture, we believe it may be prudent to lower the previous guidance of core EBITDA for 2019 by 10-15%," the company said.
Chemicals distributor Brenntag, large marketer of surfactants, has acquired Marlin Company, a US-based provider of custom chemical blending and packaging services for liquid and powder products.
“Marlin’s unique powder and liquid blending services for many different industries and their professional packaging and labeling system are an excellent addition to Brenntag’s value-added services business,” said Markus Klahn, CEO of Brenntag in North America. Marlin, of Lenoir, North Carolina, had sales of $7m last year, according to a statement by Germany-headquartered Brenntag late on Thursday. The acquisition price was not disclosed.
M&A Activity in surfacants continues to be robust. Arkema will acquire US-based surfactants maker ArrMaz for an undisclosed amount, the French specialty chemicals producer said on Mid-May. ArrMaz produces surfactants for crop nutrition, mining and infrastructure markets; and has generated sales of $290m, with an EBITDA margin of 18%, Arkema noted to ICIS. Synergies from the acquisition are estimated to be worth about $15m by 2023, pertaining mostly to purchasing and commercial complementarities between the two companies. The acquisition is part of Arkema’s drive to realize 80% of revenues from specialties by 2023. And despite the old joke about a specialty business being one you just acquired (and a commodity business, one you just divested), it’s fair to say that ArrMaz is nothing if not a specialty business with highly performance driven niche markets around the world. Good for them and good for Arkema, I believe.
More details came on the deal from an Interview that Arkema’s CEO gave to Tom Brown of ICIS. Purchase price was $570m. Arrmaz generated sales of $290m, with an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 18%. This gives an EBITDA multiple of about 10.8 [ not crazy ].
I take a fairly strict “you gotta be there” stance when it comes to things that happen at my conferences. That is I don’t write about them because, if you really want to know what was discussed, you gotta be there. However, as ICIS has already published this, I can give you an excerpt of what they had to say about the veritable master level college course delivered in 40 minutes by the knowledgeable and talented Martin Herrington.
The global surfactants industry is unlikely to move away from using palm kernel oil (PKO) as a key feedstock, as noted by Martin. “As long as you need C12/C14 fatty alcohols and want bio-based availability, eliminating PKO on a large scale would be difficult,” said Martin Herrington, president of IP Specialties, at the 9th ICIS World Surfactants Conference. PKO has increasingly come under the environmental spotlight on concerns about mass deforestation. Most of the world’s PKO comes from southeast Asia.
The 1.3ha that it takes to produce 5 tonnes of palm oil and about 550kg of PKO would produce less than 1 tonne of soybean oil. .. I’ll cut it there – but I can tell you that I have never seen a paper as chock-full of data and analysis as Martin delivered in May. If you missed it, we are working on getting him back for a return engagement at one of our events later in the year. We’ll let you know.
We wrote about MFG Chemicals back in January and February as in investment continued to come in from new owners. According to ICIS, MFG Chemical now plans to upgrade its Dalton, Georgia, facilities to prepare for the next phase of growth. In early May, the company completed its $5.4m expansion in Pasadena which includes new 20,000 and 10,000 gallon reactors along with additional tankage capacity. The company now has 10 reactors at the site with capacity of 85,100 gallons.
MFG now plans to spend around $4m through mid-2021 at its Dalton sites to upgrade control and feed systems. It will also shift certain chemistries related to oilfield chemicals to its Pasadena site, which is closer to customers in this key end market. One of MFG Chemical’s core products is dioctyl sulfosuccinate (DOSS), which is used in oilfield chemicals among many other applications. Its key feedstock is maleic anhydride (MA). MFG picked up the 26.7-acre Pasadena plant in March 2018 through its acquisition of Houston, Texas-based Gulf Bayport Chemicals, making it one of the largest buyers of molten MA in the US, according to the company. Its other three plants are located in Dalton, Georgia.
Along with DOSS, MFG Chemical produces other MA derivatives, including octenyl succinic anhydride (OSA) and dodecenyl succinic anhydride (DDSA) formulations through batch manufacturing. OSA is used as a food thickener, while DDSA goes into coatings and water treatment applications. With its specialty chemicals which include amides, esters, imidazolines, water soluble polymers, rheology modifiers, specialty anhydrides and DOSS formulations, MFG serves other end markets such as agriculture, lubricants, mining, personal care, and pulp and paper.
More interesting and logical M&A news from Japan reported by ICIS: Japanese chemical producers Nippon Shokubai and Sanyo Chemical plan to merge, subject to a final agreement expected in December. The plan to integrate the companies’ operations was prompted by an “increasingly severe” business environment, both in Japan and internationally, Nippon Shokubai said in a filing. Nippon Shokubai produces basic chemicals, including acrylic acid (AA) and ethylene oxide (EO), as well as high-performance functional chemicals and environmental and catalyst products. Sanyo Chemical produces and markets about 3,000 types of performance chemicals. It depends on raw materials from Nippon Shokubai and other suppliers. Should the merger proceed, Nippon Shokubai and Sanyo Chemical will become wholly owned subsidiaries of an “integrated holding company” listed in Tokyo, with a listing planned for 1 October 2020.
