Surfactants Monthly – November 2018
Surfactants Monthly Review – November 2018
The Road More or Less Traveled
November kicked off, for me, with a week in Singapore at our 8th Asian Surfactants conference, followed by a week in KL. I learned a lot about palm plantations, downstream integration, Asian consumer trends and about Petronas (they of the towers and petrochemicals fame). More than that, I won’t say here, because, as you’re doubtless tired of hearing me say, “you gotta be there”. Your next opportunity to “be there” comes up in May in NYC for the 9th flagship / mothershipsurfactants conference. The course, the seminar, the awards. the conference. It’s all there. May 14th – 17th next year.
[caption id="attachment_1319" align="aligncenter" width="500"]Mothership Landing[/caption]
As always, pretty much all of the news in this blog comes courtesy of the ICIS News team. For the full news experience, you really need to subscribe, like I do. The opinion, of course, and all the video selections are mine alone. BTW, I have a habit of inserting my own comments into the news stories. I try to highlight these in italics but not 100% consistently. So if it sounds somewhat chatty or even a little sarcastic, that’s me, not ICIS.
EO (Ethylene Oxide) is a topic of perennial interest at our events. At the beginning of November, ICIS reported EO November contracts decreased slightly following the downward ethylene contract settlement. The European ethylene contract reference price for November was agreed at €1,135/tonne, down by €10/tonne from October. EO contract prices decreased by €8/tonne at both ends of the range, bringing prices to €1331-1459/tonne free delivered (FD) northwest Europe (NWE). This settlement finally reversed the pricing gains posted last month by ICIS. EO supply remained, as many have experienced, limited amid the heavy turnaround period, which reached its peak in October. Adding to the current planned turnarounds, there were unplanned issues in Marl, Germany.
Right at the end of the month, ICIS reported that the European ethylene oxide (EO) December contracts dropped significantly, following the triple-digit decline in the upstream ethylene contract price for December. The European ethylene contract reference price for December has been agreed at €1,025/tonne, down by €110/tonne from November. December EO contract prices fell by €90/tonne at both ends of the range, bringing prices to €1,241-1,369/tonne FD (free delivered) NWE (northwest Europe).
According to ICIS, EO supply remains tight and demand is still good, which supports pricing increases on adder discussions for next year's contracts. There were several planned turnarounds in October leading into November, along with some unplanned issues in Germany and Poland. EO contract fee talks for 2019 continue, with varying degrees of increases being discussed due to demand growth expectations and some concern surrounding the heavy cracker turnaround period next year. BASF, INEOS and Clariant have all announced capacity expansions recently. There is a focus on the good demand for purified EO which is highlighted by the most recent news of Clariant announcing capacity expansion plans for purified EO this week
More EU EO Action: ICIS reports that Clariant will expand the capacity of its ethylene oxide (EO) unit in Gendorf, Germany An increase of high purified ethylene oxide (HPEO) is expected to be available from 2020, the company said in a statement. Details on plant capacity increase and investments were not disclosed.It will be a “sizeable expansion” (so.. 40 , 60 KMT/yr ?), Clariant executive committee member Christian Kohlpaintner said. Clariant has a 240,000 tonne/year EO unit in Gendorf, according to ICIS data.
Back in the US, similar drama in the EO market, as reported by ICIS’s Tarun Raiza: US EO production in the second quarter had been constrained by tight supply amid turnarounds undertaken separately by multiple producers. Production increased in the third quarter as the turnarounds wrapped up. Third-quarter demand was healthy for EO into downstream monoethylene glycol (MEG) during the peak bottle resin season and into downstream ethanolamines during the peak surfactants season. Tarun went on to report ..
US ethylene oxide (EO) contract prices for October fell by 3.3% on the back of a 7.4% decrease in the October contract settlement for feedstock ethylene. October EO contracts were assessed early November at 54.0-63.5 cents/lb ($1,190-1,400/tonne) FOB (free on board), a decrease of 2.0 cents/lb from September. US October ethylene contracts were assessed at a 2.5 cent/lb decrease.
I like Helm a lot and have done a bit of business with them over the years. So I was pleased to see a nice article penned by Will Beacham this month. I won’t give you whole thing, but here’s a few snippets.:
Germany’s Helm … occupies an unusual middle ground in the value chain where it becomes the sales and marketing arm and even equity shareholder for the chemical producer partners it represents. ….According to chairman Hans-Christian Sievers: “In chemicals and fertilisers we have chosen to integrate ourselves backwards towards the producer. In chemicals we are possibly strong in 50 products but we aim to be a significant market player – we want to have producer status so our aim is to have annual volume equivalent to a modern worldscale plant.”
