Surfactants Monthly March 2019

Surfactants Monthly Review – March 2019

Authenticity

Occasionally in these columns, I like to riff on a word that has appeared suddenly in the popular lexicon. These days, apparently, the highest accolade that can be bestowed upon a person or company is that they are authentic. Authenticity beats the seven cardinal virtues all the way to the metaphorical bank. To paraphrase Groucho Marx, if you can fake authenticity, you’ve got it made. Who or what, then is authentic and how did they achieve such exalted status?

For more thoughts on authenticity, read, don’t skip, to the end of the blog. In the meantime, though you know what’s authentic? My surfactants conference coming up in May, covering bio-surfactants, digitalization, EO, EOD’s and the campus opportunity for ethoxylators, Estee Lauder, Exxon and every type of company in between. Along with hundreds of your colleagues, this is the authentic world surfactants experience, complete with our third exclusive awards ceremony. Please don’t miss out as we once again fill the Jersey City Hyatt for 3 glorious days of surfactants business. I’ll see you there.

End commercial. Start of authentic news.

The month started off with news from the biotech front. REG told ICIS that they have decided to pursue the sale of their Life-Sciences business unit, which is developing various fermentation technologies. Those who have been following this story for the past decade or more, know that we are talking about LS-9, the company who developed a way to make fatty alcohols from sugars and glycerine and once sold a single ton of lauryl alcohol to P&G and thereupon launching a press release across the bows of the industry several seconds after the product left the factory gate.

The decision to sell followed a strategic review of the business unit that REG started as we blogged, in November 2016, following the 2014 acquisition of LS-9. Life Sciences is developing fermentation technology to produce fatty acids, along with esters and alcohols, the company said. These would be mid- to long-chain molecules made up of 8-18 carbon atoms.

Specifically, the company was developing strains of E coli that can ferment crude glycerine to directly produce detergent-range fatty alcohols with chain lengths of 12 to 14 carbon atoms. Crude glycerine is a byproduct of biodiesel production.

The unit is developing other bacteria strains that can consume C-5 sugars. Such sugars make up hemicellulose, which, along with cellulose and lignin, make up biomass.

Of course, they have done other things since the P&G sale. Life Sciences has a development agreement with ExxonMobil. In October 2016, the unit delivered one metric tonne of a specialty fatty acid to Aroma Chemical Services International. It was the first commercial product of the unit. Earlier this year, Clariant signed a joint research agreement with REG and ExxonMobil, in which they would incorporate the company's sunliquid cellulosic sugar production process. Life Sciences has a demonstration-scale fermentation plant in Okeechobee, Florida with a capacity of 200 tons/year.

So, let’s see, maybe a private financial buyer can take the old LS-9 back to its venture roots, with a nice, tidy balance sheet and cap table.

[caption id="attachment_1401" align="aligncenter" width="622"]Roots in sight again[/caption]

More now on fatty alcohols made the old-fashioned way, from the talented ICIS reporter, Judith Taylor. The US mid-cut fatty alcohol market has a number of uncertainties going toward the second quarter of 2019, Judith notes.

Many market participants attended the Malaysian Palm Oil Conference (POC) in Kuala Lumpur 4-6 March, hoping to gauge the general direction that alcohol prices might take for the second quarter. PKO – a lauric oil – prices have scattered up and down since December, generating uncertainties for pricing in the second quarter. US mid-cut fatty alcohol contract prices are not directly tied to the price movements of PKO but the cost of the oil is a key factor in achievable contract offers and eventual settlements for the natural alcohols. Second-quarter contract offers have not emerged in the US, but are expected to enter the market during the second week of March when results of the POC can be gauged.

PKO pricing has been up and down during the first quarter, keeping feedstock costs unclear for alcohol producers and trading subdued. Alongside volatile PKO prices, US alcohol buyers are also seeing demand factors easily met by supply of both natural and synthetic alcohols. Synthetic (that is petrochemical) alcohol supply was tight for a number of quarters, but market sources said synthetic supply improved in January and February. In the first quarter, US C12-15 mid-cut fatty alcohol first-quarter contracts were assessed down, on ample supply in natural alcohols and fluctuating feedstock prices. The first-quarter mid-cut fatty alcohol contract range was assessed at 71-79 cents/lb, bulk delivered basis, shedding 9 cents/lb from the low end of the fourth-quarter range and 10 cents/lb from the high end.

