Surfactants Christmas 2021 Double Issue

Christmas Double Issue

December 2021

The cynics among you may conclude that we’re calling this a Christmas Double Issue because we’re very late publishing the November blog. And the cynics would, on this rare occasion, be right. The last few weeks have been tough for reasons good and bad and so this blog – gives you the news up to mid-December and includes some Christmas musings. We’ll be back in January though, so don't worry. You’ll get your money’s worth!

By the way, don’t forget to save the date. May 9 – 11th for our great 2022 World Surfactants Conference. Live and in-person in Jersey City, NJ. Same great place and bigger and better than ever. More details to all registered blog readers, very soon.

Christmas Musings: I’m standing outside our lab in Connecticut, waiting for a car. It’s late, dark and cold. It’s been a physically, mentally and spiritually demanding week. Not that different from a lot of weeks you have in the course of your daily business – but I’m beat and ready to get home to a nice warm fireplace and dinner and wife and night’s sleep. A minivan pulls up. Chrysler, old-ish model, a bit dirty, sounding a little bit rough. Not my ride, clearly. The inside light goes on and a young lady, puffer jacket, wooly hat, starts pecking away on her phone. Lost. Obviously. I watch. If she asks me anything other than a couple of huge landmarks, I’m useless. I just work here. But Google’ll help her. Or Waze.  I keep watching and the shape of a child-seat resolves from the dimly lit back seat. A young child, 3 or 4 is in it. Next to him, his little sister. How do I know? I don’t but blue hat and pink hat so…two kids in the back seat. Mom driving. Is that the protocol? Youngest behind the driver – or what? It’s been over 20 years since I had a child seat.

Phone pecking stops. Mom turns to look at me through the passenger side window. She thinks for a moment and then gets out the car, walks round the back and opens the hatchback – chilly draft enters the van and I’m glad the kids have their hats on – pulls out a cardboard box and continues around the car toward me. She’s young and seems very small in the big black parking lot. “P2 Science”? she says with an accent. “yeah this is P2. Is that for us?” I guess looking at the package of what might be lab supplies or glassware. “Delivery for P2 Science. Are you P2 Science?” “Yes, I am” and then something weird and not heretofore encountered in my 60 years becomes apparent. This young mom with the old minivan and the two kids with the blue hat and the pink hat, is outside my building in the dark, in the cold in the empty parking lot, opposite the dental supply place with its empty parking lot, trying to deliver a package for some company – maybe the lab supply company, maybe Amazon, maybe.. She tries to scan the barcode with her phone. It doesn't work until I hold it at just the right angle. She says "thank you sir” as I imagine she learned just the other day from a company manual or training app. I don't know how I feel about this – what is going on here. I feel a bit.. off.

Joe, the cleaning guy pulls up in his white van – bang on time, 7.00 PM. He sees me with the package. “here Neil, I got that – I’m going in there now. I’ll put it on the front table.” “Cheers Joe, I appreciate it” He takes the package. Mom looks at both of us and then at me “Is he P2 Science” – “yeah he is also. He’ll put it with the other packages” “What is his name?” She’s poised to enter that into the delivery record. “Oh it’s Neil – put in N-E-I-L” I don't want her now to get into trouble from the company or the app. Joe is not exactly P2. He’s our cleaning service. My name should be good. Mom seems OK with that. She walks back around the van, closes the hatchback and gets back in. More pecking on the phone-thingy and then back out the lot, a little more quickly than I would have liked.

Joe and I stand for moment, thinking, just a little. He says to me “She’s out there delivering packages with two little kids. Little kids in the van – tonight” – with rising incredulity. I can only nod. He says “God Bless America”. It doesn't sound good. It’s not like how you say it in a good way or a proud way. I don’t want to agree with the sentiment but I can’t figure out how not to. So I say nothing. He heads in to the building. My car comes and I get in. That young lady. Maybe this is the first rung on the ladder. Maybe she earns enough to scrape together a deposit on an apartment before Christmas. Maybe the kids go to a nice school somewhere next year. Maybe the next Einstein or whoever, is in the back of that van. I doubt it though. Those kids should be in a nice warm home, getting read to by someone with a sweet voice. Maybe they have something stodgy and warm to eat, some veggies even though they don't like them. A toy car, a doll, a laugh. Christmas lights. Out there in the minivan in the dark and the cold with the app and Mom worried, worried about a delivery and the company and the name of the person. That’s not the place for those kids. Whose fault is it? It's her’s right? She took the job. True. I wonder what the alternatives were? Did any of the alternatives include dinner and reading and a warm fireplace and biscuits and a laugh about a silly toy car? So who’s fault then? America, Amazon, you, me? I dunno. I can’t change America or Amazon or you.. but me... I can do that.

7.00PM on a Cold WInter's Night in Connecticut?

News: In mid-November, ICIS’ great editor, Joe Chang did one of his superb interviews with the CEO of Clariant, Conrad Keijer. You can read the whole thing here https://subscriber.icis.com/news/petchem/news-article-00110706321 (subscription may be needed) but here’s an interesting snippet: “An excellent example is the joint venture we recently announced with India Glycols. This is actually making us one of the leading players in the India surfactants market and it also makes us one of the global players in green ethylene oxide (EO) derivatives,” he added.  In July, Clariant and India Glycols completed the creation of their 51/49 JV Clariant IGL Specialty Chemicals Pvt Ltd.

The deal combined India Glycols’ renewable bio-EO derivatives business, which includes a multi-purpose production facility including an alkoxylation plant located in Kashipur, Uttarakhand, India, with Clariant’s Industrial and Consumer Specialties business in India, Sri Lanka, Bangladesh and Nepal.  “There are definitely opportunities outside southeast Asia for these biosurfactants. What we essentially offer is 100% renewable-based green ethoxylated products,” said Keijzer.

Green EO - Starts Here - That's Molasses

Speaking of India; here’s an ICIS report from our EU and Asia Surfactants Conference that is timely and interesting: Sustainability is at the forefront of concerns among surfactant companies in India, as the pandemic turns a corner in the country to some degree, and consumption is set to rise.  India’s economy is growing, and demographic advantage makes the industry players confident of robust growth in demand in the long term.  Plastic consumption is projected to spike in the developing world over the next 10 years, at a point where the focus on developing a  more circular economy for the materials is becoming more intense.  The key end use for surfactants is in cleaners, disinfectants and personal wash products.

According to Galaxy Surfactants' Avinash Nandanwar, the role of surfactant players in India lies "in reducing plastics" and to use "less plastics in the supply chain", as well as to tap into "recycled plastics in the supply chain".  In their green efforts, Nandanwar said the company is also persuading customers to shift from taking small barrels or drums. He is the head of sourcing at Galaxy.  "Why not take supplies in bulk shipments [instead]?" Nandanwar suggested during a panel discussion at ICIS European & Asian Surfactants Conference in October.  

India is targeting net-zero carbon emissions by 2070 under a five-point plan, which includes raising the country’s non-fossil energy capacity to 500 Gigawatts (GW) by 2030 so that half its energy requirements would start coming from renewable sources.

“By 2070, India will achieve the target of net-zero emissions,” Prime Minister Narendra Modi said at the United Nations Climate Change Conference of the Parties on 1 November.  The 26th COP (COP26) was held in Glasgow, UK, from 31 October to 12 November.  Modi vowed to reduce the carbon intensity of India’s economy to less than 45% and reduce its total projected carbon emissions by 1bn tonnes by 2030.

India is the last of the world’s major carbon polluters to announce a net-zero target, which is set 10 years after China’s 2060 target and 20 years after the 2050 target of both the US and EU.  The southern Asian nation relies on coal - a highly polluting fossil fuel - for about 70% of its power generation.  Its net zero emissions pledge is two decades beyond what scientists say is needed to avert catastrophic climate impacts.

India ranks third in greenhouse gas emissions after China and the US.  COP26 looks to building on agreements reached at previous conferences, including the Kyoto Protocol and Paris Agreement.

Just like elsewhere in the world India’s oleochemicals market is facing major supply-side and cost issues that will continue to affect the industry as it grapples with logistical challenges stemming from the COVID-19 pandemic.  Like the rest of the petrochemical chain, the surfactants industry is not immune to turbulent times dogged by record-high raw material prices, as well as plant maintenance of fatty alcohols in the last quarter of the year, Nandanwar said.  "The challenge from last year continues," said Nandanwar, referring to expensive freight costs, high Brent crude prices, and longer delivery period.

He added that such factors have "impacted feedstocks used in surfactants... it's a complicated situation".  China has also affected the supply value chain, according to Nandanwar.  "It's a tightrope to walk. We have to ensure our operations run sufficiently," he said.  Several feedstock fatty alcohol and ethylene oxide (EO) plants in China were shut or were running at reduced rates following the implementation of the dual control policy. As such, Chinese spot interest for fatty alcohol imports increased recently to replace the shortfall in its domestic market.  The dual control policy places tighter limits on energy consumption and intensity in parts of China to enable the nation to reach a 'carbon peak' in 2030 and carbon neutral by 2060.

All things considered, the outlook on surfactants demand in India remains bright, supported by rapid urbanisation and a youthful populace, coupled with the fact that per capita consumption in the country is far below the developed world’s level, thus holding a lot of promise of growth.  “Demographics [are] still on India's side and we will see that this pandemic has not actually hurt India, and India will bounce back and in fact the consumption story is still intact,” remarked Sadanand Palnitkar, associate vice president marketing of Godrej Industries.  He added that the advancement of e-commerce has helped fuel "lifestyle and aspiration" changes, with residents from outside the metropolitan cities moving to catch up on the latest fad such as new shampoos.

"The consumption story is strong. I'm bullish on India," Palnitkar said.

Flying High

We’ve been tracking the PCC / Petronas JV for a while and at the end of November the official news came from ICIS that the JV has begun construction work on a planned project to produce non-ionic surfactants and polyether polyols at Kertih in Malaysia’s Terengganu state.  The 70,000 tonne/year plant by the 50:50 JV, PCG PCC Oxyalkylates, is expected to be commissioned for commercial production in Q3 2023.

It will be integrated with other PETRONAS facilities at Kertih.  The joint venture project would enable PCC Group to access emerging markets in East and Southeast Asia, CEO Peter Wenzel said in a statement.  Financial details were not disclosed.

Duisburg, Germany-based PCC is focused on chemical feedstocks and specialties. It also has a container logistics business. [I love this news for both PCC and Petronas. Much success to the companies involved. ]

New Plant in Nice Neighbourhood

More investment from PCC hit the ICIS pages about a week later: Poland’s PCC Rokita and PCC Exol have announced a zloty (Zl) 351m ($86.1m) investment in building a manufacturing complex that will combine the production of ethoxylates and polyols.

The 50,000 to 55,000 tonne/year facility, to be located in the Brzeg Doly Chemipark in southwestern Poland, is to be ready for a launch in 2026, the companies—subsidiaries of Germany’s PCC Group chemicals, logistics and energy corporation—added in a press release published last Friday.  PCC BD, a unit held 50:50 by Rokita and Exol, is to implement the project.  “The new installation will be the first of its kind in Poland, combining flexible production of ethoxylates and polyols,” said Wieslaw Klimkowski, CEO of PCC Rokita.

The plant is to produce a range of ethoxylates, polyether polyols and other ethoxylated products, including biodegradable products, Rokita and Exol said. For feedstock, the installation will use ethylene oxide supplied by Polish group PKN Orlen.  Separately, PCC Rokita, also a producer of chlorine, sodium hydroxide and surfactants, said it plans to invest in renewable energy sources to reduce its corporate carbon footprint.

Another Nice Neighbourhood

At the top of December, ICIS’ great Lucas Hall reported on the alcohol market as: US Q1 fatty alcohol contract negotiations are ongoing, with discussions heard at a sharp increase from Q4.  Discussions have been heard approximately 40-50% higher from their Q1 settlements, tracking bullish feedstock costs across the oil palm complex, namely palm kernel oil (PKO).  Increased scrutiny against Malaysian-origin material over forced labour allegations remains a major concern, as the traceability of Roundtable on Sustainable Palm Oil (RSPO) Mass Balance-certified (MB) material becomes increasingly more difficult, supporting higher premiums for MB PKO for oleochemicals production.  Premiums for mass balance-certified (MB) material were heard at 8-14 cents/lb over non-certified material.  Supply of MB material continues to tighten following the US ban on palm oil from Malaysian palm oil giants Sime Darby Plantation Berhad and FGV Holdings Berhad in 2020 against the backdrop of ongoing pandemic-related disruptions throughout southeast Asia. In addition to the ban on Sime Darby and FGV, in the August-September period, US Customs and Border Protection (CBP) denied entry to at least two Malaysian-origin vessels carrying oleochemicals from another producer.  

Stong and Selective Arms of the Law

These disruptions have primarily impacted palm oil and refined glycerine imports from Malaysia, in addition to some short-chain fatty acids and alcohols. However, they have raised concerns among market participants of expanding scrutiny against Malaysian-origin material as RSPO MB markets continue to tighten.

There are conflicting reports as to whether these issues are easing.  One producer is heard to be purchasing large volumes of Indonesian-origin PKO to sustain oleochemical production in Malaysia given the ongoing scrutiny on palm oil production in the country.

In the meantime, market players in Malaysia are working to reorganise their supply chain to avoid further disruptions, given the latest CBP action. Ongoing delays and supply chain disruptions globally are adding to the pressure - particularly in container markets, where shipping costs remain bullish.  Heavy chain alcohols are largely shipping in containers, as few importers have bulk processing/storage capabilities in the US.  As such, discussions in these markets vary widely, depending on import capabilities.  The rise of the Omicron variant of the coronavirus in recent days has spurred bearish market sentiment in southeast Asia, putting downward pressure on feedstock costs across the oil palm complex and pushing some fatty alcohols players to the sidelines as they await a clearer market outlook on the virus.

Yep

The bearish sentiment has had a more immediate impact on mid-cut alcohols, where imports are more consistent versus in heavy chain alcohols, where supply of both single cut C18 and C16 alcohols is tight because of the above constraints.  Despite lower feedstock costs, US demand is expected to continue to outpace supply into Q1 as pandemic-related delays and shipping logistics constraints dominate the market in a snug-to-tight supply environment.  The US is unlikely to reinstate major pandemic-related restrictions like lockdowns in the near-term, sustaining demand for fatty alcohols and other raw materials as many players continue to work hand-to-mouth to catch up to pent-up demand stemming from persistent supply chain disruptions globally throughout most of 2021.  US production disruptions are heard to be easing, with producers are running as hard as they can to make up for the inconsistent import market against the backdrop of their own feedstock and other supply chain disruptions locally. Overall production is insufficient to meet total market demand, keeping the wider market snug to tight.  Southeast Asian producers will have maintenance in Q1, keeping supply snug to tight next quarter.  Demand in most end-markets remains healthy to strong, including cleaning, personal care and industrial end-markets.

ALCOHOL PRICES

Q1 discussions 

Q1 bulk contract discussions have been heard at a major increase from Q4, tracking the above cost pressures, namely higher PKO costs.  Heavy chain alcohols in containers have been heard even higher given the critically tight container market.

Prices for synthetic alcohols were heard at both ends of the above ranges amid the ongoing force majeure at Shell's Geismar site.  At least one buyer settled its Q4 C16-18 contract below the $1/lb DEL USG range.  The same buyer settled its Q4 C18 contract below the $1/lb DEL USG range.  In the wider market, multiple producers have switched their contract terms from a DEL to an FOB + freight basis or to terms subject to changes in freight and demurrage given the ongoing shipping logistics constraints.  Some players have fewer volumes available for their traditional quarterly customers because of upcoming maintenance and ongoing supply chain disruptions globally. as they prioritise stock building full-year commitments given the increasing supply chain constraints.

Spot

Bulk mid-cut, C16, C18 and C16-18 spot prices have been heard approximately 40-50% higher than Q4 contract settlements, tracking the above cost pressures.  Heavy chain alcohols in containers have been heard even higher given the critically tight container market.

The Asia Fatty Alcohol market, which had been on a relentless price upward spiral since early September, is now facing slowing demand in China – reported ICIS.  Mid-cut C12-14 prices had increased by 56% from 1 September to average at $2,850/tonne FOB (free on board) SE (southeast) Asia on 17 November, ICIS data showed.

[insert Asia Alcohol Price Chart]

Prevailing tight supply and firm demand had been lending strong price support, but current high prices are now causing buyers to adopt a cautious stance on the market and hold back purchases.  Spot appetite has waned despite elevated prices of upstream crude palm oil (CPO) and feedstock palm kernel oil (PKO).  Regional fatty alcohols producers have been focusing on term business and have little spot volumes available for the rest of the year.  “Discussions are ongoing for next year’s first-quarter contracts and demand is stable and healthy,” a regional producer said.  With Europe in lockdown amid surging COVID-19 infections and Asia demand slowing down, the upward price momentum has withered, market sources said.  Suppliers are keeping offers steady or firm in view of margin erosion and prevailing tight supply.  “It is still an evolving situation. It depends on how serious the Covid surge is in Europe - whether Europe will be locked down for a longer period and the impact on demand is still unclear,” a supplier said.  A buyer said: “With the fuels prices cooling, which have impacted the vegetable oils markets including palm, there is no buying interest.”

“The general market trend is downward,” a trader said.

Falling Palm Causing Problems?

Meanwhile, in Asia LAB markets, things are, by comparison, pretty quiet. ICIS reports that activity in the Asian linear alkyl benzene (LAB) market slowed with the year-end holiday lull approaching. At the same time, the widening gap between buyers and sellers continue to keep trade muted in the region.  While suppliers have largely held on to offers, buying momentum appears to have wane for spot cargoes, with buyers in a wait-and-see mode. The recent weakness in the upstream crude oil and benzene markets weighed on sentiment with buyers expecting a softer LAB market in the near term.  Spot prices in southeast Asia remain at $1,760-1,850/tonne CFR (cost & freight), with products quoted in a wide range, depending on the parcel size and origin, ICIS data showed.

An Unusual Shape Today

“The spot market in Asia remains slow with few deals heard,” said a trader in northeast Asia.  Meanwhile, output in China has lengthened with scheduled maintenance shutdown at plants completed in November. However, these suppliers are understood building up inventories and meeting the requirements of local users. Consequently, export availability from Chinese sellers is expected to be limited in December. Over in India, domestic demand weakened over the past two weeks, as users have accumulated some stocks post-Diwali in early November. Domestic offers declined to around Indian rupees (Rs) 143/kg ex-tank, down from Rs148/kg ex-tank for November.

“Spot and contractual offtakes have slowed recently, and hence offers from suppliers have come off,” said a producer in India.  Some sellers have also left the Indian market for the time being and refocused sales elsewhere, in view of the tepid demand in the import segment.  “We are currently focusing on countries around us; buying momentum in India remains slow,” said a producer in the Middle East.

Continuing our survey of the hydrophobes, ICIS reported that Asia’s fatty alcohol ethoxylates (FAE) market is expected to slow in December on worries that the Omicron variant of the coronavirus will further weigh on demand amid the run-up to the year-end festive holidays.  Spot interest waned as buyers held back their purchases and adopted a cautious stance on worries that the highly infectious Omicron variant will impede the global economic recovery.

It's All Greek Though..

“Omicron will trigger a knee jerk reaction and it will subside soon. Raw material volatility is an issue, but as the calendar year is at its end many companies are taking stock of their positions and taking a cautious call, and pushing everything to next year,” a trader said. Following the emergence of the Omicron variant, crude oil has dropped significantly, prompting a fall in vegetable oil prices.  With upstream crude palm oil (CPO) and palm kernel oil (PKO) prices declining, as well as falling feedstock fatty alcohol C12-14 prices, buying interest in southeast Asia and China has taken a backseat.

A Trend and a Departure

Chinese demand has also slowed due to ample inventories following the arrival of imports which were booked earlier in October.  The slump in the Chinese domestic feedstock ethylene oxide (EO) market has also curbed spot interest in fresh FAE spot imports.  “December is usually a low demand season in China,” a trader said.

Adding to the woes of market players are ongoing logistics issues, including delayed shipments, congested ports, sky-high container freight rates, constrained manpower, and demurrage.

Wow

“Supply chain disruptions and container freight rates, which have surged by four or five times since pre-pandemic times, have all added to business costs,” a regional supplier said.  Business will likely pick up in January after the year-end festive holidays and before the Lunar New Year, which falls on 1 February 2022.  In the meantime, market activities are likely to pause and players will mostly welcome a well-deserved rest from a most challenging year.

Shifting to the hydrophile side of the ledger: US November ethylene oxide (EO) contracts fell for the fourth consecutive month, tracking same-month feedstock contracts.  ICIS assessed US November EO lower by 0.2 cents/lb ($4/tonne) from the previous month.  Despite the steady decreases, US EO contracts remain 18% higher year on year.

Still Higher Than Last Year

Same-month ethylene contracts settled lower by 0.25 cent/lb. Average spot ethylene prices were mostly steady from the prior month but a decline in average production costs pushed the settlement lower.  The majority of EO contracts are formula-based, and price movement comprises 80% of the change in the ethylene price and an additional conversion fee, or adder.  Like ethylene, EO contracts are settled at the beginning of the month for the previous month’s price.

By the way in positive news for US EO, here is a plant status report: Shell’s Geismar, Louisiana plant which makes linear alcohol (195 KMT/yr) and ethoxylates, is back up from force majeure.  The fm was declared in early September following the impact of Hurricane Ida on raw materials availability and operations at the Geismar and Norco sites.

Like many of you, we here at the blog have been seeing a lot of price increases for products and services. We can’t print all of them here (actually we could but that would be boring) but here’s a representative one that Dow sent around last week: Dow nominated higher pricing for its surfactants products effective 1 January. The company is seeking price increases of 6-8 cents/lb for products including surfactants and specialty alcohol alkoxylates. So there you are. One among very many. What’s the craziest increase you have seen. Here’s one I got last week. A carboxylic acid that I last bought 3 years ago, was quoted to me with a price increase of 130%. Note – that’s not a 30% increase; that’s double the price then add another 30%. Can you top that?