The group is growing its position especially in glycols, propylene and methanol…..Helm typically partners with companies which have technology or access to gas and with start-ups which sometimes need a minority shareholder to facilitate financing. Helm is also growing in ethylene glycols, where it has a contract with Sasol at Lake Charles to market its entire 250,000 tonne/year EG production once Sasol’s new cracker starts up.
Says Helm “..we don’t have an official date but it will be around the turn of the year. Sasol is mainly going into ethane cracking for ethylene and polyethylene (PE), ethylene oxide (EO) and downstream products like ethanolamines. Glycol is a byproduct so they place that in our hands because we are the expert company for glycol marketing.” Capacity of mono ethylene glycol (MEG), diethylene glycol (DEG) and triethylene glycol (TEG) is growing to 1m tonnes/year over the next two years – the equivalent of 2-2.5 worldscale plants.
[caption id="attachment_1320" align="aligncenter" width="1024"]Looking Sharp at Helm's Helm[/caption]
Capital Discipline has not beena a quality for which the chemical industry has been renowned. The “new Dow” will not build a new cracker in its “Wave 2” of planned expansions, in line with its renewed focus on capital discipline, its CEO said on recently.
“Wave 2 will not have a new cracker. We will be adding capacity at existing sites, including debottlenecking ethylene. For example, in Terneuzen [the Netherlands] and Freeport [Texas, US], we have room to expand,” said Jim Fitterling, CEO of Dow, at a media briefing with ICIS at its investor day in New York.
..Dow also plans silicones, polyurethanes, and ethylene oxide (EO) derivatives investments in the next three years, which could add another $200m-400m in annual EBITDA.
This includes debottnecking in siloxanes over the next 18-24 months, as well as an EO derivatives expansion over the next 24-36 months, said Fitterling.
On its investor day slides, Dow lists upcoming expansions in alkoxylates and glycol ethers, siloxane resin and silicones, polyurethane (PU) systems and Sabine ethylene copolymers.
One major theme for the new Dow was capital discipline. It plans capital expenditures (capex) to be at or below depreciation and amortisation (D&A). Compared to the “Old Dow” from 2014-2016 where annual capex was around $4bn, the new Dow plans annual capex of around $2.8bn comprising incremental growth capex, and maintenance, regulatory and turnaround capex. One can imagine the scene when a "new Dow" VP approaches the board for investment in his pet project....
Actually the investor day slides are very informative and worth a read here: http://s21.q4cdn.com/813101928/files/doc_events/2018/11/07/Dow-Investor-Day-2018-Presentations.pdf
This one captures the essence of the surfactant strategy (event thought it is not labeled as such); “Upgrade Ethyelene and Propylene by investing and higher return, differentiated products”
[caption id="attachment_1323" align="aligncenter" width="1024"]Dow Surfactants Strategy[/caption]
Some Quarterly earnings news: The winner of our US newcomer award at the NY conference last May, Brazilian specialty chemicals producer Oxiteno’s Q3 operating income rose sharply from the same time in 2017, mostly because sales rose faster than costs (yup that’ll do it). The following table summarises Oxiteno’s Q3 performance. Figures are in millions of reais.
Q3 2018
Q3 2017
Change (%)
Operating income
130.6
35.1
272.1
Sales 1,368.4 1,030.0
32.9
Costs 1,037.7 824.7
25.8
Gross profit 330.7 205.3
61.1
Oxiteno’s Q3 earnings before interest, taxes, depreciation and amortisation (EBITDA) was real (R)173m ($46m) compared with R74m in Q3 2017. This was driven by higher exchange rates amid the 25% depreciation in the real against the US dollar and higher unit margins in US dollar terms.The results considered a R7m impairment at Oxiteno Andina on the adverse political and economic scenario at Venezuela. During the quarter, Oxiteno also started up its new US alkoxylation plant in Pasadena, Texas. The plant has a capacity of 170,000 tonnes/year and produces a wide range of nonionic surfactants and specialty alkoxylates.
In November, Oxiteno had the official plant opening event for the new plant in Pasadena. I was unable to be there due to the aforementioned commitment in Singapore. However, ICIS did a nice job reporting on it so let’s see what they have to say: The project marked one of the biggest investments that a Brazilian company has made in the US, It began taking steps to reach this goal more than a decade ago when Oxiteno opened its first commercial office in the US (I remember that ) In 2012, it bought a site in Pasadena that now is home to its new alkoxylation plant. This site also had an existing unit, which Oxiteno refurbished to produce specialty blends for agrochemical producers and amine oxides. This refurbished plant has a nameplate capacity of 30,000 tonnes/year, and it resumed production in 2013. In 2017, it opened a commercial office in Houston.