In yet more M&A news: HB Fuller has agreed to sell its surfactants, thickeners and dispersants business to Tiarco for $71m, the US-based adhesives producer told ICIS. Tiarco is a subsidiary of Textile Rubber and Chemical Co. HB Fuller said the business is a non-strategic and non-adhesive business that the company acquired when it purchased Royal. Now according the the St. Paul. MN Star Tribune, H.B. Fuller's surfactants, thickeners and dispersants business has annual revenue of about $25 million and earnings of about $8 million. This would make a 8.9X multiple [again not crazy].
[caption id="attachment_1434" align="aligncenter" width="948"]Price Not That Insane[/caption]
And in even yet more M&A news, Genomatica's acquisition of REG's Life Sciences subsidiary has given the company access to a third group of renewable chemicals that it seeks to commercialise, according to an ICIS analysis. Life Sciences and its predecessor, LS9, had spent years developing strains of E coli that could produce oleochemicals of lengths of up to 18 carbon atoms by fermenting sugars. These oleochemicals give Genomatica a third group of renewable chemicals. Right now, the company is developing microorganisms that can produce C6 chemicals such as caprolactam (capro) and C4 chemicals such as butanediol (BDO) and butylene glycol (BGO).
Right now, oleochemical plants make a mixture of molecules that have varying lengths. Life Sciences has developedstrains of E coli that can produce tailored cuts of oleochemicals, whether it is C8, C10, C12 or higher. Looking ahead, Genomatica will continue the cellulosic biodiesel research programme that REG had earlier started with ExxonMobil. Genomatica is also intrigued by work REG had done in flavours and fragrances, which would be a new market for the company, Schilling said. A lot of this work revolves around musk-fragrance molecules. Still other promising products include molecules with functional groups on either end. In other cases, the placement of double bonds can vary within the molecule. [As I have noted before, someone’s going to get rich from this LS-9 work. Let’s see if it’s going be the Genomatica shareholders. ]
[caption id="attachment_1435" align="aligncenter" width="600"]Someone's Gotta Get Rich - Right?[/caption]
Toward the end of June, the talented and very plugged in, Judith Taylor reported on the detergent-range alcohols market. She noted that finished business for the mid-cuts is edging lower from the second quarter but not as deeply down as some market participants expected. Palm kernel oil (PKO) feedstock volatility that dominated second-quarter contract discussions abated in the third-quarter negotiations but continues to influence the natural alcohol price perspectives. Market participants said synthetic alcohol supply is readily available. Prices on the synthetics are said to be competitive with the natural alcohols for the third quarter. Second quarter C12-15 alcohol contracts were assessed at 68-77 cents/lb bulk delivered.
Over in Europe, Melissa Hurley noted that European ethylene oxide (EO) contract prices for July fell by double digits, following the steep decrease in the upstream ethylene contract which emerged.. The European ethylene contract reference price for July has been agreed at €1,000/tonne, down by €75/tonne compared with June on Friday. European July EO contract prices dropped by €62/tonne on both ends of the range, bringing prices to €1,281-1,449/tonne free delivered (FD) northwest Europe (NWE).
So, what else is new? A few things caught my eye this month.
First BASF is putting a renewed push on an old product, sulfonated fatty acids. In particular disodium 2 sulfolaurate, the subject of recent BASF patent filings (e.g. http://www.freepatentsonline.com/20180338898.pdf ) . BASF additionally claims to have developed a new manufacturing process to give high yields of light colored fatty acid sulfonates. There’s not a lot of material out there from BASF yet on this product, but it looks to me like it could be very low cost, especially if existing sulfonation assets can be used in its production. Let’s see
Kao (the vertically integrated consumer products and surfactants supplier) is now commercializing their Bio-IOS, an internal olefin sulfonate for use in detergents. In fact the product is already formulated in Kao’s Attack – Zero detergent. Read more here (https://www.kao.com/global/en/news/2019/20190123-001/ ) . Interestingly the product is based on C16’s and 18’s found in palm stearin, which means potentially low cost and biorenewability. Relevant patent activity includes: https://patents.google.com/patent/WO2014046175A1/en and https://patentimages.storage.googleapis.com/31/87/cf/65964681dc0e27/EP2899258A1.pdf
I think that both of the above are notable in that they represent potentially very low cost options for renewable with minimal registration barriers to commercialization. Keep a close watch!
[caption id="attachment_1436" align="aligncenter" width="1024"]Barriers Easily Cleared[/caption]
Finally, Early July, INEOS announced a big US project. A circa 520,000 MT/yr Ethylene Oxide (EO) unit and associated downstream Ethylene Oxide Derivatives (EOD) unit, to be built at INEOS’ Chocolate Bayou manufacturing works south of Houston on the Gulf of Mexico coast. Chocolate Bayou is currently host to two Olefins crackers, two Polypropylene units and two Cogen facilities operated by INEOS O&P USA. A new Linear Alpha Olefins unit and associated downstream Poly Alpha Olefins unit are also currently under construction at the site by INEOS Oligomers. More on this next month.
That’s it – all news. If you want opinion and musings check out our companion Independence Day Post.