Finally – here’s a company we don’t talk about often. Pu Feng Biotech of Taiwan (http://pf-bio.com/en#2) has introduced a surfactant called Surpetant 13 made from recycled PET bottles. It’s a 99+% active liquid with an HLB of 13. Applications include laundry.  Interesting.

End of news. This edition has no music section. Go back up to the top and read the musings and let me know your thoughts. Next month - we'll have some New Year's Music to listen to. In the meantime: Merry Christmas and a Happy New Year to all our readers. All the best and see you soon.

Surfactants Monthly – October 2021

Surfactants Monthly – October 2021

Great month for surfactants. We had our European and Asian Surfactants Conference – a huge success. And we were able to announce that the the next conference will be live and in person 9 - 11th of May of 2022 in Jersey City, NJ. Stay tuned and we’ll get further information to all registered blog readers.

So – let’s see. There’s a lot going on with Sasol these days, which we heard about at the conference and which they also talked about at their capital markets day. Check out  the details at the end of the post. You’ll also notice, as you read through the news, that there is a lot of talk about inflation and supply chain disruptions. Shortages, high prices, stuff like that. Even Stepan’s mighty surfactant machine experienced problems this year as they discussed on their earnings call (see below).

Hmm.. we went back to Manhattan for the first dinner / play / night-over since the pandemic. One thing struck me – the aroma of the city. It’s changed from what it was a couple of years ago. Today the prevalent aroma is one of marijuana and urine. Pot and piss, you may want to crudely say. The city is a piss-pot, where people without a pot to piss in are pissing, wherever they like, or can or, perhaps more accurately, must. How come? I don’t know. I did learn that you  can avoid the piss-aroma by taking a hotel room way up on the 20th floor – but evidently the pot-aroma still rises well above street level. We did not find pot escape height on this visit. So why all the crudity in this family blog? I hope I haven’t offended any readers, but the experience got me thinking – mostly in one syllable words. I guess first: Is there a correlation? That is between the piss and the pot? I am not aware of one. Is alfresco micturition purely the purview of the piss-poor partaker of pot? I doubt it. I understand that pot can drive both snacking and hair loss but have not heard that uncontrollable urination is a side-effect of this particular drug. The outdoor urination to my untrained eye seemed to be function of homelessness. Was homelessness also causing the pot-smoking or the other way around or are they independent phenomena? I’m guessing independent although a THC infused night on a subway grating has to be little more pleasant that one spent stone cold sober, I guess.

Crime? Didn't see any honestly. Nor were we accosted by anything other than the aforementioned aromas. But the smells themselves sent a message Someone remarked that today’s NYC experience is more akin to the 70’s than the 2000’s and that has a certain sense to it. Inflation, shortages, the smell of anarchy – it’s the New York of The Warriors rather than of, say, Sex and the City. And of course those who remember that 1979 movie classic will recall that public bathrooms were never the safest of places so maybe outside relief is the most sensible choice.

Careful in there..

Am I ready to write off the city for a few years until the next crimebusting mayor takes charge, as he or she surely will? Not quite yet. Maybe this time it’s different. With so much pot in the air, the violent extremes of the Warriors years may just not be possible. And the urine? Well, I’m told that with a smouldering great spliff wedged between your teeth it’s hard to smell much of anything. On second thoughts, maybe we’ll stick to the Jersey Shore.  What’s the worst you could encounter there?

This is..

For those readers still with me.. thank you. And here now is the news you came for.

Not only did Melissa Hurley of ICIS make an outstanding presentation during our virtual European and Asian Surfactants Conference, she penned an outstanding analysis of the European ethylene oxide situation: At the beginning of October, European ethylene oxide (EO) market players were in the early stages of negotiating contract terms and adder fees for 2022, ahead of this year's virtual European Petrochemical Association (EPCA) event, Melissa reported.  Apparently, high ethylene prices are a bone of contention, especially for non-integrated players, due to the adverse impact on seller margins. The EO price includes a conversion fee over the cost of ethylene, which is negotiated at the beginning of the calendar year. Formulas can also vary in terms of ethylene cost pass-through and some contracts are agreed on a multiyear basis.

In 2021, production costs are also high due to the record high gas prices, having a detrimental impact on energy prices and cost of production. The EO manufacturing process is very energy intensive so this is an important factor to consider.

Over the past ten months, the relentless rise in ethylene prices has led to a 24% rise in average EO formula contract prices.

The long march of EO and Ethylene

The only decrease in feedstock costs was last month and it provided little relief in September. In October, ethylene resumed its upward trend due to the rally in crude and naphtha prices.  This shows a marked difference to the conditions of 2020, a year plagued by lockdowns and demand reductions, particularly in the first half of the year. During 2020, EO contracts decreased by 11.3% on average, according to ICIS data.  Lower annual adder fees were agreed in January 2021 due to the structurally relaxed supply situation despite short-term unplanned production issues experienced at the start of the year.  So far for 2022, there have been indications of a bullish approach to the adder fee talks but negotiations are still in the early stages. Despite the importance of utility and production costs, supply remains key.

Consumers will also be looking at the expected supply balances for the fourth quarter and beginning to look at next year's cracker maintenance schedule.  "[Adder talks] It's more based on availability", added a market source.  EO supply is mainly as expected, with a couple of planned turnarounds happening at the end of the third, beginning of the fourth quarter.  Clariant's EO partial maintenance at Gendorf continues in October. The exact dates of the turnaround are unknown.  A turnaround at BASF's Antwerp EO/EG facility is expected to take place in the fourth quarter. The exact dates are unconfirmed by the company, but market sources indicate November.  Future investments in Antwerp and for Clariant are so far unclear and there have been no official updates on when these are expected.  BASF planned to add 400,000 tonnes/y in 2022 to its production by building a second manufacturing unit at the Antwerp site, which will also be able to process purified ethylene oxide.  Clariant previously announced plans to increase EO capacity in Gendorf, Germany with an increase of high purified ethylene oxide (HPEO) in 2018. There were no further details of the expansion officially published.

Meanwhile on the other side of the surfactant molecule, ICIS’s Sam Wright reports that The European fatty alcohols Q4 contract price range widened amid fluctuations in feedstock prices through the third quarter, combined with tightness, which worsened as the fourth quarter approached.  Prices decreased by €75/tonne on the low end and increased €20/tonne on the high end to €1,650-1,850/tonne FD (free delivered) NWE (northwest Europe).

A jump then a march..

There were some lower prices seen in the market compared with the third quarter resulting from fluctuations in palm kernel oil (PKO) prices during the quarter. Shortages also worsened as the third quarter progressed, leading to higher prices settled approaching the fourth quarter.  Logistical issues surrounding shipping delays from Asia continue to cause problems for the European market.  Given the issues over exporting material from Asia currently, some players are preferring to send cargoes to local markets such as China. This has led to a decrease in imports into Europe for the fourth quarter.  At the same time, demand for downstream alcohol ethoxylates has been very strong. There is a shortage in this market as well, caused at least partly by the constraints in the fatty alcohols market.

Over in the US, Lucas Hall reported on the fatty alcohols market. US Q4 fatty alcohols contracts were assessed mixed from Q3. Freely-negotiated contracts for mid-cut alcohols decreased now that demand into consumer cleaning markets has stabilised from the panic-buying seen in the early days of the pandemic.  Multiple surfactants producers had carryover volumes from Q3. decreasing their demand for Q4.  However, rising feedstock costs across the oil palm complex in recent days against the backdrop of tightening supply globally is causing the market to reverse direction, increasing demand for spot volumes and putting upward pressure on the market. Demand has also increased in Mexico with increased ethylene oxide (EO) in the country in the last several weeks.

Shell remains on force majeure into October because of lingering feedstock constraints following Hurricane Ida in late August but has increased its allocation levels from September.  Freely-negotiated contracts for heavy chain alcohols settled at a sharp increase, tracking tight supply, strong demand and bullish shipping container freight costs.  The ICIS US C16-18 fatty alcohols quarterly price assessment is assessed on a bulk basis or bulk equivalent basis. Because few suppliers have bulk storage capabilities in the US, bullish container freight costs prompted a wide range of prices this quarter.  A limited number of suppliers have tank storage capacity in the US to process and store heavy chain alcohols in bulk.  Mid-cut alcohols are less susceptible to these disruptions, as they are largely shipped in bulk.

Prices for petrochemical alcohols were heard at both ends of the above ranges amid the ongoing force majeure at Shell's US Geismar, Louisiana, site.  In the wider market, multiple producers have switched their contract terms from a DEL (delivered) to a FOB (free on board) plus freight basis because of volatile and bullish freight markets.  Spot prices have been heard at least 5-7 cents/lb above Q4 contract levels.

Mass Balance (RSPO) Premiums widened to 7.0-13.5 cents/lb over standard balance material from 7.0-13.0 cents/lb the previous week.  Supply of mass balance (MB) material continues to tighten following the US ban on palm oil from Malaysian palm oil giants Sime Darby Plantation Berhad and FGV Holdings Berhad in 2020 against the backdrop of ongoing pandemic-related disruptions throughout southeast Asia.  In addition to the ban on Sime Darby and FGV, in the August-September period US Customs and Border Protection (CBP) denied entry to at least two Malaysian-origin vessels carrying oleochemicals from another producer.  While these disruptions did not hugely impact US fatty alcohols markets, they have raised concerns among market participants of expanding scrutiny against Malaysian-origin material as RSPO MB markets continue to tighten.  Rising premiums are making coconut-based material competitive with MB material, in turn increasing demand for coconut-based fatty alcohols, especially given the bullish container freight market.

Coconut-based alcohols do not fall under the same environmental scrutiny as palm-based material [true - but give it time], making them a viable alternative to MB material when pricing becomes competitive in sectors where sustainability labelling is common, like personal care and cosmetics.  In the meantime, market players in Malaysia are working to reorganise their supply chain to avoid further disruptions, given the latest CBP action.

Protecting the homeland from Malaysian Oleochemicals... don't you feel safe now?

The other big hydrophobe, LAB, made news in India this month. Interest in the linear alkylbenzene (LAB) import market in India perked up, following the recent announcement of a 6-month delay of the Bureau of Indian Standards (BIS) deadline of mandatory certification requirement on imports.  The BIS in April this year announced that various chemicals and polymers have 180 days to meet the deadline for the implementation of mandatory certification requirement on imports.  The deadline has since been pushed back another 180 days from 8 October for LAB and some other chemicals.  Suppliers in Asia and the Middle East have shunned the Indian market in recent weeks as the deadline loomed, with most not having been certified.  However, sellers interest has been rekindled this week with some preparing to make offers to the subcontinent.  “With the deadline now pushed back, sellers will likely refocus sales to India,” said a trader in Asia.   However, with competition on the Indian import front likely to heat up, some participants anticipate some downward pressure on the market.  Already, a Middle-Eastern producer has fired the first salvo with a lower offer to India this week, prompting sellers to potentially recalibrate quotations lower to compete.  “Buyers are looking for lower prices as more sellers are likely to emerge near term,” said an end-user in India.

While sellers in Asia welcome an alternative outlet in India, given the lukewarm demand in other markets such as Southeast (SE) Asia; some raise concerns that intensifying competition into India and a potential weaker market as a result, could have a spill-over effect in Asia.  “Lower prices in India could weigh on sentiment across Asia, as demand here is average,” said another trader in Asia.  Demand has been slow in SE Asia due to surge in pandemic cases and restrictions in Q3.  There are general expectations for improving demand following tapering off of cases and gradual reopening of economies but thus far, no significant jump in demand has been seen.

Trend looking familiar?

Meanwhile for LAB in Asia: The Asian linear alkyl benzene (LAB) market was largely steady  week while some sellers continue to pivot to the India market. Sellers noted that the subcontinent has become another viable outlet for their cargoes as southeast Asia continues to see lukewarm demand. Previously, some sellers have kept away from India as they could not meet the certification deadline.  While selling competition to India is expected to increase, selling indications have been quite wide with one Middle Eastern seller quoting lower prices to engage buyers, while a separate seller was eyeing $100/tonne higher than the former on the back of firm raw material costs.  Selling indications came in from the high $1,700s/tonne CIF India to the high $1,800s/tonne CIF India, ICIS data showed.  “The selling numbers are quite far apart as some customers prefer one source over another,” said a trader in India.  Asian sellers are also monitoring the India market closely and are expected to make quotations in the near term.

In southeast Asia, offers of LAB parcels were also heard in a wide range depending on origins. Quotations ranged from the high $1,700s/tonne CIF SE Asia to the high $1,800s/tonne CIF SE Asia.

And again..

Buyers remain unhurried and bought on a need-to basis. Ongoing and upcoming scheduled maintenance in northeast Asia in the fourth quarter is expected to tighten availability to some degree, while relaxation of pandemic restrictions could potentially lift demand also.  “The SE Asia market remains stable for now but demand could pick up subsequently,” said a trader in Asia.  Chinese suppliers continue to focus on the domestic market, as output has been curtailed by earlier plant incidents, as well as ongoing turnarounds.

Prices for fatty alcohols in Asia have risen on the back of surging cost of feedstock palm kernel oil (PKO), prevailing tight supply and strong buying interest for spot cargoes – ICIS reported. Spot offers for mid-cut C12-14 blended and long-chain C16-18 blended grades spiked by about $200/tonne this week on costs pressures, and as a supply crunch coupled with rising demand followed the return of Chinese players from a week-long holiday in early October.  Several fatty alcohol plants in southeast Asia and China were either recently shut for maintenance or running at reduced rates, tightening supplies at a time when buying interest for prompt cargoes intensified amid the upward trajectory of the feedstock PKO price. “Enquiries from China have picked up due to the current short supply. Generally, sentiment is bullish and Chinese spot buyers are keen to lock in some grades due to supply security concerns,” a regional producer said.

“The $150-200/tonne surge in the feedstock PKO price to more than $1,800/tonnne amid the current tight market has lifted offers for C12-14 and C16-18 blends by around $200-300/tonne this week due to eroded margins and costs pressures,” another supplier said.

Feeling sick yet?

Some buyers are holding back and cutting down on their spot volumes to wait for a clearer market picture.  Meanwhile, some fast-moving consumer goods (FMCG) companies worried about supply security are looking at locking in their first-quarter 2022 supplies amid expectations that demand will pick up with the global economy opening up, market sources said.  “We are sold out for the year due to contractual commitments and have closed our books for the year. We have no spot [cargoes] available,” another regional producer said.  Demand from the downstream tourism, hospitality, home personal care, and food and beverage sectors are expected to spike when the regional economies in Asia open up by the end of this year.  Adding to the upward price pressure on the fatty alcohols market are logisticial issues, including high container freight rates, limited vessel space, delayed shipments and demurrage.

It will come as no surprise, then, that ICIS reported that Asia’s fatty alcohol ethoxylates (FAE) market is likely to face upward pressure in the near term on Chinese demand amid soaring feedstock ethylene oxide (EO) and fatty alcohols prices. Chinese spot appetite for FAE imports has increased following the National Day holiday on 1-7 October. Regional producers in southeast Asia have increased their spot offers by $100-150/tonne due to eroded margins from rising feedstock costs.

As expected..

“We have no choice but raise our offers by at least $100/tonne for November shipments to China due to the surge in the feedstock fatty alcohols costs,” a regional producer said. Fatty alcohols C12-14 blend prices surged by $170/tonne to $2,210/tonne FOB (free on board) southeast (SE) Asia in the week ended 13 October, ICIS data showed.  In the Chinese domestic market, limited supplies and rising domestic prices had prompted enquiries for imports.  “Chinese domestic feedstock EO prices and FAE prices have gone up sharply by about yuan (CNY) 800-1,000/tonne in the past week because of limited local supplies. Plants were shut or were running at reduced rates due to the dual control policy, so demand for FAE imports has strengthened,” a trader said.  “Transportation and delivery costs are expected to go up in China due to difficult road conditions and logistics issues during the cold winter season, so this will also add upward pressure on prices,” another trader said.

Several feedstock fatty alcohol and ethylene oxide (EO) plants in China were shut or were running at reduced rates following the implementation of the dual control policy.  The dual control policy places tighter limits on energy consumption and intensity in parts of China to enable the nation to reach a 'carbon peak' in 2030 and carbon neutral by 2060.

Blog favorite, Stepan made a lot of news this month. First up – the announcement that Stepan plans to invest $220m to build a new alkoxylation plant at its site in Pasadena, Texas. The new plant will provide a flexible capacity of 75,000 tonnes/year, capable of both ethoxylation and propoxylation, and better position the company to serve growing global demand in its surfactant and polymer businesses.  The plant is expected to come online in late 2023.  When operational it will bring Stepan's alkoxylation network to three plants and position the company with a footprint in the globally strategic US Gulf Coast. Nice. Of course, readers will remember that this has been the plan since the acquisition of the Pasadena site from (then) Sun and the simultaneous shelving of the Geismar, EO pipeline project.

As always, Stepan’s quarterly earnings announcement makes informative reading. The company’s Q3 sales rose 30% year on year while gross profit and operating income fell as cost of sales jumped 39% because of the ongoing supply chain disruptions.

Surfactant operating income fell 16% largely due to North American supply chain disruptions, higher planned maintenance costs, and the non-recurrence of an insurance recovery recognised in Q3 2020, related to the 2020 Millsdale, Illinois plant power outage

- A 6% decline in Stepan’s global surfactant sales volume, mostly related to the company’s consumer products business, was offset by improved margins, product and customer mix.

- Polymer operating income dropped 12% mostly due to the non-recurrence of the Millsdale insurance recovery, as well as compensation received from the Chinese government in Q3 2020 related to the government-mandated shutdown of a joint venture in 2012.

- The company’s global Polymer sales volume rose 27% largely due to the acquisition of INVISTA's aromatic polyester polyol business in Q1 2021.

- In the Specialty Product business results were up due to higher volume and improved margins.

- Net income rose year on year as Stepan’s Q3 2021 provision for income taxes was much lower than in Q3 2020.

Looking at Q4 and beyond, Stepan believes  that its Surfactant volumes in the North American consumer product end markets will continue to be challenged by raw material and transportation availability, said CEO F Quinn Stepan.  While Stepan believes industrial and institutional cleaning volume will grow versus prior year in Q4, it does not believe that this will compensate for lower consumer consumption of cleaning, disinfection and personal wash products, he said.

However, demand for surfactants within the agricultural and oilfield markets is expected to exceed prior year demand, the CEO said.  Meanwhile, Stepan’s Polymer business is expected to grow, due to the ongoing recovery from pandemic-related delays and cancellations of re-roofing and new construction projects and the INVISTA acquisition.  “We continue to believe the long-term prospects for rigid polyols remain attractive as energy conservation efforts and more stringent building codes are expected to continue,” Stepan said.

Stepan’s Specialty Product business results will improve slightly year-on-year in Q4.

“Despite supply chain disruptions continuing to impact the company, we remain optimistic about delivering full year earnings growth," the CEO added.

Not just at the supermarket..

The company made additional comments on inflation during the earnings call. Stepan expects additional inflation in Q4, the CFO said.  Luis Rojo, vice president and CFO, cited current oil prices around $83/bbl that could pressure production and transportation costs, though perhaps at a slower rate than in previous quarters.  "In a high-inflation environment, of course, you always have a lag between pricing and cost," he said.  In Q3, Stepan saw significant impact to its polymers margins due to raw material availability and escalating costs, said Scott Behrens, president and COO.  The company announced price increases in October for CASE polyols and surfactants, to continue recovering margins, Rojo said. "Inflation is still out there but we, of course, are planning to recover our margins on a gradual basis."

ICIS went on to elaborate on the comments Stepan made regarding the oilfield and agriculture markets. Demand for surfactants within the agricultural and oilfield markets is expected to exceed prior-year demand, US-based Stepan said in its Q3 earnings call.

With crude oil prices in the $80s/bbl and natural gas prices expected to be 27% higher than last winter, oilfield activity has increased throughout 2021, increasing demand for commodities such as surfactants and triethylene glycol (TEG).  In agricultural applications, high commodity prices and a favourable currency impact on exports are driving increased planted areas of major crops in Brazil, the company said.  In North America, high commodity prices for corn and soybeans, as well as increased planted acreage for the 2021 growing season, drove strong crop protection sales, Stepan said.

Agriculture still attractive

We don’t normally report what exactly goes at our conferences, because, you know – you gotta be there! However, ICIS wrote a piece on the great Norm Ellard's overview of oleochemicals, so I figured it was OK to excerpt it here: The global oleochemicals market is facing major supply-side and cost issues that will continue to affect the industry as it grapples with logistical challenges stemming from the COVID-19 pandemic, Norm Ellard the president of trading firm IP Specialties Asia noted – at the conference.  “Force majeure is now a way of life [in the oleochemicals industry], nothing is immune,” he told delegates at the ICIS European & Asian Surfactants Conference.  “We have enforced lower running rates due to COVID, we have lack of people [manpower]. In the plants raw materials even basic building blocks like ethylene has been tight, and now even hydrogen has been tight,” he said.  The energy shutdowns due to high costs such as in China are also impacting production and supply, Ellard said.  “We are finding out that the cost is king approach has not served us well in today’s market as we go through these supply crunches,” he said.  Getting the material to the market remains a major challenge, with ports being shut due to COVID-19.