Toward the end of the month the prognosis for European fatty alcohol prices was downward according to ICIS. Early second-quarter discussions for European fatty alcohols prices have been heard at levels slightly below figures for the first quarter. Most values heard so far have been below €1,300/tonne FD (free delivered) NWE (northwest Europe). The first quarter range was €1,300-1,450/tonne FD NWE. The downward pressure has been attributed to tumbling feedstock palm kernel oil (PKO) values in recent weeks. However, PKO prices rose last week and could impact on second-quarter discussions if the momentum continues. The majority of second-quarter contract discussions are now underway with some settlements anticipated within the next week. Demand has been relatively stable and there have been no production issues noted in March.

Also toward the end of the month, Judith noted a similar prognosis for US fatty alcohols. US C12-15 mid-cut fatty alcohols second-quarter contract negotiations are underway amid downward pressure driven by ongoing volatility and lower prices in key natural alcohol feedstock palm kernel oil (PKO). Settlement showed mixed prices in the mid-cuts, although all prices discussed were edging down. The C12-15 mid-cut fatty alcohols first-quarter contracts were assessed at 71-79 cents/lb. Sources said a key factor for 2019 is ample inventories of crude palm oil (CPO) and for feedstocks PKO and coconut oil (CNO). Inventories in one of the primary feedstock production regions exceeds 1m tonnes over the typical high point, exerting pressure on the entire natural alcohol complex in 2019. Mid-cut demand continues to be strong in the US, with surfactant uses in most applications showing continual progress and oilfield uses holding firm. By the way you can also follow Judith on Twitter

Downstream, the equally talented Kheng Wee Loy reported that Fatty alcohol ethoxylates (FAE) import markets in Asia were expected to nudge down because of weak upstream values and healthy supply. Regional prices for FAE, having been trapped in a downturn since early 2018, are currently the lowest in over two and a half years. In the week ended 6 March, import prices for FAE-7,9 were assessed down by $25/tonne to $1,395/tonne CIF (cost, insurance & freight) SE (southeast) Asia, and at $1,315/tonne CIF China, on average, according to ICIS data. Prices on CIF China basis remained stable over the same period. The dramatic reversal of upstream ethylene prices could thrust FAE discussions on an extensive downward spiral, diminishing the likelihood of a price rebound. Ethylene import markets in Asia have slumpedfor a second consecutive week amid lengthy supply, after surging for most of the quarter by over $300/tonne or nearly 40%, ICIS data showed.

People news: SI Group, a maker of surfactants and intermediates and other things, has named David Bradley as the company's new CEO, the US-based specialty-chemicals producer told ICIS. will replace the interim head, David Mezzanotte, who is also a director of the private-equity firm SK Capital. SK Capital had acquired SI Group in October 2018. David Bradley was previously the CEO of the US chemical distributor Nexeo Solutions. So a move up the value chain. Nexeo has been acquired by Univar. SI Group's previous CEO was Frank Bozich, who is now the head of Trinseo.

[caption id="attachment_1402" align="aligncenter" width="1000"]Gotta make it before you ship it in this job[/caption]

Polish manufacturer of surfactants and other chemicals, PCC Rokita, continues to make the news. The company has reached a deal with China’s Shandong Shida Shenghua Chemical Group to form a joint venture for the production of organic carbonates in Poland. A facility will be built at PCC Rokita’s production site in Brzeg Dolny, southwestern Poland, for the manufacturing of the product used in lithium batteries. The expected plant capacity is 20,000 tonnes/year. The joint venture, to be realised through a special purpose vehicle, will be split 49:51 between PCC Rokita and Shandong Shida Shenghua.

The initial investment commitment is €22m, the Polish company added.

PCC Rokita has several business partners in East Asia. In April last year, it acquired a further 25% of Thailand’s IRPC Polyol taking its ownership stake in the joint venture to 50%. In March last year, lpis, a subsidiary of sister companies PCC Exol and PCC Rokita, acquired 100% of the shares in PCC Oxyalkylates Malaysia. The PCC companies are subsidiaries of Duisburg, Germany-based energy, logistics and chemicals group PCC, which has operations in 17 countries. PCC Rokita produces polyols and polyurethane (PU) systems, along with chlorobenzene, chlor-alkali, surfactants, phosphorous derivatives and napthalene derivatives. Shandong Shida Shenghua Chemical, located in Dongying, near Beijing, is run by China’s University of Petroleum, according to its website. Its products include lithium hexafluorophosphate, imethyl carbonate, propylene carbonate, ethylene carbonate and methyl ethyl carbonate.