To further serve customers, Oxitento opened a new R&D laboratory at the University of Southern Mississippi (USM) in the US. The laboratory started in mid-September 2016. This year, after 2.5 years of construction, Oxiteno started up the two reactors at its new plant in Pasadena, Texas. It has a nameplate capacity of 170,000 tonnes/year, and most of its products will be sold in the US. The work still is not over for Oxiteno. The company is still qualifying its products from the refurbished plant for some agrochemical uses, Parolin said. This long qualifying process is preventing Oxiteno from running the refurbished plant at nameplate capacity.
After Solvay’s bulking up, it becomes increasingly difficult to tease out of there, the surfactants business results. However as ICIS reported last month, Solvay’s underlying third-quarter net profit rose 29% year on year to €297m on the back of stronger performance and surface chemicals earnings. Here’s how it looked.
€mQ3 2018Q3 2017Change (%)Sales2,5912,464
5.2
Profit297229
29
EBIT405372
9
As noted by ICIS - Double-digit earnings before interest and taxes (EBIT) growth for advanced formulations operations, covering surfactants and amines, and performance chemicals, encompassing soda ash, peroxides, solvents, basic polymers.
Mid-month, ICIS’s detergent alcohol expert, Judith Taylor, provided her periodic prognosis for the US market. US C12-15 mid-cut fatty alcohol supply is steady and expected to remain so during the fourth quarter. In the US, synthetic alcohols have been routinely sold out for a number of quarters, according to market participants. The synthetic alcohols are again in a sold out position for the fourth quarter 2018, with no discussions heard about spot business. Attention remains on events at the Stanlow refinery in the UK, where an outage remains in place. No comments or details concerning any alcohol production at this facility have emerged, and companies concerned with the facility have not given clarification. ICIS assessed fourth-quarter C12-15 alcohols at a rollover from the third quarter, holding the 80-89 cents/lb ($1,764-1,962/tonne) range, with minor fluctuations at a few accounts. Several large buyers had fourth-quarter volumes slightly lower than the 80 cents/lb low end of the spread, but 80-81 cents/lb was prevalent.
November typically sees the APLA meeting and we got some nuggets reported from there, among which:
Mexico's president elect has consistently stressed the need to boost oil production and energy investment in the country, and this could lead to any number of projects required to increase ethane supplies, the head of Grupo Idesa said. Right now, as we have noted in this blog,Mexico does not produce enough ethane to keep all of its crackers running at full capacity, the consequence of the nation's long decline in oil production. Mexico gets most of its ethane from the associated gas produced at the country's oil wells. For EO, Idesa relies on ethylene from Pemex's crackers, and these have not been running at full capacity because of the shortage in ethane. The country has several options to make more ethane available to its crackers, Uriegas said. Mexico is already receiving waterborne imports of ethane from the US, and the country could increase its capacity to handle more shipments, he said. Pemex could increase production of wet gas, which has large amounts of ethane. Pemex's natural-gas processing plants could be upgraded to extract more ethane. Many of these plants were designed to extract a maximum of 70% of the ethane from raw gas. Uriegas said recovery rates could be increased to at least 90% with more investments. Increasing energy investments in general has been a priority of Mexico's new president, Andres Manuel Lopez Obrador (AMLO), both during his campaign and after his victory. Less than a month after the election, AMLO proposed a multi-billion-dollar plan to increase crude output, rehabilitate all six of Mexico's refineries and build a new one in Tabasco state. More government involvement and investment in the means of production… what could possibly go wrong (Venezuela) ? Well, c'mon , let’s see how it works out (Soviet Union). Perhaps this time it will be different (70's Britain)…..
I’ve been following Vantage for a while now and the are already a solid surfactants player particulary via their specialty alkoxylates business out of the Chicago plant. . ICIS reports that they recnetly agreed to buy LEUNA-Tenside from private-equity firms VR Equitypartner and BIP Investment Partners. Financial terms were not disclosed. However, Moody's Investors Service said that $88m worth of add-ons to existing loans will finance the proposed acquisition and pay for transaction fees and expenses. So let’s say $88M, which honestly seems high to me for EV. LEUNA-Tenside said it was founded in 1995 as part of the management buyout of a business division of the former Leuna Werke. The site is old though. There’s a pretty interesting history here https://www.leuna-tenside.de/historie/?lang=en. If they can integrate it well, this will be a very strong addition to a valuable Vantage surfactants business. If not, more treats in the lucky bag at least.