“We are finding out that the real essential services are truck drivers, ship captains, air pilots,” Ellard said, adding that some 13% of the world’s cargo shipping capacity is now tied up in delays.  On the cost side, the oleochemicals space is facing raw material prices at record highs, or highs not seen for many years, he said.  “Suddenly logistic costs are now a significant part of the cost of goods. We used to [be] able to ship a container from Asia to the US for $2,000-3,000, now in some cases we are getting estimates of $18,000-20,000,” Ellard said. Supply chain issues have now overshadowed the importance of being a low-cost producer, with having the ability to ship on time to the customer at reasonable costs being more crucial, he said. Southeast Asia, for instance, has lost its advantage to be a global supplier of oleochemicals to the world unless they shipped by bulk, Ellard said.  “But the irony is that there is where most of the production [oleochemicals] is,” he added.

Shipping problems..

Finally: As readers know, we like to spend time on YouTube plumbing the back catalogues of, mainly, heavy rock bands. This month, however, it’s worth pointing out that there are some great videos on there featuring Sasol and in particular, Fleetwood Groebler and Brad Griffiths, both friends of the blog. The event was Sasol’s Capital Markets Day – for which there is a webpage that you should check out here. https://www.sasolcapitalmarketsday.com/content.aspx#a There are links to the slide presentations and the videos.

But over to YouTube. First up, let’s hear from Fleetwood, who is now CEO of Sasol.

Next up – homing in on the chemicals business and in particular the surfactants and feedstocks area – Brad Griffiths.

I also wanted to highlight this one from Marius Brand that covers Sasol’s Fischer Tropsch technology and the formation of a new Sasol business unit, Eco-FT  - formed as of the day of the capital markets event. Interesting.

That, then is the end of the news and so now to some music. What seems relevant? The 70’s and early 80’s of course. Our tribute to the New York City of the Warriors

Nothing says New York like the Ramones at CBGB’s

or Blondie at CBGB’s

Or.. who remembers that great New York heavy rock band, Riot? This was a truly great band. Their album Narita - a classic with not a bad song on it. How are they not better known? Not sure - but see last month's blog re Metallica..

So… I'm still not done with the urine and the marijuana. The marijuana I get. It’s pretty much legal and folks want to toke so, even though they are not “15 feet away from the building” like the hapless Marlboro men, it’s somewhat socially acceptable, I suppose. The urine though: Let’s stick with the homeless theory. If you live on the street, chances are that your bodily functions will need to be performed on or in the street. What struck me as ironic though during our weekend – as a person with a house and also a hotel room, I was able to use the restroom anywhere I wanted. I who had the least immediate need had by far the greatest access. Why? I honestly think it’s because I wear nice jackets (Paul Stuart or Charles Tyrwhitt, if you’re curious). I can and do walk into anywhere (even those places that have “restrooms for customers only”), ask where is the restroom and use it. No-one dares challenge or worse yet, evict, the man in the nice jacket. Now, I imagine that on becoming homeless, one of the first things to go is the jacket, if you even had one in the first place. So restroom access becomes a little trickier. I’m not being flippant. This is a problem. Human dignity is being depleted in our cities. Citizens are being classified and separated from each other in many ways. Restroom access is merely one of them.

Singapore is a big city and this sort of thing doesn't seem to happen there. Should New York become like Singapore. Maybe. If its residents would like to. Although they may find that some pesky amendments to the US constitution prevent some Singaporean measures being applied in the big apple. I have no answers. Just thinking and sharing those thoughts. What do you think ?

Surfactants Monthly – September 2021

September 2021 - Surfactants Monthly

For Blog Readers Only

We’re starting with a commercial for the upcoming European and Asian Surfactants Conference – Online - October 26th and 27th. I have a $100 promo-code only for readers of this blog only. Just use WSC21NB500 at checkout and you get $100 off the registration. I’m told that this is now the only way to get registered at less than the full price. So – don't say I never give you nowt! Check out the conference here or just go straight to registration here. We have some great new speakers and panelists from companies including:

• Sasol

• Reckitt Benckiser

• Clariant

• Ecover / Method

• IP Specialites

• Vespucci

• Locus

• Jiahua

• Godrej

• Arzeda

• ICOS Capital (invested in Holiferm)

• Mintel

• Flini

• Colt & Willow

So register here and use the promo-code WSC21NB500 to get $100 off. Great right? Blog readers only. I’ve always wanted to say that. As always, of course, I am producing and chairing the event and we will learn a lot and have a bit of fun along the way. See you there.

End of commercial. Start of some pre-news musings. I’ve spent a bit of time listening to 2 heavy metal bands this past month, Diamond Head and Metallica. Who? you might ask..Ah sorry, Metallica is an American heavy metal band that achieved prominence in the 80’s and 90’s and sold a few tens of millions of records over the past few decades. Anyhow, there’s something interesting that we might learn from Metallica’s history that's applicable to our work. And it’s not what you think.

You can learn from these fellows

Let’s do this: Listen to the next two songs as I present them here (courtesy of YouTube) and then we’ll pick up the discussion after the news section. If metal is not your thing – just listen to the first couple of minutes of each song (up to where the singing starts).

End of pre-news musings. Start of the News:

First – there continues to be a lot of Hurricane Ida outage and restart developments that I will not detail here. Your best resource is the great ICIS topic page at this link. It’s updated pretty much in real-time. Check it out (subscription may be required) .

In last month’s blog we wrote about the sale by the owners of Emery of Emery’s Asia business. Some helpful readers have provided me with some more information. First the filing by Mega First Corporation – which I link here [insert link] – notes the following:

“The Board of Directors of Mega First Corporation Berhad (“MFCB”) wishes to announce that Edenor Technology Sdn Bhd (the “Purchaser” or “Edenor Technology”), a 50:50 joint venture company between MFCB and 9M Technologies Sdn Bhd (“9M Technologies”), has on 19 August 2021 entered into a conditional Sale and Purchase Agreement (“SPA”) with Sime Darby Plantation Berhad and PTTGC International Private Limited (collectively, the “Vendors”) to purchase the entire issued and paid-up capital of Emery Oleochemicals (M) Sdn Bhd (“EOM”) and Emery Specialty Chemicals Sdn Bhd (“ESC”) for a Target Equity value of RM38 million (the “Proposed Acquisition”). “

Now – the name Edenor may well ring a bell for some readers. It’s a tradename used by Emery for some fatty acids and glycerine. It is also used by KLK for glycerine. Interestingly, reading the Mega-First filing further, we learn about 9M Technologies (and I am quoting here). “9M Technologies is a private limited company incorporated under the laws of Malaysia with an issued and paid-up share capital of RM14,950,000, comprising 14,950,000 ordinary shares. Its business is in investment, mergers and acquisitions and technical advisory services. The founder of 9M Technologies is Mr. Yeow Ah Kow who has more than 35 years international experience, mostly in the leadership role in oleochemicals, edible oils and specialty chemical business and manufacturing.” So – there we have it. AK Yeow, who many of our readers know, spent a large part of his career, running the oleochemicals business at KLK, is behind the buyout. Kudos to AK. We wish him much success.

In US Ethylene Oxide, ICIS reported at the beginning of September that August ethylene oxide (EO) contracts edged lower, tracking same-month feedstock ethylene contracts.  ICIS assessed EO lower by 0.80 cents/lb ($18/tonne) from the previous month.  US August ethylene contracts decreased by 1 cent/lb from the previous month, on resolved production issues and lower cash costs.

Unusual to see a downward tick

The majority of EO contracts are formula-based, and price movement comprises 80% of the change in the ethylene price and an additional conversion fee, or adder. As you probably know, like ethylene, EO contracts are settled at the beginning of the month for the previous month’s price.

In addition, ICIS noted that, following Hurricane Ida, no significant damage to ethylene oxide (EO) units in Louisiana was reported. Still, producers awaited the return of third-party utilities and feedstocks, and largely have no estimate for restarting plants. The storm affected nearly 60% of US EO capacity, according to the ICIS Supply and Demand Database. In addition to significant EO capacity being affected,  18% of US downstream polyether polyol capacity and 14% of US capacity for co-feedstock propylene oxide (PO) is located in the area impacted by Hurricane Ida. This shortage could temporarily dampen demand for EO in this segment.  A complementary feedstock for polyurethanes (PUR),  methylene diphenyl diisocyanate (MDI), also could tighten further because of Ida, and thus could decrease demand for EO-derived polyols into PUR.

Around mid-month, Stepan, in the US, declared force majeure on surfactants-related products including ethoxylates and ethylene oxide/propylene oxide (EO/PO) polymers effective 15 September, according to a customer letter.  The company cited shortages in the availability of multiple raw materials, and disrupted logistics.  "Several of Stepan Company's suppliers have declared force majeure and confirmed limited allocation of their products impacting our ability to obtain key raw materials. We are working closely with our suppliers to understand their capabilities and continue to assess the overall impact on product availability," the letter said.  Stepan did not immediately respond to a request for comment. The product lines included in the force majeure are: ethoxylates, EO/PO polymers, olefin sulfonates, synthetic sulfonates, synthetic ether sulfates, hard and soft sulfonates, amides, dry flowable dispersants, Chem-Specialties, phosphate esters, softeners, Sulfites-Specialties and blends containing these products.

In real life too

Around the other side of the world, ICIS’s Helen Yan reported that Asia’s fatty alcohols market may see upward price pressure from increased Chinese spot interest amid limited local supplies, prevailing logistics issues and higher packaging costs.  Chinese buyers are back in the spot market and seeking to replenish their dwindling stocks due to limited domestic supplies, market sources said.  “We are seeing a pick-up in spot interest from China and they are looking for December cargoes due to reduced local production output,” a regional producer said.  The ongoing environmental inspections of plants in China have curbed production output, market sources said.  Upward costs pressures from logistics issues, including soaring container freight rates for regional and deep-sea trades, delayed shipments and congested ports, as well as rising packaging drum costs, are also bolstering the Asian fatty alcohols market.

This is the third time I've published a graph like this..

..and it still blows my mind!

Meanwhile, China’s month-long environmental inspections of five provinces housing industrial hubs have prompted independent refineries and some plants to either reduce operating rates or shut production. [Only in China right? .. Right? ..??] On 25 August-2 September, the country's Ministry of Environment and Ecology (MEE) dispatched working groups [ carry sticks and leaving the carrots back in the office] to Jilin (northeast), Shandong (east), Hubei (central), Guangdong (south) and Sichuan (southwest), to check on the provinces' compliance with environmental regulations. China's second round of crackdown on non-compliant industries across more than 30 provinces started in July 2019. [great thing, compliance isn’t it? I mean without that, where would we be..?]

ICIS’s great Lucas Hall provided the monthly North American Fatty Alchol update as follows: US Q4 fatty alcohols contract negotiations are largely finished, against the backdrop of ongoing supply-chain disruptions in the US and southeast Asia, healthy-to-strong demand and volatile feedstock and freight markets globally.  Freely negotiated contracts for mid-cut alcohols have largely been heard at a decrease from Q3. Contracts have largely been heard lower now that demand has stabilised from the panic-buying seen at the start of the pandemic, with many players having carryover volumes from Q3. Demand is typically slowest in Q4.  That said, Shell's ongoing force majeure has prompted an increase in synthetic alcohols demand in the near term. Demand into Mexico has also picked up on increased ethylene oxide (EO) availability from the local producer. Shell remains on force majeure into October because of feedstock constraints, but has increased its allocation levels from September.

Freely negotiated contracts for long chain alcohols have largely been heard at an increase from Q3.  Demand in these markets is largely outpacing supply amid ongoing supply-chain disruptions in southeast Asia because of the pandemic, ongoing supply-chain disruptions globally - particularly in shipping container markets - and overall strong demand in industrial end-markets.

Demand outpacing supply!?... a while since we heard that story.

Heavy chain alcohols are more susceptible to import disruptions because they are often shipped by container.  A limited number of suppliers have tank storage capacity in the US to process and store heavy chain alcohols in bulk. Mid-cut alcohols are less susceptible to these disruptions, as they are largely shipped in bulk.

Prices

Q4 discussions

In mid-cut markets, freely negotiated contracts have largely been heard at a decrease from Q3.  In heavy chain markets, freely negotiated contracts have largely been heard at an increase from Q3. vIn the wider market, multiple producers have switched their contract terms from a DEL (delivered) to an FOB (free on board) + freight basis because of volatile and bullish freight markets.

Mass balance (MB)

Premiums were held steady at a 7-13 cent/lb premium over standard balance material.

Q4 prices have been heard slightly above the posted range.  Supply continues to tighten because of pandemic- and customs-related disruptions across the wider market.

US sanctions against Malaysian palm oil giants Sime Darby Plantation Berhad and FGV Holdings Berhad in 2020 have significantly tightened Roundtable on Sustainable Palm Oil (RSPO) MB markets since then.  US Customs and Border Patrol (CBP) has denied entry to at least two Malaysian-origin vessels carrying oleochemicals over the August-September period. While the latest disruptions did not largely impact fatty alcohols availability, there is growing concern among market participants of expanding scrutiny against Malaysian-origin material as RSPO MB markets continue to tighten.

Rising premiums are making MB material competitive with coconut-based material, in turn increasing demand for coconut-based fatty alcohols.  In the meantime, market players in Malaysia are working to reorganise their supply chain to avoid further disruptions, given the latest CBP action.

Customs and Border Patrol to the Rescue

Meanwhile in Asia, Helen Yan of ICIS reports that Asia’s fatty alcohol ethoxylates (FAE) market is likely to face upward pressure in the near term due to tightened supply in China following its dual control policy on environmental protection.  Chinese spot interest is also expected to gather momentum ahead of the Chinese National Day holidays from 1-7 October, as buyers need to replenish their dwindling inventories.

“We are getting enquiries, and discussions are ongoing with the Chinese buyers for October shipments,” a regional producer said.  Selling indications for October shipments have increased to $1,600-1,700/tonne CIF (cost, insurance and freight) China for drummed product, tracking the Chinese domestic prices and higher feedstock ethylene oxide (EO) and fatty alcohols C12-14 costs, market sources said.

More familiar upward pressure

“Local FAE prices have increased to more than Chinese yuan (CNY) 12,000/tonne ex-warehouse this week, up by about CNY500/tonne from the previous week,” a trader said. In the week ended 23 September, FAE spot prices were up $50/tonne week on week to $1,500-1,550/tonne CIF China, ICIS data showed. Feedstock fatty alcohols C12-14 spot prices rose to $1,875/tonne FOB (free on board) southeast (SE) Asia in the week ended 22 September, up by $25/tonne from the previous week, ICIS data showed. Several feedstock fatty alcohol and ethylene oxide (EO) plants in China were shut or running at reduced rates following the implementation of the dual control policy. [oooh that sounds nice doesn't it? Dual control – just like a nice safe aeroplane or one of those drivers instruction vehicles. Very safe and responsible and eviscerating your property rights – if you had any in the first place, which you probably didn't so.. ]

The dual control policy places tighter limits on energy consumption and intensity in parts of China and has prompted plant shutdowns or cuts in operating rates, raising concerns of curbed production and supply. FAE is used mainly in sodium lauryl ether sulfate (SLES), a surfactant found in many home and personal care products such as soaps, shampoos and detergents.

Relax comrade. We'll take it from here.

And in Europe, ICIS’s Sam Wright reports that European fatty acids and fatty alcohols fourth quarter negotiations are ongoing, with shortages still plaguing both markets.  Most settlements are expected to take place for both products during early October. In the palm fatty acids market, some final fourth quarter contracts are being settled, although most players are fully committed for the fourth quarter and are now looking at first quarter material. In the tallow fatty acids market, negotiations got off to a slower start, as players were waiting to hear of available volumes from producers. Discussions are now underway for the fourth quarter.

Fatty alcohols fourth quarter contracts have started, and some settlements have taken place, but most are yet to conclude.  Logistical issues surrounding shipments from Asia continue to be the biggest problem for both the palm-based fatty acids and fatty alcohols markets. These shipping constraints are unlikely to ease before the end of the year, with most players also bracing for tightness during the first quarter of 2022.

Tallow fatty acids shortages are still caused by lower slaughter numbers and strong tallow biodiesel demand.  There is very firm demand for fatty acids and fatty alcohols heading into October, caused largely by the lack of volumes.  In the fatty alcohols market, some downstream ethoxylates customers are said to be requesting six-month contracts currently, to ensure security of supply.

Worth paying up for

End of the news. Beginning of the “music section”. We’ve had the bulk of this month’s music already up front but here is part 2 of the discussion about Diamond Head and Metallica that we started above. If you haven’t done so already, go back and listen to the two songs (and if you’re not that partial to heavy metal, at least listen to the first 2 minutes of each). OK? So – Diamond Head formed in 1976 near Birmingham England and in 1980 released their first album on which was the song Am I Evil. As you have heard, it is a decent, solid, heavy rock song. Your blogger saw them live at Sunderland Poly in ’79. Pretty good.  In 1984, Metallica covered the song, putting it on a B side. Over the years it became a staple of the Metallica live shows and often would the last song played. A real crowd-pleaser. Diamond Head is still plugging away today and they have had zero commercial success, nothing – which is why you’ve never heard of them. Metallica – one of the top selling artists of any genre. Interestingly Diamond Head have said that they are grateful for the royalties that have come from Metallica’s performance of the song. The money has enabled the group to keep going. Those royalties have been Diamond Heads biggest revenue source.

What’s fascinating to me is that the songs are the same. It’s not like Metallica did a metal version of an English folk song. It’s the same song in the same style played on more or less the same instruments. Except that Metallica… well it’s hard to put your finger on it. I’ll let you judge for yourself.

So – who would you rather be? No not the actual band necessarily. Think metaphorically. Who would you rather be? This is not a trick question. If you’re trying to calculate what the royalties might be, then I already have your answer. And that’s OK. Playing at the highest level every night is not for everyone. Thing is though, if you think you want to be Metallica, then having a great song, played well, is not enough. It’s all the other little things executed consistently with excellence year after year that count. Think about it.

By the way, this is not some rant about how the plucky Brits invent things and then the Americans always steal it, dress it up with a bit of marketing and make a fortune. And what can we learn? No… that old trope doesn't apply here. What about (English heavy rock band) Iron Maiden whose first album also came out in 1980? Still a multi-platinum, stadium filling, global act. Actually it’s hard to imagine anyone covering a Maiden song. I can’t think of such an instance. Of course now I’ll hear of several such covers from our avid readers. But there are definitely no well-known covers. I wonder why? Probably because there is such a high degree of originality baked into those songs. But I’m digressing. The question is who would you rather be?

If you answer Metallica only after estimating what the royalties from Am I Evil could be, then no, not really. You don't want to be Metallica. You’re not up for it. If you answer Diamond Head, while briefly thinking how cool it might be, though, just once, to fly (private) down to Rio to play in a stadium, then no. You’re wrong.

So what am I getting at? It’s a metaphor of course. If you are motivated by inventing, say, new chemical technologies and profiting modestly from others making a commercial success of them, that is great and that’s a way to make a great living. However, if you don’t particularly care where the technology comes from (it might be yours or not) but you want to make it the world standard by which all others are judged – by executing everything at a high level over and over and over again, then don't ignore that instinct. You want to be Metallica. So.. go ahead.

Metaphors are never perfect. Here’s another pair of songs. First up Breadfan by Budgie. They were a Welsh heavy rock band formed in 1967. This song came out in 1973. Wow – ahead of their time or what? Next Metallica’s cover of this song.

1988

Same deal as before. Faithful rendition by Metallica. For some reason I don't feel the same about this pairing. Maybe because Budgie was after something else entirely with their art. If you listen to their body of work, they were never entirely about heavy metal or whatever you want to call it. They were off playing in their own world. There may be a relevant metaphor there also.

But for now, the question is: Metallica or Diamond Head. Who would you rather be?

That’s it for September. Register for the Conference! Use the code WSC21NB500

Surfactants Monthly – August 2021

an I just have a minute for a quick commercial before we start? Our Asian and European Surfactant Conference will be online and coming up soon, October 26th and 27th. Details and registration here. We’ll talk oleo, EO, logistics, computational design (yeah I know right?), carbon capture and much more. We have a huge keynote from Sasol and a bunch of other special guests. I co-produce and chair as usual and so, yes, I’m biased. But you should still register. Thanks for your attention.

Lots of news this month, so let’s get stuck in. First up Hurricane Ida. Your blogger was fortunate enough to only experience a minor inconvenience from the storm having to spend an extra day in San Diego before getting home. Others lost their homes, businesses, and lives – along the gulf coast and in the Northeast. The chemical industry, as usual, reminded us how the concentrated their risk profile is in North America. ICIS maintains a truly excellent topic page on Ida here.  We learn that about 2.64% of the US chemical supply was taken offline by the hurricane, including 3 Million MT of ethylene capacity.

Hit businesses big and small

In further analysis by Janet Miranda, ICIS noted that: Producers, as of 8/30 shut in nearly 95% of current oil production and nearly 94% of gas production in the US Gulf due to Hurricane Ida.  The following shows the number of platforms and rigs evacuated, including the total of oil and natural gas that has been shut in.

A partial list of plant shutdowns includes:
Rubicon shut down its Geismar, Louisiana site due to the storm. The plant makes methylene diphenyl diisocyanate (MDI), polyether polyols, aniline, nitrobenzene. Rubicon is a joint venture made up of Huntsman and LANXESS.

Cornerstone declared force majeure on products from its Waggaman, Louisiana site. Its acrylonitrile (ACN) and melamine plants had begun a shut down ahead of the storm.

Shintech shut down its Addis and Plaquemine plants in Louisiana. The company said it did a controlled shutdown of operations because of the storm. No restart date was given. The plants make ethylene, chlorine, caustic soda, ethylene dichloride (EDC), vinyl chloride monomer (VCM) and polyvinyl chloride (PVC).

Westlake shut down its Geismar and Plaquemine plants due to Ida, the company said. The plants along the US Gulf Coast maintain hurricane and tornado plans.  The plants make caustic soda, EDC, PVC, VCM. Westlake did not provide an expected restart date.