We don’t often write about the short-chain alcohol market here, so I was pleased to see this article by Jackie Wong in ICIS. Some short chain fatty alcohols producers in Asia were concerned about a potential increase in output with greater incentives for some producers to start converting their short chain fatty acids into alcohols, market sources said toward the end of the month.

Short chain fatty alcohols demand slowed down over the last few months, but that was offset by very tight supply, which helped some suppliers protect their margins. However, with sluggish short chain fatty acids sales and as the gap between the short chain fatty acids and short chain fatty alcohols widen, some producers were worried their competitors may start converting the fatty acids into alcohols to fetch better margins. A couple of southeast Asian fatty alcohols producers explained that while most producers would be reluctant to use their plants to convert the short chain fatty acids into alcohols as it would disrupt the production of other alcohols cuts, some producers may be incentivised to do so when the spread between the short chain fatty acids and short chain fatty alcohols reaches around $1,000/tonne, which is the current level. Increase in short chain fatty alcohols output would place downward pressure on prices and since the converters would be able to get the short chain fatty acids at a relatively cheap price, they would be more motivated to sell their short chain fatty alcohols at lower prices. Last week, Asia's C8 alcohols and C10 alcohols were assessed as $3,350-3,500/tonne FOB SE Asia and $3,010-3,110/tonne FOB SE Asia respectively.

[caption id="attachment_1403" align="aligncenter" width="407"]Short chains more valuable[/caption]

We like to keep you updated on the Sasol project and ICIS’s Al Greenwood does an excellent summary this month. He reports that various units are at different stages of final construction and commissioning at Sasol's new complex in Lake Charles, Louisiana. Already, operations have started at the linear low density polyethylene (LLDPE) unit.

The following table shows an earlier timeline that lists the start-up times for the various units.

UnitUpdateLLDPEFeb-19EO/EGJun-19CrackerJul-19Low-density PEAug-19Ziegler alcoholsNov-19EthoxylateDec-19Guerbet alcoholsJan-20

[caption id="attachment_1405" align="aligncenter" width="1000"]A veritable surfactants and intermediates gumbo[/caption]

In very important EO capacity news, INEOS Oxide plans to double the capacity of its new ethylene oxide (EO) and derivatives facility on the US Gulf Coast, expected to start up in 2023, the chemicals producer told ICIS. The plant will produce 1.2bn lb/year (520,000 tonnes/year) of EO. Previous planned capacity was 270,000 tonnes/year. [ Talk about a shot across the bows! ]INEOS is considering several sites on the US Gulf Coast. Expected project costs were not disclosed. “This build allows us to address a fast growing EO merchant market as well as our own requirements,” said Ghislain Decadt, operations director at INEOS Oxide. “Combined with our upstream olefins capabilities, this world class facility will secure our position as a reliable and competitive producer.” In addition to installing its own ethoxylate derivative capacity on site and infrastructure to supply customers by rail, INEOS plans to allow third parties to co-locate on site and consume EO by pipeline.

[caption id="attachment_1406" align="aligncenter" width="750"]Ineos announces EO plans[/caption]

To wrap up; the aforementioned Judith Taylor wrote an interesting article on how he detergent range fatty alcohol market could shift on the influence of the huge millennial demographic, affecting sectors from base oil additives to home cleaning products. Reasons leading to this viewpoint derive from changes in the upstream base oil market to changes in house and clothes cleaning products.

In base oils light viscosity oils are increasingly dominant and polyalphaolefins (PAOs) could hold the future. This links to the alcohols via the additives needed to make the passenger car motor oils (PCMOs) that form the major end-use for base oils. Millennials are keen on car sharing and rentals, factors also lending changes to base oils and motor oil sectors. In home cleaning and personal care segments for the alcohols, millennials are interested in gels and pods and less likely to use powdered products, factors that can mean less overall use of the detergent alcohols. Because the potential shifts in these markets are future-oriented, likely at least ten years out, some producing companies in both the base oil sector and in the fatty alcohol sector are approaching buyers with open questions about expectations and needs now and going forward. Food for thought.

[caption id="attachment_1407" align="aligncenter" width="1024"]..and this one has just a touch more C16[/caption]

So back to our question of – what is authentic? Well, let’s see, if you smoke dope and swear, you’re authentic (man, I must have known a lot of authentic people as a teenager). It further helps if you’re a billionaire and do it on the radio (I’m talking about Elon Musk if you haven’t twigged). Being a billionaire alone, however, is not enough. Warren Buffet, authentic. Kylie Jenner, hmmm. Any Koch brother, nope. Mark Zuckerberg, not any more, if he ever was.