[caption id="attachment_1324" align="aligncenter" width="683"]Gotta Integrate[/caption]
In recent month, readers have starting sending me their own news, so here we go. First up from Eastman: They announced early November the successful start-up of the methyldiisopropanolamine (MDIPA) unit in Nanjing, China. This is a new product for Eastman that will primarily be sold into the home care industry. In addition, Eastman has decided to expand its alkyl alkanolamine capacity in Nanjing by building a world scale unit primarily to produce Dimethylaminoethanol (DMAE/DMEA) which is used to make intermediates for the water treatment and energy markets. The project is underway and will be finished in the second half of 2020.
Next from the International Council on Clean Transportation (ICCT) comes a brief publication that seems to criticise soybean oil as a biodiesel feedstock while favoring certain sources of palm oil. Coming on the heels of the recent New York Times Aritcle excoirating certain Indonesian palm plantation practices, this ICCT reprot makes interesting reading. I don't know the ICCT. I am familiar with the NYT.
This one was great to read. Inolex announced (finally) that they are getting out of the old Phildelpbia site. The expansion, which is set for completion by the second half of 2019, will replace the company’s current US production and warehouse operations with a new flagship plant in Charlotte, North Carolina.
So – here starts the blog's opinion section: Since the first paragraph, I know you've been thinking about the mothership. This (below), of course, is what comes to mind right? It’s Houston 1976 on the P-Funk Earth Tour. I’m taking you right into the song at 8:22 where Glen Goins sees the mothership coming; whereupon it lands and out comes George Clinton in the persona of Dr. Funkenstein. Could there ever have been a more magnificently over the top moment in the history of live music? I encourage you to rewind and watch the whole 15 minutes.
Here’s what’s interesting to me. Back then I really admired and loved this music. Everything about it, the sound, the album covers, the clothing, the appearances on the telly. But I could never quite bring myself to go to a live show. I was very comfortable and at – home in the 70’s at concerts by Iron Maiden, UFO, Rush, Rainbow et al, but could never quite cross the real or imagined divide to go see what was clearly something of incredible artistic merit, like a Parliament show. It was a road less traveled, by me and my peer group at least. Maybe it should have been more traveled. Ah well, while we didn’t see the mothership, at least we saw the bomber….
Both roads, Motorhead and Parliament, were well traveled, but depending on who your were, one was less traveled. I suspect that there were not many Parliament fans at that Motorhead show in Nottingham we saw above. This idea has relevance for our business and I'll write some more about this idea next month. The road less travelled and the well worn path. Which is better? Which is even appropriate or feasible, for you and your business? A classic debate within many manufacturers goes something like this: "Why don't we go downtstream into consumer products, you know shampoo and detergents - that's where all the value is captured?" The standard rejoinder is "Yeah but it's harder than it looks. It's whole different ballgame. You need a whole different infrastructure and skill-set. It's all about advertising and your social media strategy. None of use are even on Instagram!" Meanwhile at the consumer goods company the discussion sometimes turns to backward integration. "We need to control our own supply chain. Lower costs, greater flexibility, squeeze the competitors out (oops no - not that, as it would be anti-competitive). The road less traveled is not just a vertical integration one. Why did GE get into insurance? What about Amazon and computer services. Some of the greatest blunders and some of the greatest successes have come from a consideration of the road more or less traveled. At the very moment Croda wanted to ditch those old, capital intensive fatty acid plants, KLK couuld not wait to pick them up. Something to think about.
But back to Parliament. You’re going to love this next video. From that same Houston show, can there be a better named song than “Cosmic Slop”? Ok yeah probably. But take a listen and note carefully the following details: 0.08 – that guitar (Oh man, did Eddy Van Halen ever carve out an opening riff so luscious), 0:20 – that hat, 1:32 – you’ve been so mesmerized by the guitar, rewind and get the bassline, 1:50 – that diaper (diaper? – I’ve no idea, sorry), 4:14 – that guitar and brass section riff, 4:33 – that guitar solo worthy of Richie Blackmore, 5:28 try and ignore the diaper and check out that rhythm section emerging to the foreground.
Anyway, coming around to a conclusion. I cannot promise you that the mothership will land in Jersey City on May 16th. In fact I’ll go one further and set your mind at ease by promising that there will not be a mothership landing reenactment at our conference. I will promise you though, that with the quality and quantity of surfactants information and insight , we will literally tear the roof off the Grand Hyatt.