Pinnacle Polymers declared force majeure on all products following the impacts of Hurricane Ida on Louisiana, according to a customer letter. The company is currently unable to predict when normal production will resume.  The plant makes polypropylene (PP).

Dow shut down its operations in Louisiana at its St Charles site in Taft and its Plaquemine site. Both sites have crackers and plants that make polyethylene (PE).  The St Charles site also makes acetic acid, acrylic acid, ethylene oxide (EO), glycol ethers and surfactants, among other chemicals.

The Plaquemine site also produces benzene, toluene, EO, glycol ethers, propylene glycol (PG) and propylene oxide (PO), among other chemicals.

At Baton Rouge, Exxon is shutting down units in its refinery to stabilise operations. No damage was sustained during Hurricane Ida, the company said in a statement.

On Sunday, ExxonMobil said it was adjusting its rates and shutting down some units at its complex.  The ExxonMobil site has a refinery and a chemical complex that makes ethylene, propylene, butadiene (BD), PE, polypropylene (PP), phthalic anhydride (PA), plasticizers, benzene, toluene, isopropanol (IPA), base oils and various other chemicals.

BASF idled its Geismar plants. It makes butanediol (BDO), EO, methylene diphenyl diisocycanate (MDI), toluene diisocyanate (TDI) and polyether polyols.

Phillips 66 shut down its Alliance refinery in Belle Chasse, Louisiana. In addition to fuel, the refinery makes benzene, mixed xylenes (MX) toluene and propylene.

Shell shut down its plants in Geismar and Norco.  Geismar makes linear alpha olefins (LAO), ethylene glycol (EG), EO and glycol ethers.  Norco makes ethylene, propylene and BD.

So – that’s quite an impact, right? Within hours, the great Lucas Hall of ICIS neatly summarized what’s happened as a result, in the US fatty alcohols market here.

Wow - are you fully comprehending this?

US Q4 fatty alcohol contract negotiations are in their early stages amid a rebound in feedstock costs across the oil palm complex from early June against the backdrop of bullish freight costs, particularly for container shipments. Feedstock costs have re

bounded from early June on the back of supply chain disruptions in southeast Asia as the pandemic continues to ravage the region. Mid-cut alcohols are mostly shipped in bulk, while heavy chain alcohols are often shipped in containers.  Domestic freight markets are also constrained, with truck markets particularly tight. In the mid-cut alcohols market, a mixed demand outlook is somewhat offsetting the above cost pressures. Single cut C16 and C18 alcohols remain tight, depending on the supplier, and demand remains strong.

The most significant impact Hurricane Ida will have on US alcohols markets is on transportation in the near term.  Shell confirmed its US Geismar, Louisiana, site was operating at reduced rates on 8/30. Shell did not say when it expects to resume normal operations. Shell had begun shutting down its facilities in Geismar ahead of Hurricane Ida.

A company source said logistics for shipments at Geismar remain suspended, pending surveys of the river and land infrastructure for any damage or blockages.  Sasol confirmed its US Lake Charles, Louisiana, Chemical Complex is open and operating normally following Hurricane Ida, according to a customer letter on 30 August. However, delivery delays of at least two to three days are expected for traffic that flows around areas impacted by the storm.  Downstream, BASF confirmed it had idled its US Geismar, Louisiana, site ahead of the storm. The market is awaiting updates on site operations.  Dow confirmed its US Taft, Louisiana, surfactants site remains shut amid a lack of functioning infrastructure in St Charles Parish following the storm. Dow is partnering with stakeholders in the region to understand both immediate- and longer-term needs to help address the challenges.

Multiple importers also have storage capacity in New Orleans, Louisiana. Storage capacity was not heard damaged in the storm but transport delays are expected in the near term.

Discussions for mid-cut alcohols are mixed amid the above cost and supply and demand fundamentals.  Some downstream manufacturers, including major surfactants producers, have carryover volumes amid pandemic-related supply chain disruptions and a lower Q4 demand forecast.  C16-18 alcohols face upward pressure from tight supply of single chain C16 and C18 alcohols, depending on the supplier, and strong demand, including into antioxidant and other industrial end-markets.  Demand for alcohols from domestic producers is relatively steady as market participants look toward the domestic market to ensure security of supply amid months of import supply chain disruptions during the pandemic.  Demand in Mexico is also strong as ethylene oxide (EO) availability from the local producer continues to improve [oh – we are familiar with the “waiting for Pemex” game aren’t we?].  Multiple producers are switching contracts from DEL (delivered) terms to an FOB (free on board) plus freight basis amid volatile and bullish freight markets.

Mass balance

Premiums were held steady at 7-12 cents/lb. Prices for Q4 have been heard above the the posted ranges.  US sanctions against Malaysian palm oil giants Sime Darby Plantation Berhad and FGV Holdings Berhad last year have significantly tightened Roundtable on Sustainable Palm Oil (RSPO) mass balance (MB) markets over the last several months. Rising premiums are making MB material competitive with coconut-based material, in turn increasing demand for coconut-based fatty alcohols.  Coconut-based alcohols do not fall under the same environmental scrutiny as palm-based material. [Don’t know why that is honestly. There is a roundtable on sustainable coconuts and coconut oil https://www.sustainablecoconutcharter.com/ ] This makes them a viable alternative to MB material when pricing becomes competitive in sectors where sustainability labelling is common, like personal care and cosmetics.  US Customs and Border Patrol (CBP) recently held up and subsequently turned away a vessel from one southeast Asian supplier amid growing scrutiny against Malaysian-origin product with the Sime Darby and FGV bans.  While the latest supply chain disruption did not directly impact US fatty alcohols markets, the most-recent action suggests expanding scrutiny against Malaysian-origin material.  CBP has not announced any further withhold release orders (WROs) other than Sime Darby and FGV at this time.

Unfairly Scrutinised?

In further analysis of the impact of the hurricane, Helen Yan looks to the Asian fatty alcohols markets in an outstanding ICIS analysis. Asia’s fatty alcohols market players are looking at shipping out cargoes to the US and EU, wary of any potential decline in regional demand as China’s economy slows down.  Disruptions in synthetic fatty alcohols supply in the US in the wake of Hurricane Ida could lead to a pick-up in demand for natural fatty alcohols from southeast Asia, market sources said. Southeast Asia is a major oleochemicals production hub.

"We expect to ship out bulk cargoes to the US in the near term due to the impact of Hurricane Ida on supply in the US," a regional producer said.  “Today the two strongest markets for alcohols are China due to its limited local supply and the US because of the unfortunate impact of Hurricane Ida,” another regional producer said.

A majority of US Gulf oil and natural gas remains shut in after Hurricane Ida made landfall on 29 August.  Nearly 94% of current oil production and 94% of gas production in the US Gulf remains shut in, according to the latest update by the US Bureau of Safety and Environmental Enforcement (BSEE). From Europe, demand for bulk shipments from southeast Asia has also picked up as economies re-open following speedy vaccination rollouts.  “We are getting enquiries for bulk shipments from Europe. However, logistics is an issue for both container and bulk shipments,” another supplier said.

Market players have been grappling with soaring freight costs, congested ports, delayed shipments and demurrage in both regional and deep-sea trades. Demandfrom China, on the other hand, may slow down in view of downbeat August manufacturing data in the world’s second-largest economy.  Caixin’s China manufacturing purchasing managers’ index (PMI) fell to contraction territory at 49.2 in August, snapping four months of expansion.  “China’s PMI has gone into contraction and sentiment will be bad and this will certainly impact southeast Asia,” a regional oleochemicals producer said.  China’s official manufacturing PMI declined to an 18-month low of 50.1 in August, down for the fifth month and barely above the expansion threshold.  The slowdown in the Chinese economy, however, may have limited impact on fatty alcohols prices as Chinese demand exceeds local supply.  "China needs to import as it does not have sufficient fatty alcohols locally to meet its demand. It needs to import about 20,000-30,000 tonnes a month," another supplier said.  “Chinese buying interest usually slows when prices are weak or falling, so let us wait and see,” a trader said.

On 25 August, C1214 blend spot prices were flat week on week at $1,840/tonne FOB (free on board) southeast (SE) Asia, down by about 18% since May, ICIS data showed.

A modest uptick

If the crazy increases in freight we just noted, haven’t convinced you that an inflation tidal wave is coming - in news that reminded us how inflation is still very much simmering beneath the economic surface, Stepan announced price increases at the end of the month on all list and off-list surfactants products, effective 1 September, or as contracts allow, according a company pricing announcement. Stepan is seeking an increase on both packaging and handling as well as transportation.

*Note: Price increase is independent of and in addition to any packaging increase above

The increases are expected to gain at least some traction amid bullish shipping markets stemming from continued shipping equipment shortages and internal/external shipping logistics constraints, as the economy continues to recover from the pandemic-related downturn.  According to the company, demand for surfactants into consumer end-markets remains above 2019 levels, but has largely stabilised from panic buying-driven demand at the beginning of the pandemic.  Demand in other end-markets like institutional cleaning and industrial end-markets is rebounding from the pandemic-related downturn.  The resurgence of the Delta variant driven version of the pandemic is not expected to slow demand into industrial end-segments in the near-to-medium term given the snug-to-tight supply environment.

Back at the beginning of August, another in-depth piece by Lucas Hall of ICIS illustrated how Southeast Asia has a somewhat different relationship to COVID than that of the US or even Europe. Lucas notes that the US H2 fatty alcohols market faces the major possibility of further supply chain disruptions as the pandemic continues to worsen in southeast Asia.  Stringent lockdown orders in place in the region's top natural alcohols producing countries - Malaysia and Indonesia - are already raising supply chain concerns in the US, especially for container volumes.  Mid-cut alcohols are largely shipped in bulk, while heavy chain alcohols are in large part shipped in containers.  Lead times for packaged material are approximately three to four months.  Lead times for bulk shipments are approximately one month.  The restrictions are already weighing on oleochemical and feedstock palm oil production in the region, especially in Malaysia, where palm oil inventories are historically tight.  Malaysia has reduced operating rates to around 60% because of labour constraints, according to sources in Asia.

Malaysian oleochemical producers Emery Oleochemicals and Southern Acids Industries have both declared force majeure, according to customer letters obtained by ICIS.

Different COVID Situation

MALAYSIA PALM SUPPLYThe charts below show Malaysian palm oil production, export and stocks data. Check out these charts:

Market sources largely consider Malaysia's palm stock levels to be balanced around 2m tonnes. July production is largely expected to decrease from June and will likely remain constrained so long as these restrictions remain in place.  If these restrictions remain in place through Q3 - which coincides with the typical peak palm harvest season - stock levels are highly unlikely to recover to the 2m threshold this year.

FEEDSTOCK COSTS
Lower palm oil production is likely to maintain upward pressure on feedstock costs across the oil palm complex, in turn putting upward pressure on downstream oleochemical markets like natural fatty alcohols. Prices across the oil palm complex have already rebounded to around their May-June levels, putting upward pressure on spot fatty alcohols in southeast Asia.

FREIGHTS
Container freights are upwards of $20,000/container [ 5 X what it was a year ago!] into various ports throughout North America amid worsening shipping logistics globally, adding to the pressure. Internal freight costs within the US also continue to rise - particularly in trucking, where drivers are tight. Lead times for trucks in the US is several weeks.

PRICES Rebounding feedstock costs and bullish freight costs against the backdrop of further supply chain disruptions are prompting market players to begin Q4 domestic negotiations early. Prices across the oil palm complex entered a downward correction in mid-May, initially suggesting downward pressure on Q4 contracts.  US natural alcohol prices typically track the feedstock cost delta from about the previous month and a half, given standard shipping times, plus freight costs.

However, feedstocks are not being processed through oleochemicals plants as quickly as usual because of the countervailing logistics constraints globally that have only worsened in recent weeks.  As such, bullish feedstock and freight costs against the backdrop of tighter supply in southeast Asia is likely to exert upward pressure on the US market as it approaches Q4.

Freely-negotiated spot prices remain above 100 cents/lb for mid-cut and high-chain alcohols.

Q3 contract ranges

Single cut C16 and C18 remain particularly tight.

Mass balance premiums also face upward pressure from tightening availability amid ongoing US sanction against companies in southeast Asia - namely Malaysia - and worsening supply chain constraints as the pandemic continues to worsen throughout the region.  Premiums for Q4 have been heard as high as 13 cents/lb.  Higher premiums are pushing palm-based product close to parity with coconut-based product, which may prompt some users to substitute palm-based for coconut-based product in the near-to-medium term given its wider availability.

DOMESTIC PRODUCTION US production is improving but is not expected to have a major impact on the greater supply balance in the domestic market. Sasol confirmed it is lifting the force majeure for US produced linear alcohols and linear alcohol-based surfactants early in the month, according to a customer letter. Sasol will maintain a sales control on some alcohol homologs until inventory levels are fully restored.  Sasol declared force majeure following major hurricane-related disruptions at its US Lake Charles, Louisiana, site in late August 2020.  Sasol remained on force majeure amid continued supply chain constraints globally, including pandemic-related shipping constraints externally/internally and extreme weather-related disruptions in Texas and the US Gulf in February.  Sasol was largely fulfilling its contract commitments in recent months, so the announcement is unlikely to have a major impact to the domestic supply situation in the near term.

DOMESTIC DEMAND Demand for fatty alcohols is likely to remain stronger than pre-pandemic levels this year but unlikely to increase to levels seen during the initial onset of the pandemic in Q2 2020.

Waning consumer demand for cleaning, disinfection and personal wash products as pandemic-related restrictions ease and more people get vaccinated is largely contributing to that decline.

Rebounding demand for institutional cleaning and other end markets like agriculture and oil and gas is expected to offset some of these declines.  

Meanwhile over in Europe, ICIS’s Melissa Hurley writes that European ethylene oxide (EO) supply is expected to remain relaxed following a spate of turnarounds, with solid demand set to continue. High production costs from months of higher upstream ethylene prices is also a continued concern. Supply has improved after planned turnarounds finished in the second and beginning of the third quarter. Demand is still considered healthy despite the summer holidays drawing away some market players in parts of Europe.  Previously demand has mostly been robust, especially from the surfactants market, and demand for EO is still considered healthy moving into August.

Production costs have been relentlessly increasing this year. Prices in August increased again due to the monthly ethylene contract jumping by double digits. The European EO market has experienced seven months of mounting contract prices.  There were previous logistical concerns, following flooding in southern Germany and Belgium. Part of the Rhine was subsequently closed but has since been reopened. Derivatives such as glycols experienced slight delays in delivery times in the truck market but mostly it was considered manageable

Steady March Continues in Europe

Similarly for EO in the US, prices are trending up, as reported by Lucas Hall. US July ethylene oxide (EO) contracts settled at a sharp increase from June, tracking a record month-on-month increase in July ethylene contracts.  Ethylene contracts increased 11 cents/lb ($243/tonne) - the largest month-on-month increase in the 24 years ICIS has been covering the market - tracking higher spot prices stemming from widespread disruptions in the market. Approximately 13% of US ethylene capacity was disrupted in July, according to Chemical Data (CDI), now part of ICIS.  Downstream demand remains strong as supply catches up to pent-up demand following supply chain disruptions in Texas and the US Gulf in February ahead of increased economic activity from around the end of March with easing pandemic-related restrictions across most of the US.  Shortages and disruptions of other raw materials in the supply chain are keeping downstream producers from increasing operating rates further, including in glycols and surfactants markets.  US July EO contracts increased 8.8 cents/lb ($194/tonne) to 65.2-74.7 cents/lb FOB (free on board).

News from the front end of the value chain. ICIS reported that German adhesives and detergents major Henkel has raised its guidance for full-year 2021 organic sales growth, but it lowered guidance for the adjusted earnings before interest and tax (EBIT) margin due to rising raw material and other costs.

Organic sales exclude the impact of currency effects and acquisitions or divestments.

The increased sales guidance comes after “strong” H1 sales of €9.9bn, with organic sales up 11.3%, and despite expected slower growth rates in industrial demand in H2.  Meanwhile, raw material and other costs are expected to continue to rise through the end of 2021.  “The exceptionally sharp rise in raw material prices and strained supply chains will weigh heavily on the economy in the further course of the year,” the company said.

n H1, Henkel managed to offset the effects of higher raw material costs through strong volume growth, as well as price increases, cost management, and efficiency improvements, it said.  The company uses a range of petroleum-based raw materials, including surfactants.

Battling RIsing Costs

More supply chain disruption, this time from BASF in Germany. BASF declared FM on PO-containing surfactants and some specialities on 19 August as the result of an unforeseeable incident, according to a letter to customers seen by ICIS.  Market sources said the FM affects PO from the site.  "Due to a fire in one of our precursor plants in Ludwigshafen on 7 August, such plant cannot operate until further notice," said BASF in the letter to customers.  "As a result of such unforeseeable incident which occurred beyond our control, we suffer from a shortage of PO...with immediate effect, BASF SE – also on behalf of our affected affiliates – hereby has to declare FM on PO-containing surfactants and selected specialities until further notice."  BASF also advised it was not under FM for PO or PO-based glycols.

PO Trouble in Ludwigshafen

LAB remains the workhorse of the surfactants industry and it’s worth keeping tabs on the market – as ICIS does in this recent bulletin: The market for linear alkylbenzene (LAB) was stable in southeast Asia based on deals and buying indications in the market.

Well Correlated - and Stable

Most producers chose to maintain their offers from last week amid shortages of material in the market. Demand remained steady despite lockdowns being imposed in some countries as LAB is considered an essential product.  In India, the market slowed in August, which is typical for the monsoon season. Local producers had to offer discounts of Indian rupees (Rs) 5/kg or more to incentivize buyers to lift material.  Despite this, buyers did not order much material and are waiting for new September offers to be announced next week.  The market was also muted as the festival of Janmashtami is celebrated this week. Demand for LAB was also affected by downstream products like linear alkyl benzene sulphonic acid (LABSA), prices of which were softer in the local market. Local prices fell from Indian rupees (Rs)102/kg to Rs 99/kg.  Some sellers were also keen to move their high-priced LAB material before next month.

The market for LAS was stable, with little discussion taking place. Buyers from southeast Asia felt that $1,650/tonne CFR SE Asia was a workable price. There were some offers at this level, but few deals took place.

Did you see this? Emery is splitting into 2 companies. As reported in the really very good, Indian Chemical News : Sime Darby Plantation Bhd (SDP) and PTTGC International Private Limited (GC Inter) have signed an agreement to divest their collective 100 per cent equity interest in the Asia Pacific business of Emery Oleochemicals (M) and Emery Specialty Chemicals to Edenor Technology for RM38 million. Emery Oleochemicals, one of the world’s leading natural-based chemical producers, is a 50:50 joint venture between PTT Global Chemical and SDP.

“The divestment is conditional upon the restructuring of Emery Group into separate standalone groups in respect of its Asia Pacific business, and the North America and Europe business,” the plantation company said in a stock exchange filing with Bursa Malaysia. “Post restructuring, Emery Group’s Asia Pacific business will remain under Emery Oleochemicals (EOM) and Emery Specialty Chemicals, while its North America and Europe businesses, both held under Emery Oleochemicals UK Limited, will be transferred out from EOM, to be held directly by SDP and GC Inter on a 50:50 basis.”

Edenor Technology is a 50:50 joint venture company jointly incorporated by Mega First Corporation Bhd (MFCB) and 9M Technologies Sdn Bhd for the purpose of undertaking the proposed acquisition. MFCB is a Malaysian public listed company under the utility sector with key segments in renewable energy, resources, packaging, investment holding, and others while 9M Technologies is a Malaysian private limited company with business in investment, mergers and acquisitions, and technical advisory services.

If someone could add more color or background on this transaction, I’d love to hear it. You can do that for publication or not. Up to you.

High Profile Split - But Why?

Finally the word became official as ICIS reported that Indorama is to acquire Brazil’s Oxiteno for $1.3bn. Subject to regulatory approvals, the transaction is expected to close in the first quarter of 2022. Indorama agreed to defer one payment of $150m to 2024, within the purchasing price of $1.3bn. As many readers know, Oxiteno has 11 industrial units in Brazil, Mexico, the US, and Uruguay; two global R&D centres, three R&D facilities, and eight commercial offices in Argentina, Belgium, China, and Colombia. In Brazil, its domestic market where it was founded in 1973, Oxiteno has plants in Suzano and Tremembe (Sao Paulo state), Triunfo (Rio Grande do Sul state), the Petrochemical Hub of Maua (also Sao Paulo state) and the Industrial Hub of Camacari (Bahia state).

A slightly different version

Joe Chang, editor of ICIS writes an excellent analysis of the Oxiteno deal. I won’t repeat it all here. You can read it yourselves  - it’s worth the subscription honestly. Rather, let’s go first to Indorama Ventures: In their press release, they note that : Oxiteno’s innovation-led HVA [I think this means “High Value Added” but I’m just guessing as it’s not defined anywhere in the press release] offering is a significant complement to IVL’s [That’s Indorama Ventures Limited] growth platform (Figure 1 - below), and a key driver of IVL’s EBITDA projection over the next two years, which is 15% above the company’s forecast in January 2021. Together with IVL’s world-class assets, which were acquired from U.S.-based Huntsman in 2020 (Spindletop transaction), the acquisition of Oxiteno will lead IVL’s newest IOD [That’s Integrated Oxides and Derivatives] business segment as a major high-margin growth driver alongside its traditional PET [Polyethylene Terephthalate] commodities business, creating a stronger and more resilient hybrid platform.

Very Highly Complementary

The press release goes on to say that the linkages between IOD, Oxiteno’s high-performing surfactants, and the Combined PET businesses through their crude oil, shale and oleo feedstocks gives IVL integration benefits across the value chain, which is key to the company’s sustainable business model as the world’s largest producer of PET resin and a large geographic footprint in non-ionic surfactants in the Americas (Figure 2 - below).