[caption id="attachment_1408" align="aligncenter" width="1024"]Really?[/caption]

Skateboarding confers authenticity (see teenage comments above). Skiing not so much, I think. Can married couples be authentic together. George and Barbara, yeah I think so. Al and Tipper – c’mon you can’t un-see that made for TV kiss.

[caption id="attachment_1409" align="aligncenter" width="720"]Really ![/caption]

Can one marry across authenticity lines? Apparently so. Kanye West (aka Mr. Kim) is still viewed as an authentic rapper whilst married to what is surely the icon of American inauthenticity (don't pretend you don't know ).

[caption id="attachment_1410" align="aligncenter" width="900"]Are they real?[/caption]

I, like most of you, consider that, as a businessman and a consumer, I have a reasonably good nose for the authentic and the inauthentic. But this last month I was riveted by a story of inauthenticity on such a grand and audacious scale, that I could only stand and gaze in a wide-mouthed mix of horror and sadness at its protagonists. Exhibit number 1 in the federal case of Higher Education vs Authenticity, filed in the court of public opinion is one Olivia Jade (not her real name, natch). By the way, if you’ve no idea what I’m talking about go google “college admissions scandal” and come back here. The scandal essentially involves wealthy (not rich enough to have a building named after them, but with a few hundred extra $K to deploy in greasing the skids) parents bribing various college staff members to get their kids into prestigious colleges. A popular variant of this popular caper was to bribe a college sports coach to have your child falsely designated a sports recruit, thus enabling admission with a sub-par SAT. score. This resulted in some hilarious ruses with faces photo-shopped onto pole vaulting bodies and, in the case of Olivia and her sister Isabella, posing as Olympic level rowers next to a ..erm.. rowing machine at the gym because an actual boat was not readily to hand in Beverly Hills that day. The hapless sisters did not and most likely today, still do not, know which end of the oar goes in the water.

[caption id="attachment_1411" align="aligncenter" width="618"]Unreal[/caption]

But in the case of 19 year old Olivia, the story is uniquely exquisite. She had proudly professed no interest at all in college, apart from maybe “game days and parties” and in fact was seemingly blissfully unaware that she had even applied to USC, her parents having paid someone to do the application for her. You see she already had a perfectly good career as a B-list instagram influencer hawking, under contract, Sephora cosmetics and shilling (for pay) for Amazon and others to her 1.4 Million followers. She was earning good money and building a brand doing what teenage American girls, of a certain demographic, do. To be yanked, against ones will, from one arguably inauthentic life into what was formerly known as “getting an education”, via an artfully constructed fiction strikes me as ironic, sad and somehow poetic. To cap it all, at the very moment her parents were arrested, by the FBI, at 6.00AM, in a dawn raid, guns drawn, handcuffs eventually not used, for this crime, young Olivia was spending spring break aboard Invictus. Oh you don’t know? Invictus is the yacht belonging to the chairman of the USC board of trustees.

[caption id="attachment_1412" align="aligncenter" width="672"]Can't make this stuff up[/caption]

At this point, let’s observe a moment’s silence for the education system. …Thank You. It’s had a good run, but if any industry is ripe for disruption (another buzzy word) this is surely it.

Where does that leave us? Me and the handful of blog readers who read this far just to see how many Kardashians could fit into a blog post. Well we probably can’t reform education as well as hold down our day-jobs. But control what you can control, that is what you say and do, next, moment by moment. Look, I’m not dismissing all the Kaheneman and Tversky stuff about the influence of the subconscious. I’m talking more about Gladwell’s 10,000 hours. We are the sum total of all the things we do and I think that if you synch-up those actions with what you think and your inherent moral sense, then you are a lot more likely to be successful. Then the 10,000 hours you put into your craft are going to pass a lot more quickly and easily. Whether your craft is buying, selling or making surfactants or teaching or music or cosmetology or whatever it is, you won’t get truly great at it if you are somehow uneasy, conflicted or in any way at odds with it. I’m a bit wary of making high minded claims (although it usually doesn’t stop me). Our conferences are chock – full of authentic people who just want to get a little bit better at their jobs every day. They are the attendees and speakers and some of them will even get awards. These are really super-high quality hours that you will spend and they absolutely count against your authentic 10,000 hours. I’d love to see you there.

Neil