Oxiteno’s green chemistry innovation credentials also strengthen IVL’s ambitious sustainability objectives as a leader in PET circularity and bio-ingredients. Brazil is home to the largest inventory of ethanol, used to produce bio-ethylene to enhance EOD and PET sustainability. Today, IVL is the largest producer of resin used in recycled PET bottles and aims to recycle a minimum of 750,000 metric tons of PET globally by 2025, investing up to US$1.5 billion to achieve this goal.

An EO Machine

In an informative slide presentation, Indorama (IVL) lays out the rationale for the acquisition. The first thing you’ll notice is, that on slide 3, IVL sets off a sort of a “battle of the multiples” by quoting a series of EV / EBITDA multiples that it paid for Oxiteno. Here I quote “Enterprise value of $1.3B: (i) LATAM Downstream (EODs) assets at 7.0x EV/EBITDA1, (ii) LATAM Intermediates (EG) 5.4x EV/EBITDA1, (iii) USA Downstream (EODs) assets at 6.2x EV/EBITDA2  [and the footnotes are: Note: (1) on average 2018-20 adjusted EBITDA; (2) USA asset considered as capital work in progress, EV/EBITDA multiple based on 2023F EBITDA ] – OK then, those numbers are quite low and seem somewhat selective in their presentation. So let’s see what Ultrapar (Oxiteno’s parent) has to say. On their call with investors, they note, somewhat obliquely so as not to contradict the IVL release,  that the deal is done at 10 – 10.8 X EBITDA based on the somewhat fuzzy concept of EBITDA over a 3 – 5 year cycle. However, I think this actually does make sense as Oxiteno’s business is notoriously cyclical due, in part, to the effect of exchange rates and the volatility of the market for glycols, especially MEG. If you look at trailing 12 month results through Q2, 2021, the deal was worth 8.1 X EBITDA and if you look at 2020 – it’s 10.8. Phew! Erm…so – given all that, my sense is that the 10 – 10.8 range is not that unreasonable an estimate to use – so go ahead and do so, if you want to haver a single number (ok – range) It’s more representative, in my opinion, than the 7.0 / 5.4 / 6.2 trio that IVL presents.

So overall my gut says that it’s a good price for IVL to pay. This was clearly not a bid-driven  winners curse type scenario. 10 – 15 years ago, the picture could have been different (certainly before the financial crisis) when Brazil was the leading member of the BRICs (remember them?) and Oxiteno was a star in the Ultrapar portfolio. Today, however, any purchaser of Oxiteno has to reckon with the Brazilian economy and political picture, exchange rate risk and the weight of glycols in the product portfolio. In this regard, IVL was, in retrospect a very strong acquirer and they didn't overpay. Good for them. Some additional slides from their presentation are quite instructive – so let’s take a look.

First – This is not their first rodeo. Most readers are familiar with their acquisition of  the Huntsman surfactants business, but did you know they’ve acquired more than 50 businesses over the last 20 years.

Not Their First Rodeo

Second [and I think this is a key point] IVL emphasizes that Indorama’s internal need for MEG is a competitive advantage when considering the combined product mix and this can allow a focus on higher value products in downstream EOD (ethylene oxide derivatives)

Solving the MEG Problem

Third – the combination is big with a large market share in nonionics

Big Plus Bigger

Oh.. and did we mention we bought it at a good multiple?

Nuthin' but Single Digits!

Finally – some ambitious targets with $100M of synergies plus a rapid turnaround of Oxiteno USA from an EBITDA loss of $13M in 2021 to a profit of $43M in 2022 (including $30M of US based synergies).

Go Big and Don't Stay Home

So it’s a good story overall as Oxiteno now has a home where it is truly welcomed as a core member. The MEG problem is solved.

Solving the Glycol Problem

..And one must assume that exchange rate exposure can be better hedged within the new parent. Where, however, does that leave the blog in our single-minded pursuit of national stereotypes to illustrate our stories? It’s time to move on, mature a bit and get with the times. Supermodels and football at the end of the day are cheap hackneyed journalism that we just don't need here. Time to kick things up a notch as we welcome a new champion to the surfactants arena.

New Surfactant Champion

Ithink this has been a pretty long blog already right? So I’m not sure how much more I want to write. I know some readers (hey Mike!) look forward to the music section so I’ll just drop some videos below of songs I’ve been thinking about recently.

October 1976, The Damned released their first single on Stiff Records. It made a great impression on me..

– not least because of the opening “Is she really going out with him” – an homage to Joe Jackson? No of course not – that song didn't come out ‘til ’78 and in any case, it was the Shangri-Las who immortalized that innocent question in 1964 in this song..

So were the Damned playing a homage to the Shangri-Las or was it a sarcastic, commentary on the long lost innocence of the early 60’s – or just you know, sarcastic, mocking. Hmm well, let’s see. You gotta love the rest of the lyrics. “I got a feeling inside of me. It’s kinda strange like the stormy sea. I don't know why, I don't know why. I guess these things have gotta be” You know what? It’s a love song. Pure and simple. With a meaty riff, ridiculous drums and packed into 2 and a half minutes. So – yeah it’s a homage to the Shangri-Las. By the way go back and listen to those impossibly wholesome lasses from 1964. Isn’t it a great song?

Back to the Damned. A few years later in 1979, speaking of love songs, they released Love Song as a single off the Machine Gun Etiquette album. Check it out. A couple of things to note – first the opening had a definite crossover appeal to your average heavy rock fan while still maintaining pop sensibility and street cred. Not bad.  And how about that bass eh?

Do you think these lads ever listened to a spot of Motorhead? ...

Of course!

[I think it's helpful to point out here that the above brief collaboration between the 2 bands features 2 drummers with the namesPhilthy AnimalandRat Scabies -something to bear in mind for your next marketing meeting]

By the way, the Damned weren’t all Sturm und Drang Check this out from the same Machine Gun Album – Smash it Up Parts 1 and 2. Banned from most pub jukeboxes within a couple of weeks..

Careful

So why have I been thinking about the Damned? Don't know really but that 1976 single was something unique at the time and ushered in (to the UK anyway) a sort of boisterous upbeat sound. And that idea of a new rose. It sticks with you right? It could be a new car, new town, new book, new product, new market, new chapter, new vocation. It’s still exciting, isn’t it? This may sound a bit cheesy, but post-labor day is new product launch time and I'll be doing a few of those for sure . And also - that visit to San Diego I mentioned upfront. A couple of really fasincating new ideas germinated there. Could be ... Got no time to mess around, got a brand new rose in town..

Ok that’s it for this month.

Come to the conference !

Come to the conference !

Surfactants Monthly – July 2021

Surfactants Monthly Review July 2021

The Intro Section (not much surfactant news here):

Access your calendar and mark the following please: May 19 – 20th, 2022. The 12th World Surfactants Conference. Our current thinking is to do it again in Jersey City – where it’s been for the last 10 years. However, we’re open to ideas – such as Miami or Houston. What do you think? Rest assured that, wherever the venue, it will be at a first class hotel with superb facilities and of course the content will continue to be just what you want – and what you simply can't get anywhere else. It will be an event of friendly engagement, innovation, business-dealing and, yes, love. There I said it. And look, I know many of you, like me, engage in our daily business for money. But it’s not only for the money is it? There’s some other set of motivators and one of those is love. Love for the challenge, the technology, the surprises, the people – customers, suppliers, co-workers, even competitors.  Here’s something I’ve been thinking about. I’ve listened to some podcasts recently on the subject of psychedelics (e.g. Lex Fridman – check it out). One of the effects of, say mushrooms or DMT is apparently a heightened more intense sense of a connection with the totality of humanity or, indeed with life or existence, itself. Connectedness and belonging. Sound familiar?

Scene from a recent conference

When I’m at one of our conferences – hear me out now – it really is made apparent to me the connectedness of our industry and its connection to life on this little piece of rock, protected by a flimsy atmosphere, hurtling through a hostile space. I’ll be standing there chatting over a cup of coffee to someone during the break and they’ll ask me who they could talk to about petrochemical and oleochemical alcohols and the relative pros and cons – and I’ll think for a second, turn around and say – “well this guy right here, actually, is a good place to start”. “Hey Peter, let me introduce you to Sonia from Unilever. She’s got some questions about ….” Connection made. Something happens – or not. But how cool is that ? OK – so what I am I saying – that our conferences are like an acid trip? Yes. (let us pause here while corporate counsel at my partners, ICIS, has a conniption). Except – they last longer – and in almost 12 years there have been no documented cases of a bad trip – not one.  

Not one bad trip - really!

You know, I’m actually quite serious. The sense of connection to something bigger and inherently good, is palpable at our events. And yeah – I’m saying inherently good – which is a bonus. What we do in our daily endeavors supports heath, hygiene, food energy – you name it. It’s inherently good – a kind of additional bonus good on top of the good of human connection in a one-ness beyond each of our individual egos. Is your blogger going all hippie dippie on you? I don't think so. We form connections in our families, with friends, at church – many places. Business connections are interesting because they don't care about race, creed, color, geography, gender, not even what football team you support. You get to interact with real people in an authentic way in pursuit of a common goal. Many of you will recall the first time Martin Herrington related the story of a surfactant molelcule as it started life in a palm plantation in Southeast Asia and ended up in your shower in Cincinnati. That supply chain is miraculous (his words, with which I agree) and involves thousands of people working independently but together. Connected in something bigger than any of them. Wow! Is there anything more psychedelic than that?

Not quite as psychedelic as surfactants

Back in June of 2019, I gave a talk at CESIO in Munich entitled Work Love and Surfactants. I asked a two-part question (with the help of Professor Samuel Hagar of the University of Van Halen), the second part of which was “how does it feel when it’s love” Answer: “It’s just something you feel together”. And I guess that makes sese because if only one person is feeling it, it’s maybe lust, infatuation, longing, attachment, but I don't think it’s love. That mutuality requiring some softening, but not elimination, of boundaries – that’s a pre-condition of love. And that’s what happens when we get together at events like ours in the pursuit of knowledge and opportunity. Always has. We didn't necessarily talk about it much. Maybe we didn't need to as it was so obviously understood. Well, here I am talking about it because, well, I don't know – It just struck me that all those cool things that psychedelics are supposed to do – like bring the unconscious up closer to the conscious and dissolve somewhat the ego in favor of super-conscious connection – well you can experience that in other, non chemically modified settings - like our events.

Assuming I haven’t scared you off – and I assure you the strongest thing served at the conference will be coffee – I’ll see you in May. It’ll be a trip.

We're quite normal, really

The News Section ( this is probably what you came for):

Most and sometimes all, of our news is usually brought to you by ICIS. To get the full benefit of all this, you should subscribe, like I do. As of 8/2, I had actually let my sbscription expire (horror!) and so, for a few days, this blog was a shadow of its former self. However, as of today (August 8th), I am back in the saddle with the ICIS news and so we have updated news coverage. Of course, if you are reading this for the first time this month, then forget it and keep reading:

As reported by the talented and productive Samantha Wright of ICIS, European Fatty Alcohols players are expecting shortages to persist through the third quarter amid ongoing vessel delays and high freight rates.  A large part of European fatty alcohols are imported from Asia, and this has caused issues in the market for the past several months.  Coronavirus restrictions have resulted in vessel delays and seen freight rates shoot up exponentially.

7X the cost in a year!

Delays are already expected for August and September shipments and  players expect the spot market to be very tight in the third quarter.  The supply shortages have yet to impact previously contracted volumes for the third quarter, and most players expect more material will be available by the fourth.  There are concerns, however, that if September shipments are further delayed, supply may be short heading into the final quarter.  The upstream palm kernel oil (PKO) market has been very volatile recently due to a spike in coronavirus cases in Indonesia and Malaysia.

Meanwhile over in the Asia Fatty Alcohol market, ICIS’s brilliant Helen Yan reports that the market is likely to see decreasing supply in the near term following tightened lockdown restrictions to contain the resurgent virus infections in the region.  Malaysia and Indonesia, which are major fatty alcohol producers, have seen soaring infections from the highly contagious Delta variant.  Malaysian oleochemical makers Emery Oleochemicals and Southern Acids Industries have both declared force majeure (FM) on supply, according to customer notices seen by ICIS.  “Sentiment is becoming more bullish due to supply cuts,” said a source at another regional supplier, which proposed a $30/tonne price hike for mid-cut C12-14 blend.

Trend reversal in sight?

So – it looks like Indorama wins the contest for Oxiteno – and an excellent article by the legendary Al Greenwood of ICIS looks at things from Indorama’s point of view. Check it out here. Al points out that Thailand-based Indorama's pursuit of the Brazilian surfactants producer Oxiteno would be the latest addition in a string of acquisitions and construction projects that built up the company (i.e. Indorama) from nothing to becoming one of the major producers in North and South America.  Oxiteno's owner, Ultrapar, confirmed in mid-June that it had entered exclusive talks with Indorama.

Al notes that Indorama entered the Americas market in 2003, when it acquired the StarPet PET plant in Asheboro, North Carolina. It was the first of many overseas plants that Indorama would acquire over the years.  At the time of the acquisition, the plant had a capacity of 50,000 tonnes/year. Indorama would expand that site's PET capacity to 266,000 tonnes/year.  It would build more PET capacity in Decatur, Alabama. The first line started up in 2009 and a second in 2010, according to Indorama.  It obtained Decatur's feedstock from a nearby purified terephthalic acid (PTA) complex that was owned by BP at the time. Indorama would later buy that plant in 2016.

It made other deals to expand its PET capacity in other parts of North America.

In 2010, it agreed to buy INVISTA's PET plants in Spartanburg, South Carolina and Queretaro state in Mexico.  In 2018, it agreed to buy a PET plant in West Virginia from the bankrupt producer Mossi& Ghisolfi (M&G). Far Eastern New Century ultimately won the bidding and acquired the plant in 2018.  That same year, Indorama completed the purchase of M&G's PET plant in Brazil.  Indorama teamed up with Alpek and Far Eastern New Century to form a joint venture that bought M&G's unfinished PET complex in Corpus Christi, Texas. That site would also produce PTA once it is completed.  It is unclear when the joint venture will complete the Corpus Christi project.

Indorama would pursue other upstream acquisitions and projects, not all of which would proceed smoothly.  In February 2012, it reached a deal to acquire Old World's EO and EG plant in Clear Lake, Texas, giving its US PET operations access to nearby feedstock.  That same year, Indorama revealed that it was considering developing an ethane cracker in the US with a partner. This would further integrate Indorama's PET capacity with low-cost feedstock.  At the time, many companies were considering cracker projects in the US, where the gap between ethane and naphtha prices gave that country's ethylene plants a huge cost advantage against much of the world.

The talks went nowhere, and Indorama would end up buying an idled gas cracker in Westlake, Louisiana from Occidental Petroleum. It signed the agreement in 2015.

At the time, Indorama expected it would resume operations at the plant in 2017. Instead, commercial production would not start until 2020, nearly five years after Indorama signed the sales agreement.  In 2015, it bought a PTA plant in Montreal, Canada from CEPSA Quimica.  On 6 January 2020, Indorama announced the completion of the $2bn acquisition of Huntsman's EO, EG and propylene oxide (PO) plants. That deal included plants in Port Neches, Chocolate Bayou and Dayton in Texas as well as Ankleshar, India and Botany, Australia.  Indorama would later increase monoethylene glycol (MEG) capacity at Port Neches.  The Huntsman plants also produced methyl tertiary butyl ether (MTBE) and surfactants. If Indorama acquires Oxiteno, then it would further build on that surfactants position.

I wish much success to Indorama. From what I am hearing, the price of the acquisition is a fair one and I alluded to this in a prior blog post. It is highly unlikely at this point that there will be any sort of bidding war for Oxiteno. With the Huntsman and Oxiteno assets, Indorama becomes a very serious player in the Americas for surfactants. And a new chapter in the story of this great industry begins.

And a new chapter begins

Right at the end of the month, Stepan reported Q2 results: Operating income in the surfactants business fell 5% year on year to $45.9m in Q2, but the company’s overall net income rose, led by a higher profit in polymers.  The decrease in surfactants was largely attributable to higher North American supply chain costs due to inflationary pressures and higher planned maintenance costs, Stepan said.  Q2 polymer operating income rose 48% year on year to $23m, mainly due to a 44% increase in global polymer sales volumes.

In a July 6th press release, Innospec noted that in March 2021, they completed a capacity addition at the Salisbury, NC site along with an adjacent new rail car handling facility which enables the company to receive raw materials and deliver finished product via rail. These investments serve to lower reliance on trucks, decrease supply chain costs, and reduce carbon footprint. Due to the strong demand for these mild and sustainability-focused products, in May 2021 Innospec approved a further $10 million capacity expansion that is scheduled to come online between late 2021 and the first quarter of 2022. These projects significantly increase Innospec’s SCI and Iselux® production capabilities and flaking capacity. The Performance Chemicals business is fast tracking further capacity expansions at its US and European sites including additional taurate production to meet global demand – according to the company.

Done some actually quite psychedelic advertizing in their day

Here's something really cool. Many of your will remember Arzeda, the enzyme company, presenting in New York at World Surfactants. They recently announced a partnership with Unilever to develop enzymes for household cleaning applications.

Many dish detergents and hard surface cleaners already use enzymes, which can break down soils, oils, and other grime as well as boost the performance of other ingredients. Enzymes, along with live microbes and advanced surfactants, are central to Unilever’s $1.2 billion plan to shift to 100% biobased ingredients for its cleaning products by 2030.

Neil Parry, head of biotechnology development at Unilever, told C&E News that the firm has the opportunity with Arzeda to look beyond the capacities of natural enzymes and into new kinds of enzyme-catalyzed cleaning chemistry. “Although detergents have been around for a long time with enzymes in them, the enzyme classes are quite limited,” he says, “and we believe there’s so many more enzyme classes that can get performance.”

Arzeda combines physics-based protein design with deep learning, a type of artificial intelligence, to improve enzymes or even build them from scratch. “Our impact on the field of enzyme engineering is improving the manufacturability and performance of existing classes, and then creating new classes of function, new modes of action,” says Alexandre Zanghellini, Arzeda’s founder and CEO. Arzeda raised $15.2 million in a series A funding round in 2017, and Zanghellini says the company has invested around $30 million overall in developing its platform and technology. The Seattle-based firm employs roughly 40 people “and is growing rapidly,” he says. About 35% of its research staff comes from a computer science background and the rest from chemistry and biology.

Proteins are important

Just yesterday (July 30th) as reported by Indian Chemical News: Our good friends and supporters, Galaxy Surfactants Limited, announced the launch of a new Laundry Care offering of laundry pods under the ready-made blends portfolio of their recently launched Galaxy Hearth brand. Galaxy Hearth Mix Pods format of Laundry care solution is aimed at the Indian market, where e-commerce and established FMCG companies are looking to introduce the new form of Laundry care in a market dominated by Laundry Bars and Powders.

Galaxy Hearth Mix Pods is a ready mix concentrate for the preparation of Laundry Pods or Capsules. Powered by plant-based surfactants, the concoction prepared is carefully crafted to deliver adequate wetting, excellent cleansing, and detergency of soiled fabrics. Galaxy Hearth Mix Pods cleansing composition shows better detergency against Powder, Liquid, and even commercially available laundry pods. These pods offer convenience to consumers while being machine-friendly, aesthetically pleasing, and score high on sustainability. Pods reduce the need to be packaged in plastics. Also, their concentrated format ensures lesser fuel consumption during transportation than the presently available alternatives containing fillers or water. It is estimated that there can be a yearly saving of 36 MT of CO2 emissions from fuel for every 1 Lakh Household adoption to Pods. 

Galaxy Hearth's 'one-stop solution ' value proposition promises to introduce innovative ingredients for the home care industry's modern era. The portfolio has sustainable solutions for applications such as laundry, dish-wash, hard surface care, and Institutional and Industrial Cleaning. "In an era of the well-informed and environment-conscious consumer world, radical shifts in the ingredient landscape are the need of the hour. Galaxy Hearth is conceptualized to set a benchmark in innovation within the homecare segment," Galaxy Surfactants Executive Director and COO, K. K. Natarajan, said. 

Making Laundry Fun Again

Also, hot off the press on July 30th, P&G, a big surfactant consumer, got a new CEO, Jon R. Moeller who is succeeding David Taylor, effective November 1, 2021.  Taylor will become P&G's executive chairman. He will lead the board of directors and provide advice and counsel to the CEO and P&G leadership on company decisions. Moeller joined P&G in 1988. He has been a member of P&G’s global leadership team since 2009, serving as chief financial officer, chief operating officer and vice chairman.

Shailesh Jejurikar, who currently serves as the chief executive officer of the company’s fabric and home care sector, has been elected chief operating officer, effective October 1, 2021. Jejurikar will report to Moeller, and his successor will be announced at a later date. So – much success to Jon. His Linkedin profile has him with about 34 years at P&G, starting as a cost analyst in the food area in 1988. It seems to be the only place he has worked. Who could forget his predecessor’s tussles with Trian Fund Management and its leader Nelson Peltz? A compromise was reached with Peltz joining the board of P&G in 2018. I wonder how Jon will get along with him - and vice-versa?

Who's in charge here?

As initially reported in our March blog, India Glycols (Noida, India) and Clariant have now completed the creation of their 49/51 joint venture (JV) for renewable ethylene oxide (EO) derivatives. The JV will operate under the name Clariant IGL Specialty Chemicals. The JV company has approximately 200 employees. The JV will be led by Nitin Sharma, currently head of Clariant’s industrial and consumer specialties business in South Asia. U.S. Bhartia, chairman of India Glycols, will be the JV’s chairman. Two great companies and a very cool concept built around renewable EO. Much success to this new JV!

A little snippet from the specialty distribution space: Azelis, has agreed to acquire Coseal (Seoul, South Korea). Coseal specializes in the distribution, repackaging, and blending of agricultural and horticultural surfactants. The transaction is expected to close in the third quarter. Financial terms have not been disclosed.

Big news from the newly formed Verdant Specialty Solutions (which readers will recall is the old McIntyre, spun out of Solvay to the PE fund, Open Gate and now led by John Foley). In a press release, the company noted that it has acquired DeForest Enterprises and ParaFlow Energy Solutions from Chemical Services Group, a privately-owned US chemicals company. Through these acquisitions, Verdant’s portfolio of surfactants and specialty solutions for industrial, institutional and consumer segments expands.

DeForest Enterprises is a specialty surfactants company with a range of chemistries including low foam wetting agents, alkaline and acid stable surfactants, chlorine and peroxide stable surfactants, high and low foam amphoteric surfactants, hydrotropes, water-soluble corrosion inhibitors and phosphate esters.  ParaFlow Energy Solutions provides unique products applicable to paraffin mitigation in upstream crude oil production and technologies for use in demulsifier applications to assist in solids and iron drop-out, as well as for the separation and recovery of valuable hydrocarbons from refinery slop oil and crude oil storage tank bottoms.

Together, DeForest and ParaFlow serve more than 100 customers in markets including industrial and institutional cleaning, metalworking and metal finishing, oilfield, pigments and inks, construction and auto care.  Both companies are based in Boca Raton, Florida, and led by President Jeff Edwards. Edwards will join Verdant as Project Director and a member of the management team. He will be responsible for the integration of DeForest and ParaFlow.

By the way, if you missed Victoria Meyer’s interview with Verdant’s John Foley, here it is:

Here’s some great news from a relatively new surfactants company and no stranger to our conferences – that’s Sironix. Following is pretty much the whole press release:

Following the success of its recent over-subscribed seed funding round, Sironix Renewables officially celebrated several significant milestones in the company’s continued emergence as a premier eco-friendly cleaning product and personal care ingredients supplier. Sironix develops non-toxic, sustainably sourced ingredients for the cleaning products and personal care industries. The growing company hosted an in-person ribbon cutting ceremony recently that was attended by public officials, investors and other dignitaries at the company’s new headquarters in Seattle. During the celebration, Sironix unveiled its expanded development facility, held Sironix-led tours and product demonstrations, and formally introduced its newly formed strategic board of advisors.

“Having raised our seed round and put together a board in the early stages of a pandemic, it’s exciting to finally host our investors and advisory board in-person for such a pivotal moment in the Sironix trajectory,” said Sironix CEO and co-founder Christoph Krumm. “Our recent advancements in scaling from lab-scale to kilogram-scale quantities will enable us to rapidly grow our partnerships and launch our ingredient with cleaning and personal care product brands. Many thanks go to our incredible advisors who helped us emerge from a pandemic stronger and ready to change the way the world cleans.”

Commerce Assistant Director Michael Furze said: “Commerce supports the development of innovative technology that expands the bio-renewable and bio-degradable cleaning products market, and reduces energy consumption and emissions in the building sector. Washington state is renowned for its technical innovation and this project is a clear example of a successful partnership that contributes to broader State Energy Strategy Goals.”

Expanded Development Facility

The new 3700 sq. ft. facility houses the production and testing equipment that Sironix uses to develop its new ingredients with superior performance and safety. With its current team of nine, the company has unveiled its new production process to manufacture hundreds of kilograms per year in-house. With additional hires, Sironix will partner with producers of coatings, agricultural products and other fields where high-performance, eco-friendly surfactants are needed.

The new ingredient developed by Sironix is made 100% from plants and boasts superior performance in hard water and cold water, conditions which have conventionally challenged plant-based cleaners. Additionally, the ingredient has excellent skin mildness, which has led to a recent increased focus on skincare and personal care for Sironix. The company has numerous ongoing partnerships with cleaning and personal care product companies and plans to partner with chemical manufacturing partners as it scales production.

The company has received more than $5 million in grants and partnership funding, the most recent of which includes a $1.15 million Department of Energy grant, a $235,000 grant from the Washington state’s Clean Energy Fund, as well as a $1.1 million seed fundraising round. This funding has enabled the company to transition from bench-scale to pilot scale in its new facility and expand its partnership work with cleaning and personal brands toward launching better-performing, safer, and more environmentally friendly products. Funding from a recent funding round was used to scale production at the Seattle facility. 

New Sironix Advisory Board

Sironix today also formally introduced its newly formed strategic board of advisors who bring deep industry experience in the cleaning, personal care and renewables space. The new advisors include:

·      Andy Gilicinski: Former executive at S.C. Johnson & Son, Georgia-Pacific, The Clorox Company and The Gillette Company among other personal care companies

·      Andy Shafer: Former executive at Elevance Renewable Sciences, Cargill and Dow Chemical Company

·      John Venegoni: Former VP/GM of surfactants at Stepan Company, a global specialty and intermediate chemical manufacturer; and served on the boards of the Chemical Specialty Products Association and American Cleaning Institute

During the ribbon cutting celebration, the company also formally recognized and congratulated company co-founder Paul Dauenhauer on being named a recent MacArthur Foundation fellow. Dauenhauer, a professor at the University of Minnesota, was named a 2020 fellow for developing new technologies to convert renewable materials into chemicals used in products such as plastics, rubber, and detergents. The MacArthur genius grants are given to those who illustrate originality and creative pursuits in their field of study.

Sironix Ribbon Cutting

And one final piece of news from my alma mater, Pilot Chemical: As reported recently – the company is undertaking a multi-phase expansion of its proprietary ice-cold sulfonation technology at its production site in Ohio. The project is due to be completed by the second half of 2023. In addition, Pilot Chemical is evaluating additional expansion in alkylation. Two very core pieces of technology which support the company’s competitive advantage. We don't often write about ice-cold sulfonation here because the technology is essentially unique to Pilot. At almost 70 years old, great to see it continuing to add value.

Logo symbolises technology. Very cool (Pun intended)

So – to the end of the blog – which has become known as the music section. In keeping with our opening theme, I thought we’d stick with psychedelia. However, I really didn’t listen to a lot of psychedelic rock growing up, having gravitated early on to progressive and heavy rock. I remember a Tangerine Dream concert at Newcastle City Hall in 1978 where the band was literally not visible from the balcony due to the shear volume of smoke from the audience. The laser show was thereby incredibly enhanced though – by the smoke in the air, not the THC in the smoke  - my drug of choice back then was brown ale.  I also saw Steve Hillage around the same time. Slightly less smoke, similar vibe. He played this song – which has remained a favorite of mine. The Glorious Om Riff

You can see how this might appeal to a broad cross-section of hippies, prog rockers and those of us partial to a delicious guitar riff served up medium-rare.. But honestly one of the most psychedelic experiences I had in those days was in 1977 – By Tor and the Snowdog performed by you know who. Again, chemically augmented only by brown ale. Check out the 1976 version from All the World’s a Stage.

From the lyrics “The tobes of hades lit by flickering torchlight” to that bit starting at 1:50, to that huge chunk in the middle to that build up starting 7:50, to all those drum fills, all of them, to Alex to Geddy to the professor on the drum-kit. That’s why they are and always will be, the unofficial musical accompaniment to our surfactant conferences.

If not before, I’ll see you all next May.

Surfactants Monthly – June 2021

Surfactants Monthly – June 2021

Huge month for news, again. Lots happening with Oxiteno, Indorama, BASF, Colonial Chemical, Stepan, Amyris, M&A and much more. Before we get to that – this:

Heads-up! This is to all the renewable and sustainable brands out there. Kylie Jenner is coming to your party and your life won’t be the same again. Regular readers of the blog know of my fascination with the Kardashians and know also that it is not born of prurient interest. Their influence on the culture and therefore our business is significant.

Back in May of this year, Kylie Cosmetics swept its Instagram completely clean and posted a single photo of Kylie Jenner with the caption, "something is coming," After two months of waiting, Jenner finally, on July 1st, revealed what she's been working on with her billion-dollar brand. From here on, we’re quoting the IG post “The new @kyliecosmetics is coming JULY 15, 9am pst on KylieCosmetics.com! Everything is clean, vegan, and ready to go global. This means no animal oils, parabens or gluten, and we banned a list of over 1,600 other ingredients from being used in products, but made sure everything has amazing pigmentation and performance.” Let me set your mind at ease by assuring any Kylie fans reading, that the legendary Kylie lip kits are included in this relaunch. In fact, the press release by Coty (51% owner of Kylie Cosmetics) emphasizes that “The new and upgraded formula of Matte Liquid Lipstick is long-lasting with a budge-resistant 8-hour wear time, while the new lip liner is waterproof and long-lasting for up to 24-hours”

Smart blog readers know what this means. When Kylie goes green and vegan and gluten-free and has a list of 1,600 banned ingredients and drops performance test data into her press releases, well what are you doing? Being green? Even Kylie is green, so what’s so great about that? This re-launch on July 15th 9AM PST (12 Noon Eastern) erases one huge reason why customers might have preferred any niche sustainable brand to the Kylie juggernaut. When Kylie Jenner starts playing in your sandbox, well it’s not your sandbox anymore. You know how the world works. Being nice and sustainable is not enough now. You’ve got to be that and brilliant and innovative and have product performance that shocks your customers with how great it is. And keep doing it – over and over and over again. Hey look – two things. First - good luck to the lass. She’s 23, a billionaire and, by all appearances, works hard at it. And how many companies do you know, burn all their existing formulas and basically start again? Second – what are you going to do about it? Curl your lip, roll your eyes, feel all intellectual and indignant – sure allow yourself that for a few seconds then get to work. You can do what she did. Believe me. Do you want to? That’s another question. It’s OK if you don’t, but then maybe don’t despise Kylie for wanting to.

I want to give a big shout-out to Victoria Meyer and her Chemical Show podcast.  She’s got about 12 episodes up on YouTube now and there’s some really interesting stuff there. I encourage you to check it out and subscribe. Among interviews with some real thought-leaders and fascinating people in chemicals, I managed to sneak in under some pretense or other. Here’s Victoria’s interview with me:

Another shout-out to Deciem, a cosmetics brand with a bit of a crazy history and now part of Estee Lauder. They have posted a video called “what is chemicals”. In all of 90 seconds they nail an issue that many of us in the industry have lamented and, frankly, just complained about, for decades. I know little about the products, but this video is a masterpiece. Check it out:

Cool right? Send it to your friends and family. Here’s a thought – those of you with school-age kids, maybe you’re on the PTA or something like that – do you think the teacher might show this to the kids ? It’s 90 seconds. Think about it.

OK here starts the news:

Those of our readers in certain countries like the US, UK etc.. may be looking at COVID largely in the rear-view mirror. In many other parts of the world, not so. In an excellent article, Helen Yan of ICIS detailed how continuing lockdowns in Malaysia are affecting the palm plantations and thus, of course, surfactants. Helen notes that palm oil output in Malaysia will be limited by a manpower crunch as the country goes into a nationwide lockdown for two weeks from 1 June, but demand is expected to slow down from downstream oleochemicals markets.

Malaysia has imposed stricter movement restrictions on agriculture, limiting the labor force of palm oil mills and refineries to 60% to curb the spread of Covid-19.  The pandemic has already seen a reduction in migrant labour at palm oil plantations in the country due to closure of borders, and the latest renewed lockdown restrictions are expected to further lower palm oil supply, market sources said.  The expected reduction in palm oil supply in the near term may lend support to the derivative fatty acids, fatty alcohols, glycerine and soap noodles markets.  But this will be offset by slowing demand as buyers retreat and hold off large purchases given the uncertain outlook, market sources said.  A resurgence in the coronavirus outbreak in Asia - including India, Japan, Malaysia, Singapore, Taiwan, Thailand and Vietnam - has weighed on market sentiment.

Demand for palm oil, an edible oil, has fallen as India - a key importer - grapples with the resurgence of the coronavirus.  Falling palm oil consumption has led to downward price pressure on crude palm oil (CPO), palm kernel oil (PKO), and palm stearin recently, market sources said.

CPO futures on 31 May fell to Malaysian ringgit (M$) 3,919/tonne, down from a record high of M$4,506/tonne on 12 May, according to Bursa Malaysia.

Source: Bursa Malaysia

Down the supply chain, demand for derivatives including fatty acids, fatty alcohols, glycerine, fatty alcohol ethoxylates and soap noodles, is also expected to weaken in the near term.  “Demand for some fatty acids products, which are used in personal care applications such as cosmetics has dropped significantly due to women working from home,” a regional producer said.  Fatty alcohols such as C12-14 blend, which are used in surfactants and cleaning agents, also saw a decline in prices recently.

In the week to 26 May, fatty alcohols C12-14 blend fell $80/tonne week on week to $2,050-2,150/tonne FOB (free on board) SE (southeast) Asia, ICIS data showed.

Demand for surfactants in Asia has weakened due to a slowdown in market and economic activities, as shops, factories, hotels, gyms, restaurants, cafes and retail outlets are shuttered following renewed lockdown restrictions to contain the spread of the highly infectious virus variant from India, market sources said.  Soap noodles demand has also weakened, with prices of those with 80/20 blend falling $45/tonne week on week to an average of $1,000/tonne FOB SE Asia on 27 May, ICIS data showed.

From BASF: BASF has completed the sale of its Kankakee, Illinois, manufacturing site and associated businesses to private investor One Rock Capital Partners, the Germany-headquartered producer said on Tuesday.  First announced in December 2020, the deal includes the anionic surfactants, vegetable-baed raw materials, and natural vitamin E production, with the newly-independent entity to be known as Kensing, BASD said  First put up for sale after BASF determined that the business does not fit into its core strategy amid a move to rationalise its surfactants and vegetable oil-based raw materials manufacturing footprint, the deal will see 190 employee move over to the new entity.  BASF continues to operate a sterol ester food ingredient business in Illertissen, Germany.  The deal value was not disclosed, but media reports around the time of the initial sale announcement pegged the value of the site at $250m.

“With this step, we optimise the global manufacturing footprint of our division,” said BASF care chemicals president Ralph Schweens. Best of luck to Kensing -  said your blogger.

Things are pretty interesting in the world of EO and we have a few stories here. First up in Europe, ICIS reports that the European June ethylene oxide (EO) contract price increased by double-digits, following continued upstream ethylene gains. June EO prices were assessed at a €25/tonne increase at both ends of the range, bringing prices to €1,245-1,413/tonne free delivered (FD) northwest Europe (NWE).

The European ethylene June contract reference price has been set at €1,080/tonne, up €30/tonne from May, reaching a two-and-a-half-year high.  In 2021, EO contract prices have increased by approximately 16% on average, according to ICIS data. Non-integrated suppliers have dealt with unrelenting production cost hikes this year so far.

The vast majority of EO contracts are formula-based, with the price movement representing 80-85% of the change in the monthly ethylene contract price. ICIS uses an average of 82% for the ethylene contract price in its calculations.

Supply is balanced-to-snug and availability could tighten further in June and July during the planned turnarounds. Demand is healthy with strong consumption seen in the surfactants market.  PKN Orlen's planned maintenance at its ethylene oxide (EO) and ethylene glycol (EG) facility in Plock, Poland, is expected to continue, possibly until end of June, according to sources. This has not been officially confirmed.  There is also a planned maintenance expected at BASF's EO facility in Ludwigshafen, Germany, at the end of the second quarter. This is not officially confirmed. Additionally, there is a planned turnaround in Antwerp at Ineos’ EO/EG facility expected in June.  Availability of additional EO volumes outside contracts could be hard to obtain, a market source added at the end of May.

Here, again, is the cool EO turnaround tool that ICIS provides. Check it out. Should work on most browsers.

In contrast to Europe, US prices are heading down, as reported by ICIS’s Antoinette Smith. She noted that US ethylene oxide (EO) contracts for May fell by 11%, tracking the feedstock ethylene settlement.  ICIS assessed May EO lower by 7.6 cents/lb ($168/tonne), at 59.2-68.7 cents/lb FOB (free on board).  Despite the drop, EO prices remain 21% higher year on year, amid strong derivative demand and recurrent production issues.  Feedstock ethylene contracts for May settled at their largest drop since 2008, due to lower average spot prices and decreased cash costs.  The majority of EO contracts are formula-based and price movement comprises 80% of the change in the ethylene price and an additional conversion fee, or adder.  Like ethylene, EO contracts are settled at the beginning of the month for the previous month’s price.

Lots happening in alcohols also. The great Lucas Hall of ICIS reported in early June that higher freight costs are offsetting volatile-but-overall-bullish feedstock markets against the backdrop of rebounding-to-strong demand across the wider market, as the US economy recovers from the height of the coronavirus pandemic.

Fats and oils recuperated earlier losses, tracking higher crude oil prices as fuels demand increases ahead of the summer driving season. Soybean oil costs also increased ahead of expectations of intense hot weather across the Northern Plains and the US Midwest. Bleachable fancy tallow (BFT) costs inched higher after JBS temporarily shut a number of facilities following a cyberattack earlier in the week.

Freight costs remain bullish on tight shipping equipment availability and vessel space in southeast Asia and tight rail and truck availability in the US. One buyer noted difficulty getting railcars in the Houston, Texas, area.  Feedstock costs remain bullish on as demand outpaces production.  Demand across the wider market continues to outpace supply. The delayed and otherwise disrupted import market continues to support demand for domestically-produced fatty acids. However, domestic availability is also tight amid the aforementioned supply chain constraints on top of ongoing production disruptions among the two major synthetic alcohol producers in the US. (More on this later)

Derivative demand into Mexico remains strong amid ongoing raw materials shortages in the country, namely of ethylene oxide (EO).  Demand across the oil and gas sector is ramping up with higher crude oil prices.  The US is a major net-importer of natural fatty alcohols and a key production region for synthetic alcohols.

Spot

Mid-cut rail prices have largely been heard in the $1.10-1.15/lb DEL (delivered) USG (US Gulf) range.

Mid-cut truck prices have been heard as high as $1.20/lb DEL USG.

C16 prices have been heard as high as $1.30/lb DEL MW (Midwest).

C18 prices have been heard as high as $1.26/lb DEL MW.

C16-18 prices have been heard as high as the mid-$1.20/lb DEL MW range.

Amid this general inflationary environment, it’s no surprise that surfactants are following trend – as evidenced by Stepan’s recent announcement on pricing.

Stepan Company announced price increases on a range of US surfactants, effective 15 June, according a company pricing announcement.

Stepan issued the price increase announcement as demand continues to outpace supply amid continued raw materials shortages and internal/external shipping logistics constraints as the economy continues to reopen from the pandemic.  Surfactants markets remain tight following supply chain disruptions in Texas and the US Gulf in mid-February, with multiple players throughout the supply chain still on force majeure.

Continuing news from Brazil. The talented and prolific Al Greenwood of ICIS wrote an outstanding analysis fo the current set of Brazilian chemical companies that are up for sale today. I won’t give you the whole article here but rather will encourage you to read it on the ICIS site here. We’ll talk about Oxiteno later. However, Braskem, Oxiteno’s supplier of ethylene, deserves a mention. The company owns all of Brazil's crackers as well as its polyethylene (PE) and polypropylene (PP) plants.  Braskem's largest shareholder, the construction company Novonor, has said the sale of its stake is part of its plan to emerge from bankruptcy. Novonor filed for bankruptcy back when it was called Odebrecht. [The Odebrecht name had some negative connotations, not solely connected with a bankruptcy so a name-change wasn't a bad idea] Among the reported companies interested in acquiring Novonor's stake are the private-equity firm Advent International and the Emerati sovereign-wealth fund Mubadala.  Both were reported by the Brazilian publication O Estado de Sao Paulo.   Petrobras, the second largest shareholder, has repeatedly stated its intention to sell its stake in Braskem. Petrobras owns 36.15% of Braskem's total capital, compared with Novonor's stake of 38.33%.

Some interesting news from Amyris, as reported by ICIS. Amyris has filed a binding term sheet for the acquisition of OLIKA  California-headquartered Amyris did not disclose the sum put forward in the bid, but the deal would provide synergy and allow Amyris to grow in the health and beauty markets.  OLIKA uses sustainable, natural ingredients to produce its three hand sanitiser made using six essential oils.  The business has been led by Alastair Dorward – founder and former CEO of Method Products, as well as previous roles at Own Beauty and Smitten Ice Cream – who has been at the helm since 2019.  Dorward will join synthetic biotechnology firm Amyris as Chief Brand Officer to join existing management to focus on sustainability and efficacy in the beauty and wellness markets, while accelerating growth for the company’s consumer brands. Given the small size OLIKA, the deal has been characterized by at least one observer as an “acqui-hire” of Dorward. Interesting.

Back to Brazil: The aforementioned Al Greenwood has also reported that Ultrapar has entered exclusive talks with Indorama to sell its surfactants business, Oxiteno. The two companies are still discussing financial terms, and they have not signed any contracts or sales agreements, Ultrapar said. [which makes you wonder why the news was leaked – perhaps it was unintentional?] Indorama did not immediately respond to a request for comment.   The possible sale of Oxiteno comes as Ultrapar is seeking to build on its existing fuel distribution businesses.  Its fuel retailing business, Ipiranga, is pursuing the acquisition of Petrobras' Alberto Pasqualini Refinery (REFAP) in the southern state of Rio Grande do Sul. It would be Ipiranga's sole refinery. REFAP can process 201,000 bbl/day of crude.  Ultrapar also owns the fuel distributor Ultragaz, liquid bulk storage firm Ultracargo and drugstore chain Extrafarma. Ultrapar is in talks to sell Extrafarma. Ultrapar has since signed an agreement to sell Extrafarma to Pague Menos for reais (R) 700m ($139m).

Now, interestingly, Reuters reported the Oxiteno deal being discussed with Indorama at an EV of $1.5Bn which is about about 10X 2020 EBITDA. This seems at the lower end of what I thought it might be. Scott-Macon’s 2020 review of transaction multiples has specialty deals at 14.3 and commodities at 9.3. Perhaps factoring in the Oxiteno product mix and the geography of the assets the number is fair. Anyhow the deal is clearly not done yet and anything, including a bidding war, could still happen.

Meanwhile over in Asia – the great Helen Yan Asia’s fatty alcohol ethoxylates (FAE) demand may wane in July due to economic fallout from the coronavirus resurgence.

Declining upstream ethylene and feedstock fatty alcohol values have also added to downward pressure.  Spot appetite has been suppressed by renewed lockdown restrictions following the resurgence of the virus in parts of Asia.  Retail outlets, shopping malls, hotels, restaurants, bars, cafes, cinemas, gyms, factories and offices have been shuttered in varying degrees across the region to contain the spread.

Demand for surfactants from the commercial and industrial sectors has weakened due to the renewed lockdown restrictions and rising business costs.  Soaring freight rates, limited container ships, congested ports, delayed shipments and manpower constraints all added to the rising costs that market players have had to grapple with in the first half of this year.  This has prompted buyers to seek significant discounts, given the challenging business environment and uncertainty, market sources said.  “Chinese buyers are seeking lower prices due to the drop in upstream ethylene and feedstock fatty alcohol values. Demand has also remained weak amid the prevailing bearish sentiment,” a trader said.

Ethylene fell by $70/tonne to $880/tonne CFR (cost and freight) southeast (SE) Asia in the week ended 11 June, ICIS data showed.  Feedstock fatty alcohols C12-14 blend fell by $60/tonne to $2,005/tonne FOB (free on board) southeast Asia in the week ended 16 June, ICIS data showed. “We expect July to be tough, with weak demand and lower feedstock costs likely to put downward pressure on prices,” a regional producer based in southeast Asia said.  FAE mols 7, 9 spot prices fell by $130/tonne in the week ended 17 June to $1,420/tonne CIF (cost, freight and insurance) China, ICIS data showed

At the other end of the surfactant chain (the hydrophobe end), Helen also reports that Southeast Asia’s fatty alcohols producers will tap the export markets in Europe and the US to compensate for the sluggish demand in Asia.  “Europe is tight and there is pent-up demand in the EU,” a regional producer said.  “Supply for the mid-cuts is still tight due to production issues in Asia while demand in the US is strong,” another supplier said.

Asia’s mid-cut fatty alcohol C12-14 prices fell by $65/tonne on week to $1,940/tonne FOB (free on board) southeast (SE) Asia on 23 June, ICIS data showed .

Declining upstream palm oil complex values including  crude palm oil (CPO) and feedstock palm kernel oil (PKO)  values had dampened sentiment and weighed on demand.

Source: Matthes & Porton

Declining upstream palm oil complex values including  crude palm oil (CPO) and feedstock palm kernel oil (PKO)  values had dampened sentiment and weighed on demand.

All prices are on a per tonne basis.

Source: Matthes & Porton

Enquiries for fresh spot shipments have fallen as buyers in Asia retreated to the sidelines in anticipation of lower prices.  Spot appetite  has been suppressed due to the economic fall-out from renewed lockdown restrictions to contain the coronavirus resurgence.  Demand from the commercial and industrial sectors for surfactants or cleaning agents such as disinfectants and detergents, has dropped as a result of the lockdown restrictions.  The slow pace of vaccination rollouts in southeast Asia, a major oleochemicals production hub, has also hampered the economic recovery and delayed the re-opening of the regional economies.

Finally, mega-kudos to great friends of the blog, Colonial Chemical who in a press release dated July 4th let us know they are a winner in the 2021 EPA Green Chemistry Challenge Awards Program, specifically in the focus area of The Design of Greener Chemicals.

More details from the EPA Website - Colonial Chemical is being recognized for developing Suga®Boost surfactant blends that use more environmentally friendly chemicals than traditional cleaning surfactants. Specifically, Suga®Boost surfactants consume less energy to create, are biodegradable, and are derived from plant-based materials, with performance that demonstrates potential to replace EO-containing surfactants such as SLES and APEs.

Colonial discovered that blends of functionalized alkyl polyglucoside (APG) surfactants provide cleaning performance that is equal to or better than Alkyl Phenol Ethoxylates (APEs) while avoiding environmental issues related to aquatic toxicity, endocrine disruption, and carcinogenic impurities. Suga®Boost surfactants are blends of derivatized APGs prepared by attaching functional groups such as sulfonate, phosphate, quaternary ammonium, glycinate, and citrate. Suga®Boost blends do not yield toxic substances as they biodegrade. They are mild and safe for the formulator and end-user. Lastly, Suga®Boost blends require less energy to manufacture and require only water as a solvent during manufacture and cleanup. These functionalized APG surfactants have the potential to replace EO-containing surfactants worldwide. Furthermore, Suga®Boost and its underlying chemistry has the potential to expand into wipe products, disinfecting cleaners, dish washing, carpet cleaning, and fabric care.

Well done Colonial! Great company and great people.

July 4th: As regular blog readers know, in our small town, several hundred people gather every Independence day morning outside the town hall to read the declaration together – each of about a hundred readers with a sentence or the name of a signer to read to the group. For the last 20 years or so, I have had a specific part reserved for me to read; that is the last 2 sentences of the second paragraph. “The history of the present king of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute tyranny over these states. To prove this, let facts be submitted to a candid world”.

I’ve gotten to love a number of things about the part over the years. First, it’s not personal – neither to King George, nor to the people of Great Britain. The reference is to the “present king” as if to hold out hope that things can and will be different with future kings. Although of course, in that future, the relationship will be one of equals – that is (from the end of the penultimate paragraph of the declaration) enemies in war, in peace, friends.  Second, of course is that beautiful word usurpations. This is the second appearance of the word in the declaration after the more famous “long train of abuses and usurpations” earlier in the paragraph. What does it mean? Turns out there’s a legal meaning[1] that is The illegal encroachment or assumption of the use of authority, power, or property properly belonging to another; the interruption or disturbance of an individual in his or her right or possession. The appeal to law – which happens early and then often in the document, is impressive and broad, covering English laws as well as “the Laws of Nature and of Nature’s God..” in the first sentence.

There’s more. These injuries and usurpations are cited as having a “direct object” – and that is the establishment of an absolute tyrrany. They could have just talked about the effect or result of the usurpations, but no – the much stronger direct object drives home the intentionality of the king’s actions. This was clearly a deliberately planned and executed campaign in pursuit of a clear objective – tyranny. Why absolute though? Why the use of this modifier in front of tyranny? Isn’t tyranny, by it’s nature, absolute? To our modern understanding, probably. Back then, when a much greater proportion of the world than today, was living under some form of tyranny, perhaps the writers thought the emphasis of absolute was needed. The next short sentence, to me, is one of the most important in the whole document.

It says in part “..let facts be submitted..”. This tees up the rest of the document and the majority of it – which is a careful recitation of facts, supporting the rather bold and serious move of establishing an independent state. The document is more than anything, factual – albeit expressed most poetically. And those facts are now being told  to a “candid world”. Odd use of the word candid right? The meaning we understand is honest – usually about a difficult subject. In this case, however, the archaic meaning of candid as unbiased is intended. The writers are addressing the world and implicitly encourages it to listen in an unbiased way. I like that expectation of the very best from the audience, regardless of whether it would be forthcoming.

There’s just one more thing, I have to point out. The first sentence of the 2 – it only has one comma in it. If I were writing it today, I would have put 2 more. But this was clearly written for reading out loud. The rhythm and the momentum are just superb. It flows and carries with it, both the reader and listener. In can’t wait until next July 4th.

That’s it – I hope all of you in these United States had a great Independence Day. Think of those who, still today, endure injuries and usurpations under tyranny. They are many and we are ever more close and interconnected with them. Perhaps you even know one or two. Let’s be part of a candid world and carefully evaluate the facts presented to us.

Here’s some relevant music to play us out this month.

Elton John – 1974 – Philadelphia Freedom

America – by The Nice – a single in 1968

Metallica – Don’t Tread on Me - 1991 (I think)

And an unlikely rendition of the National Anthem by the great American band, Kiss - from 2016

Footnotes:

[1] West's Encyclopedia of American Law, edition 2. S.v. "Usurpation." Retrieved July 4 2021 from https://legal-dictionary.thefreedictionary.com/Usurpation

Surfactants Monthly – May 2021

Surfactants Monthly – May 2021

It’s not Science Fiction

That was the quote “it’s not science fiction” that sealed it for me. It was spoken by David Grainger of Unilever during his keynote address on Thursday morning of our World Surfactant Conference last week. What did it seal? For me it sealed the fact that this was one of the most consequential conferences I have ever attended (let alone co-produced with my partners at ICIS). David was talking about Unilever Homecare’s commitment to eliminate the use of fossil fuels in cleaning and laundry products by 2030. That’s a big deal because, as David went on to detail, Unilever Homecare’s ingredients are mostly made from fossil-fuels – and furthermore, over half the greenhouse gas impact of Homecare is driven by ingredient choice. And of course, what is the #1 ingredient by weight and volume? Yep, right, so… a huge deal. David went on to provide some incredibly impactful information and insights, as well as previews of what’s to come from Unilever in meeting this self-imposed challenge within the next 8 years. And that’s as far as I can take you my dear reader. As you know, my philosophy is: “You gotta be there”. I will say one more thing though. David’s talk was about 18 minutes. The Q&A after was about 10 minutes. I came out of that half-hour feeling like I’d been on a 10 week immersion boot-camp for our industry. Yes, that’s right – it was indeed bigger on the inside – and that’s not science fiction.

We’re doing it again – not the same conference of course, but another event, November 9th  and 10th targeted at the European and Asian markets. Stay tuned to our website here for details. End of commercial.

OK so now, before the news for May: I got a lot of interesting feedback on April's discussion of Black Sabbath, including their unexpected link to the world of surfactants (check last month’s blog if you’re curious). This month, we’ll investigate one of the intellectual heirs of Sabbath, Iron Maiden, founding members of the so-called NWOBHM. Skip to the end of the blog if you’re only here for the music.

Beginning of News: As always, much of the news here is brought to you courtesy of ICIS, my good friends and partners. You should subscribe here. I don't get anything if you do subscribe (if that was somehow causing you to hesitate?!) but, if, by subscribing, you are happy, then I’m happy and they are happy -  so, you can increase the world’s inventory of happiness just by subscribing. And you’ll know everything that’s happening in the world of chemicals. That’s some deal eh? By the way, I try to remember to mark my opinion and flights of fancy in square brackets like this [ ] when I insert them into the news below. That way you know not to blame ICIS for anything that’s offensive or just not funny. The photos are all mine (or more accurately google images’ in most cases).

Top of the month, of course, we had an analysis of that Emery plant fire. According to ICIS, Asia’s fatty alcohols market is unlikely to see a significant impact from a fire at Emery Oleochemicals’ plant in Malaysia on 1 May.  “There will be an impact, but probably not too much,” a regional fatty alcohols producer said.  The plant has a capacity of 40,000 tonnes/year of fatty alcohols, market sources said. One person was killed and three others suffered minor injuries when two crude oil tanks caught fire at the Emery Oleochemicals plant in the Telok Panglima Garang industrial area in Malaysia on May 1.  Selangor Fire and Rescue Department director Norazam Khamis said in a statement that they received a distress call at 5.36pm and firefighters from the Telok Panglima Garang, Banting and Andalas fire stations were deployed to the scene, according to Bernama, the Malaysia official news agency. [It’s always sad to read of death and injury in our industry. Please pause for a minute and remember – we work with some dangerous materials and with processes that deserve careful attention and vigilance at all times. Many of the readers, not all, of this blog don't actually touch the products we sell and buy. Please remember those that do – the many thousands up and down the value chain.]

Ethylene Oxide continues to make news in Europe. According to ICIS data, Europe’s ethylene contract reference price for May has been set at €1,050/tonne, up by €5/tonne from April.  EO May prices increased by €4/tonne, to €1,220-1,388/tonne FD (free delivered) NWE (northwest Europe).  Previously EO April contracts rose by double digits on the back of upstream ethylene moves. The European ethylene contract reference price for April was up by €40/tonne from March.

EO supply is balanced for the most part as preparations have been made for turnarounds during the second quarter.  Surfactant, ethanolamine and glycol ether derivative demand is healthy. Downstream monoethylene glycol (MEG) demand was lacklustre due to lower downstream consumption.

[By the way, what’s going to happen with EO when Unilever ditches fossil products? Switching to non-ethoxylated surfactants or going to bio-EO (like Croda and India Glycols do) – or a bit of both? Something to think about.

Still with European EO – here’s a cool ICIS graphic tracking EO/EG turnarounds in Europe this year. Try another browser if it doesn't work for you.

Meanwhile in the US, EO prices edged ahead and settled at an increase for the fifth consecutive month, following feedstock ethylene contracts.  ICIS assessed April EO contracts at an increase of 0.2 cents/lb ($4/tonne) from the previous month. This puts contracts at 66.8-76.3 cents/lb FOB (free on board), higher by 43% than in April 2020.

Amid storm-related outages and cracker maintenance, feedstock ethylene contracts are at their highest level since October 2014. Wow – that kind of drives the point home right?

More capacity news from the US, as the effects of hurricane Laura continue to work their way through the supply chain.  Sasol confirmed it has lifted the force majeure declaration in place for its linear alkyl benzene (LAB) products as of 29 April, according to a customer letter obtained by ICIS.  The force majeure declaration remains in place for Sasol's US alcohol and ethoxylates products.  The Lake Charles site has a surfactants capacity of 230,000 tonnes/year, according to ICIS Supply & Demand.

In other force majeure news: Indorama Venture Oxides (former Huntsman US Surfactants business) lifted its force majeure on surfactants, ethanolamines, and linear alkylbenzene (LAB) produced at its US Texas sites on 18 May, according to a customer letter.  The lifting of the force majeure includes the following at the Port Neches, Texas, site: surfactants (all products and grades); ethanolamines (including monoethanolamine, diethanolamine, and triethanolamine all grades and specifications); and LAB (all products and grades).  Indorama will operate under sales control for the suspended products due to strong demand, said the letter.

Unfortunately, it seems Shell is going in the opposite direction, declaring force majeure on linear alcohols and ethoxylates, effective May 17th, at the Geismar, LA plant – which, according ICIS data, has a capacity of 195 KMT/yr of alcohols. The problem is feedstock constraints from a third party supplier.

The great Lucas Hall (ICIS Reporter on the alcohols beat) played a pivotal role in our conference last week and continued also to crank out incredible insights into the fatty alcohols market. He reported early May that spot alcohol prices are trending higher than contract levels as demand outpaces supply. He notes that while Sasol lifted its force majeure on US linear alkyl benzene (LAB) on 29 April. The force majeure on alcohols and ethoxylates remains in place into May.  Shell lifted its force majeure on alcohols from its Geismar, Louisiana, plant on 30 April, but some southeast Asian producers are conducting maintenance in Q2.

Demand across most end markets is strong to rebounding as the economy reopens from the coronavirus pandemic, including in the core surfactants and cleaning markets. Multiple surfactants producers are separately targeting price increases for May.

Oxiteno remains on force majeure for surfactants at its Pasadena, Texas, plant. Inventories throughout the supply chain are tight, following weather-related shutdowns in Texas in the US Gulf in February against the backdrop of preexisting supply chain disruptions from southeast Asia. [That's a lot of supply chain problems - with global causes and effects]

Shipping delays are being exacerbated, particularly for material shipped in isotank or otherwise packaged.  Mid-cut volumes shipped in bulk are also facing delays.  Many Q2 volumes are expected delayed until June or July.

In the palm products markets, PKO continued to increase as noted below.

All prices are on a per tonne basis.

Source: Matthes & Porton

Fatty alcohol prices also increased.  Demand is outpacing available supply, with spot prices trending 5-10 cents higher than contracts, according to market sources.  Supply is snug to tight across all carbon chains.  Mid-cut availability is slightly improved - depending on the supplier - while logistics constraints are being exacerbated.  C16-18 markets remain tight, including for single and blended cuts.  Mass balance premiums edged higher on the top end to 5.0-8.0 cents/lb, from 5.0-7.5 cents/lb the previous week.

2020 for Oxiteno was a good year. Brazilian surfactant producer and blog favourite, Oxiteno reported a rise in year-on-year operating income.  Quarter on quarter, operating income fell but only because the company reported a tax benefit in Q4 2020.

The following shows the company's financial performance. Figures are in millions of Reais.

Source: Oxiteno

Sales rose year on year because of favourable exchange rates and higher sales prices. Oxiteno achieved the higher prices because it sold a larger share of specialty [that’s non MEG] products.  Quarter on quarter, sales fell because of lower volumes, which more than offset an 8% increase in dollar-based prices.

The following breaks down the company's sales volumes. Figures are in thousands of tonnes.

Source: Oxiteno

Volumes of specialty chemicals rose because of higher sales across all segments in Brazil, with a focus on agriculture as well as home and personal care.

Quarter on quarter, volumes of commodities fell because of scheduled shutdowns. During those shutdowns, Oxiteno placed a priority on the production of specialty chemicals.  As we reported earlier, Oxiteno's plant in Pasadena, Texas, was shut down for about 30 days because of the polar storm that hit the state in mid-February.

Oxiteno is part of the Brazilian conglomerate Ultrapar and as we reported earlier  Ultrapar is considering divesting Oxiteno. So, if you’re interested, you should get in touch. You’ll never have as good an opportunity to secure such a unique trophy asset in Latin American surfactants.

In related news, Oxiteno parent, Ultrapar said on Tuesday that it is in talks to sell its chain of pharmacies, Extrafarma. The company is currently negotiating with Empreendimentos Pague Menos S.A. the potential sale, but Ultrapar clarified there is no binding agreement and no guarantees of its potential completion.

The deal would make Pague Menos Brazil’s second biggest drugstore retailer.

Over in Asia, ethoxylate markets continue strong according to ICIS, supported in the near term by strong demand and rising upstream costs.  In the week ended 6 May, spot prices of FAE mols 7, 9 were up $30/tonne week on week to average $1,725/tonne CIF (cost, freight and insurance) southeast (SE) Asia, ICIS data showed.  Soaring coronavirus infections in Asia, including India, Malaysia, Thailand, the Philippines and Japan are expected to bolster demand for surfactants. [A horrible silver lining in an awful cloud].

Demand from downstream sodium lauryl ether sulfate (SLES), has increased following the resurgence of the coronavirus infections.  India now has the highest number of coronavirus infections in the world, with more than 20 million cases, according to the World Health Organisation (WHO).  Adding to the upward pressure is the margin squeeze from higher feedstock fatty alcohol blend C12-14 costs.  Pricing indications for feedstock fatty alcohol blend C12-14 prices have increased further for July loadings as several suppliers have sold out for June loadings.  “We are sold out for June and will likely revise our offers up for July shipments,” a regional fatty alcohol producer said.

In the week ended 5 May, fatty alcohol blend C12-14 prices were up $10/tonne week on week to average $2,110/tonne FOB (free on board) southeast (SE) Asia, ICIS data showed.

Mid-month in Asia – Oleochemicals markets stayed quite firmon upstream and freight costs pressures amid demand from China despite spot activities slowing down ahead of the Eid ul-Fitr holiday in southeast Asia.  Demand for glycerine has outstripped supply due to dwindling crude glycerine supply from Brazil and strong demand for refined glycerine from the downstream epichlorohydrin (ECH) makers in China.   The fatty alcohols market also saw firm demand due to near-term tight supply, market sources said.  “The fatty alcohols market is still very strong due to the tightness for near-term product,” a regional fatty alcohols producer said.  Emery Oleochemicals declared force majeure and stopped its fatty alcohols production at its plant in the Telok Panglima Garang industrial area in Malaysia following an explosion at its wastewater storage tank on 1 May.  Other oleochemicals markets including fatty acids, soap noodles and fatty alcohol ethoxylates (FAE) are also seeing support from the upstream crude palm oil (CPO), palm kernel oil (PKO), palm stearin and competing soybean oil prices.

However, most buyers in southeast Asia have largely retreated to the sidelines due to the regional festival.  Market activities in Malaysia and Indonesia, which are major oleochemicals producers and Muslim-majority countries, have slowed in the run-up to the holiday on 13 May amid renewed lockdown restrictions to curb the spread of the virus.  Restriction measures have been tightened in several countries in southeast Asia, including Malaysia, Singapore and Thailand to contain the pandemic.  “There are few enquires, practically zero this week, as buyers are not willing to commit due to the high prices and high freight costs,” a regional soap noodles maker said.

Freight costs have increased sharply in the global trade, curbing spot purchases as buyers were unwilling to build up their stocks and purchased largely on a need-to-basis.

Fatty alcohols ethoxylates (FAE) market activities have also slowed this week in southeast Asia due to the upcoming Eid ul-Fitr holiday.  “We expect discussions for June contracts to start only towards the end of the month, and with Malaysia and Indonesia markets slowing down this week, the market in southeast Asia is likely to remain subdued,” a regional FAE producer said.

One more news item: Joe Chang, the great editor of ICIS News, wrote an excellent article about Kevin Swift’s keynote opening talk at our conference last week. I won’t except it here but you can read it at this link. He coverd the macro economy and items of interest to surfactants, of course. He also talked inflation, something most of us are seeing now, at least in our professional lives and, if you are looking to buy a car or a house, in our daily lives. Here’s a key chart that you may find interesting:

End of News – Beginning of Music Section

Last month we discussed Black Sabbath and their invention of the heavy metal genre in 1970. By 1980 however, much had changed. Sabbath lost front-man Ozzy Osbourne in 1979 and replaced him with Ronnie James Dio. A great vocalist, but, to many, it just wasn't the Sabs any more. Deep Purple split in 1976 and, while some spin-offs did excellent work, such as Richie Blackmore’s Rainbow, it felt like a gaping hole had been ripped into the fabric of heavy rock. Even the great Led Zeppelin couldn't continue after the death in October 1980 of John Bonham, one of the two greatest drummers in the world at the time.  As these giants of heavy rock stumbled and fell, a new wave of counter-cultural excitement boiled over in the UK and US as punk bands like the Sex Pistols (1975), The Damned (1976) and The Ramones (1974) vomited onto the scene (a cheesy but entirely appropriate metaphor). The desolate no-mans land between heavy rock and punk had few inhabitants save, perhaps, the inimitable Motörhead, whose fans tended to go all-in like football supporters who could not countenance patronizing another club. And look, I’m not ignoring Judas Priest. Acolytes of Black Sabbath, they kept many a heavy rock fan going during the mid-seventies but by 1980 with the release of British Steel they were, meh, done.  Then in 1980, something interesting happened. Iron Maiden, who had clearly been listening to a lot of Black Sabbath but also many other musical influences,  in their teenage bedrooms, released their first album. Here’s the first track.

So much information packed in here: First the album cover. The person / creature thereon enshrined, ultimately goes on to adorn every subsequent album, millions of T shirts, millions of cans of beer and a 747 aeroplane. Eddie is a mascot to rank alongside the best in any field, but look closer. That street-scene could only be late 70’s early 80’s UK with the broken litter bin strapped to the lamp post in front of terraced houses. Now on to the sound. Vocalist Paul Dianno only lasted 2 albums but that scratchy punk snarl lefts its mark on the hearts of Maiden fans for 4 subsequent decades. This is not your older brother’s heavy metal for sure – nor is it exactly punk. There’s more though. The riff and opening verse says – heavy rock standard, but at 1:24, you know this is going to get interesting. By 1:46 you have that signature Maiden instrumental break releasing at 2:00 into a torrential solo. This was promising.

But it was two songs at the heart of the album that defined the Maiden sound for me and for the ages. The last song on side 1 and the first on side 2. Here’s Phantom of the Opera.

The first 22 seconds – hmm not your regular rock riff. The next 36 seconds – just crank it and tighen it further. An homage to Black Sabbath no doubt. But the mid-section builds on a sort of operatic theme culminating at 3:30 in the sort of almost Bach-like progression into a guitar duet, then a solo, then another solo, then re-progression then a re-crank up to a frenetic finish,  that would come to define the Maiden experience. Wow right?

The first song on side 2 is an instrumental, Transylvania. Again there’s that cranking up in the middle from what was already a respectable headbanging pace. You can imagine what a live song this made from small pubs to stadiums.

Intriguingly though the first album ends on a somewhat schizophrenic note. The second last song sounds like a cross between something by the Damned and a rock anthem from the likes of Peter Frampton or any one of a number of anodyne American rock bands. The lyrics themselves, however, would make Cardi B, blush (actually not blush – more like nod appreciatively to a cultural forefather). The last song brings us safely back into Maiden / punk territory, but left many thinking and wondering – yeah great but will it continue.? Here’s both songs together.

The world had to wait another year, until the second album was released in 1981. All doubts were dispelled within the 1 minute and 45 seconds of the opening instrumental. This was prototypical Maiden, grandiose, classically inspired - the perfect aperitif for the second track, Wrathchild. So much in this song. That bit at about 3:12 – remind you of the Damned or the Stranglers maybe?

OK look, I’m putting the entire album here because I think it’s important that you listen to the whole thing. It’s only about 40 minutes – worth the investment.

So many highlights. How about the opening to Murders in Rue Morgue. Again – classic Maiden sound. Ghenghis Khan at 12:18 – just to remind you that this band is different and the weirdness of “Charlotte” won’t come back to haunt the growing fan base. I have to highlight a personal favorite and also soothe the outrage of the Judas Priest fans reacting to what I said a few paragraphs back. Check out the title track of the album at 19:15. That opening section remind you of anything? Clearly Maiden’s homage to Judas Priest circa Sad Wings of Destiny (1976) and Sin after Sin (1977). Beautiful.

I could go on – including to the post-Dianno albums with the equally great (but more conventionally heavy rock) vocals of Bruce Dickinson, but, again, I have a day-job. So I guess I’ll conclude. Iron Maiden was rightly welcomed as one of the leaders of the New Wave of British Heavy Metal (NWOBHM) a phrase coined by Geoff Barton of your blogger’s favorite newspaper of the time, Sounds. They continue today, hugely popular still, after 16 studio albums, selling over 100 Million copies.

Lessons for us in surfactants? Well, they did not create a genre like Black Sabbath did. But, for many, they did perfect a genre that was, arguably, largely abandoned by its early creators. And they never gave up. Never wobbled or bowed to notions of what was fashionable at the time. So look - you may not be able to create a market segment - but can you perfect it? Or - take flow chemistry. It's been created and developed. But can you take it and perfect it in some process application - at millions of MT/yr? I think you can.

To our refined 2020’s sensibilities the imagery and lyrical sentiments of the early Iron Maiden may seem a bit upsetting. The title and cover of that second album for example. But as an emotional outlet for working class youth of a certain age and testosterone level, there were many worse options, then and now. Check out this crowd from Santiago Chile in 2011,  Ages must range from one third to one half the age of the band - and singing along to a song about the charge of the light brigade, a British military adventure of 1854. Something of value there, clearly.

That’s it for now. More news and music next month.

Monthly Surfactants – April 2021

Later this month – May 25th – 27th, we have our 11th World Surfactants Conference. It’s online. Co-produced, as always,  between your author and ICIS. We’ve got P&G, American Chemistry Council, Buss, IP, Integrity Biochem, Kline, Stepan and many many more participants with papers, panels and, of course, the famous surfactants awards which bring you the best and brightest in the indusry. Sign up and you can still get the cheap rate until May 7th. End of commercial.

If you’re only here for the music – and I happen to know that’s a meaningful minority of you, skip to the end, where we muse on the incredible catalogue of Black Sabbath. Ever wondered what it takes to become the category defining best-in-the-world at something? One way – create the category, which is of course what Black Sabbath did. One can imagine some early 70’s movie director saying “hey get me one of those, like, heavy metal guitarist type guys, from central casting” and out would trot Tony Iommi. But of course, that would never happen because heavy metal was just invented in 1970 with the release of the first Black Sabbath album, largely written by the inimitable Iommi who, had the most ridiculously appropriate back-story to his invention of this world-changing musical genre. Skip to the end to read on. End of music teaser.

Start of News: This month, again, seems to be chock full of news, so let’s get cracking.

Let’s start right at the end of the month. ICIS, on April 30th, published an outstanding topic page updating the continuing effects of the US Gulf Coast polar storms. Link here. This includes an interactive map – below. Oxiteno, Clariant, Dow, Sasol, Indorama and Shell are among the surfactants related companies with capacity impacted by storm. Of course, the wider chemical industry continues to be affected by what happened a few months ago and this pulls in products like butanol, where over 60% of US production capacity was impacted, second only to tert-butyl alcohol and butyraldehyde. Check out this infographic.

ICIS reported at the beginning of the month that Asia alcohol ethoxylates are starting to tip downward in price after a substantial run-up for most of last year. As reported - Asia’s fatty alcohol ethoxylates (FAE) market is expected to see limited spot activities in the near term due to weak market sentiment.

Fluctuations in the upstream palm oil complex and fatty alcohols markets are likely to weigh on sentiment and curb spot demand in the near term. FAE moles 7, 9 drummed spot prices fell by $15/tonne week on week to $1,610/tonne CIF (cost, freight and insurance) China in the week ended 1 April, ICIS data showed.

The lull in demand and weak market sentiment are expected to prevail following the return of the Chinese players after the Qingming holiday on 5 April. “Chinese players are likely to remain cautious and adopt a wait-and-see stance when they come back to the market tomorrow,” a trader said.  Chinese spot interest for imported goods is likely to remain soft, tracking the Chinese domestic FAE prices. Chinese domestic FAE mols 7, 9 prices fell by yuan (CNY) 200/tonne to CNY12,100/tonne ex-warehouse in east China in the week ended 1 April, ICIS data showed.

Meanwhile in the US, mid-month, ICIS reported that Shell will lift the force majeure on linear alcohols and ethoxylates products produced at its US Geismar, Louisiana, plant at the end of April. Shell temporarily reduced operating rates and declared force majeure on the products following extreme weather-related disruptions to feedstocks and truck, rail and marine logistics in Texas and the US Gulf in mid-February. The plant has a linear alcohols capacity of 195,000 tonnes/year, according to the ICIS Supply & Demand Database.

In not unrelated news, in an outstanding analysis by the great Lucas Hall,  ICIS also reported that US fatty alcohol contracts are set to increase due to higher feedstock costs and shipping problems. Mid-month ICIS noted that Q2 fatty alcohols contracts were assessed higher, tracking volatile but overall higher feedstock costs, persistent shipping logistics constraints and strong demand across the core end sectors.  Feedstock costs across the oil palm complex were overall higher in Q1, tracking strong demand in the key India and China markets as those countries recover from the coronavirus pandemic as well as historically tight stock levels in key producing country Malaysia. Historically tight stocks of other feedstock vegetable oils like soybean oil (SBO) have also underpinned the wider market.

Sustained shipping constraints, including labour shortages and tight shipping equipment availability continue to prompt major shipping delays and support higher internal and external freight costs.  Q1 imports remain delayed and Q2 delays are expected.

Internal rail markets are also tight, increasing demand for trucks and prompting delays in that market.  Rail lead times are heard around 4-6 weeks and truck lead times around 7-10 days.  Shell confirmed it will lift the force majeure on linear alcohols and ethoxylates products produced at its US Geismar, Louisiana, plant at the end of April. Sasol confirmed its force majeure on alcohols produced at its US Lake Charles, Louisiana, plant will extend into May.

Mid-cut alcohols have grown tighter amid amid the bottleneck in demand for surfactants from the extreme weather-related disruptions to production in Texas and the US Gulf in mid-February. Surfactants are expected to remain short well into Q2.  The recent bottleneck in the Suez Canal has delayed shipments on vessels making stops in Europe before they head across the Atlantic to the the North American East Coast. Shipments west have not faced further delays.

Prices:

The prices in the below table reflect freely negotiated prices confirmed among buyers and sellers of both synthetic (that’s petrochemical) and natural (that’s palm kernel oil based) alcohols. All prices De’ld US Gulf Coast basis.

Prices at the low end of the above ranges largely represented prices heard for petrochemical alcohols. Prices for natural mid-cut C12-14 alcohol were largely heard in the 105 cents/lb range and above.  Prices for natural C16 alcohols were largely heard toward the 100 cents/lb range and above.  Prices for natural C18 alcohols were largely heard toward the 90 cents/lb range and above.  Prices for natural C16-18 blended alcohols were largely heard toward the upper-90 cents/lb range and above.  Demand for C16-18 blended and single cut C16 alcohols outpaced C18 alcohols demand, tightening those markets and supporting higher prices.  Some producers are blending a higher proportion of C18 alcohol into their blended cuts in order to offset tight C16 alcohol supply, causing that market to tighten.  Synthetic alcohols prices were largely heard significantly lower than natural alcohols prices as producers looked to capture market share amid a protracted outage and force majeure in the market made worse by weather-related disruptions from mid-February.  Oleo alcohols prices were largely heard higher, tracking both higher feedstock and internal/external freight costs.

US spot mass balance premiums were assessed up 0.5 cents/lb on the high end at 5.0-7.5 cents/lb DEL (delivered) US Gulf.  Prices were based on market feedback.  Supply is short amid persistent shipping constraints following recent bans on palm imports from major Malaysian palm oil producers into the US market. Think about that – an unintended consequence or not.

Some great technology news from Unilever:  ICIS notes that Unilever and partners LanzaTech and India Glycols have succeeded in producing a surfactant made from recycled industrial carbon emissions - rather than fossil fuels.  The new surfactant will be used in an “OMO” laundry capsule, and it will be launched in China on 22 April. It will come at no extra cost to consumers, the companies said.  The production process involves three stages:  Capture: LanzaTech uses biotechnology to capture waste industrial emissions at its Beijing Shougang LanzaTech plant in China and converts these emissions to ethanol.  Conversion: India Glycols Ltd converts the ethanol into ethylene oxide, a key feedstock to make surfactants at their site in India.  Formulation: Unilever uses the surfactant in the new OMO laundry capsules, manufactured at its Hefei factory in China.  Details about project costs or production volumes were not disclosed. [OK – and that’s fine. There’s every chance that, at this early stage, the whole thing is a cash – loser for the companies involved. But that’s OK as the point is to prove technology and capability. I wish this collaboration much success and we’ll be watching closely as the efforts scales into financial sustainability in the future. ]

I’ve written in another forum about inflation and the insidious effects of printing money on the economy. More than quadrupling the money supply over the course of the last year, has to have some effect. One area where the ugly kleptomanic head of inflation monster is seen now in the surfactant market.  Much of it is supply disruption related, but in a time of high demand – is this something to be worried about on a macro level? Read on.

Antoinette Smith reported in ICIS that rising feedstock ethylene spot prices, snug supply and strong demand are pressuring prices for US ethylene oxide (EO) derivatives. Ethylene supply has been constrained since the mid-February storm that shut large portions of US Gulf chemical production.  Storm-related outages pushed March ethylene contracts to the largest increase in 15 years and their highest level since October 2014.  Most crackers have restarted, but more recent outages have kept ethylene spot prices elevated. Ethylene contracts are influenced by the month's spot prices along with production costs. In line with the March ethylene settlement, EO contracts also rose to a six-year high. Since November 2020, EO contracts have increased by a cumulative 62%, amid strong demand and production issues for EO plants.

With such significant increases in upstream values, EO derivatives and downstream surfactants are experiencing price pressure as well. Indorama nominated 8-10 cent/lb price increases for May EO derivatives, including ethoxylates, EO/PO (propylene oxide) block copolymers and surfactants, according to a customer letter seen by ICIS.  The company cited continued increases in raw material and energy costs, as well as supply/demand dynamics.  The company did not immediately respond to a request for comment from ICIS.  Dow separately nominated 10 cent/lb increases for its May surfactants prices, and did not cite a reason in its customer letter.  The company did not immediately respond to a request for comment from ICIS.  US Q2 fatty alcohols contracts also recently settled higher, amid increased feedstock costs and persistent shipping constraints.

Meanwhile in related EO based reportage, the legendary AL Greenwood reports that Dow has started up a (new) polyethylene glycol plant in Louisiana, the US-based company confirmed on Friday.  The new plant will allow the company to meet growing demand from pharmaceutical and consumer-product applications, Dow said.  The company did not reveal the capacity. Regular readers know that - in the second half of 2021, Dow plans to complete a new alkoxylation plant in Plaquemine, Louisiana. The plant will supply surfactants to several end markets, such as home and personal care; oil and gas; lubricants; industrial and institutional cleaning; and infrastructure. The capacity of the new unit will be 100,000 tonnes/year, and it will allow Dow to expand in a number of key product lines, such as TRITON, TERGITOL, ECOSURF, CARBOWAX, SENTRY and UCON.

Also - by the end of 2021, Dow should complete the expansion of a cracker in Fort Saskatchewan, Alberta province in Canada.  The expansion will add 130,000 tonnes/year. Dow is splitting the cost and its portion of the expansion with an unnamed regional partner. As a result, Dow's share of the expansion will be 65,000 tonnes/year.

Dow had disclosed the project in January 2020. At the time, the capacity of the cracker was 1.1m tonnes/year. Capital expenditures (capex) for the project were expected to be $200m-225m.

Speaking of going big in the surfactants value chain: Stepan had a great 2020 and so the results reported for Q1 of 2021 as many of the strong fundamentals and smart strategy of last year, continued to propel the business. ICIS reported that logged a 34.8% year-on-year increase in Q1 operating income, driven by its surfactant and polymer segments.

Surfactant operating income was $53.2m, up from $36.2m in Q1 2020, primarily driven by improved product and customer mix and higher global demand in the agricultural and oil field end markets. The upside was partially offset by lower North American sales volume into the consumer product end markets due to the supplier force majeures (ugh – that’s a real pity) which followed the severe weather in Texas in February.  Surfactant supply chain expenses were lower year on year, mainly because in Q1 2020 the company had a plant power outage at its Millsdale site in Illinois.  Total global surfactant sales volume was flat versus the prior year.

Polymer operating income was $18.0m, up from $7.5m in Q1 2020, with the increase primarily attributable to a 32% increase in global sales volume.  In particular, global rigid polyol volume was up 32% year on year, largely due to the INVISTA polyester polyol acquisition. Global rigid polyol volume, excluding the INVISTA acquisition, was up 8%.

Also, the non-recurrence of the Q1 2020 Millsdale plant power outage lowered supply chain expenses year on year.

Specialty Product operating income was $2.6m, down from $4.0m in Q1 2020, with the decrease primarily attributable to lower margins, resulting from raw material shortages and manufacturing challenges within the medium chain triglycerides (MCTs) product line.
"Looking forward, we believe our surfactant volumes in the North American consumer product end markets should recover following the supply chain disruptions caused by the severe weather in Texas,” said CEO F. Quinn Stepan.  Meanwhile, heightened consumer demand for disinfection, cleaning and personal wash products will continue, and demand for surfactants within the agricultural and oilfield markets is expected to improve, compared with 2020, the CEO said.  Regarding rigid polyols, global demand continues to recover from pandemic-related delays and cancellations of re-roofing and new construction projects, he went on.  This gradual recovery, combined with Stepan’s acquisition of INVISTA's aromatic polyester polyol business in Q1, should position the company’s polymer business to deliver growth versus prior year, the CEO said.

“We believe the long-term prospects for rigid polyols remain attractive as energy conservation efforts and more stringent building codes are expected to continue,” he said, adding that, in the specialty product business, results should improve slightly year on year.  “Despite current raw material price increases and some supply constraints, we are cautiously optimistic about the remainder of the year," said the CEO.

In further comments during the presentation Stepan noted they anticipate continued Covid-related demand for surfactants into cleaners and disinfectants, even as the pandemic is expected to recede in coming months.  "We believe there may be some decline in consumer washing habits as we go forward but those will be offset by enhanced cleaning in the industrial and institutional markets," said Quinn Stepan Jr,

“Cleaning protocols in public spaces - schools, hospitals and airplanes, for example - have changed due to the pandemic”, said Luis Rojo, vice president and CFO.

Scott Behrens, president and COO, said: "A lot of the hospitality industry is going to try to restore public confidence that their families can be safe in these public places, so visible cleaning should be a big part of economies reopening around the world." Behrens said these changes - for example, cleaning crews being active during the day when people are present to see the cleaning being done, rather than in the middle of the night - could provide a boost to Stepan's surfactants business.  "We’ll see how that impacts us – if it offsets the consumer demand,” Rojo said.

Rounding out the month, some good analysis in the US and Asian fatty  alcohols markets points to upward price pressure partly supported by supply constraints.

First in the US: Lucas Hall reports US fatty alcohols supply is expected to remain snug to tight in Q2, amid volatile feedstock markets and continued shipping logistics constraints, against the backdrop of healthy-to-rebounding demand.
Supply chain management from southeast/south Asia remains constrained because of pandemic-related disruptions and ongoing shipping logistics constraints, including labour shortages, tight isotank/container/vessel availability and bullish freight rates.

Lead times from Asia are upwards of four months, particularly for product shipped in isotanks or containers. Bulk volumes also have longer lead times, but remain relatively more liquid.  In particular, renewed lockdown measures across India may exacerbate lead times from that country. India is a key supplier of C16-18 alcohol chains to the US.

February imports were at multi-year lows despite overall healthy-to-strong demand, further suggesting supply chain constraints.

Source: ITC 

US Domestic production also remains constrained following weather-related disruptions in Texas and the US Gulf in February.  Shell will lift its force majeure at Geismar, Louisiana, on 30 April.  However, Sasol will remain on force majeure at Lake Charles, Louisiana, into May. The plant has been on force majeure for alcohols production for the better part of the last year.
Volatile but overall bullish feedstock costs are adding to the pressure, weighing on production margins and operating rates.  Feedstock costs across the oil palm complex rose around $50/tonne this week, tracking higher prices for soybean oil (SBO).

US SBO markets remain bullish, tracking historically tight inventories amid drought conditions in parts of the US, reduced crops, pandemic-related labour shortages and strong demand from the renewable diesel sector and China.

All prices are on a per tonne basis. Source: Matthes & Porton

Ethylene prices are also at historic highs following a roughly eight-month stretch of supply disruptions, ranging from the 2020 Atlantic hurricane season to February's winter storm, which have pressured synthetic alcohols markets.
Sustained supply constraints and feedstock cost pressures are limiting spot availability as demand continues to ramp up.  Some manufacturers were keeping lower than usual inventories amid feedstock and demand volatility during the pandemic.  As a result, downstream surfactants inventories were left critically low following the February storm just before the US economy started to reopen with the advancing vaccination programmess and easing pandemic-related restrictions nationwide.  Demand in the core cleaning sector is expected to remain strong through 2021, especially as travel picks back up as restrictions ease.  Demand in industrial applications is also increasing on the back of rising crude prices and easing restrictions.

This combination of factors is likely to maintain upward price pressure on the market through Q2, with spot prices likely to trend above contract levels in the near-to-medium term.

Meanwhile in Asia Helen Yan of ICIS reports that  Asia’s fatty alcohols market is likely to remain buoyant in the near term due to the pandemic-induced demand for home and personal care products.  Demand for fatty alcohols is expected to be firm because of the surge in infections in Asia, including India, Thailand and Japan.  “Home and personal care is a growth sector, we expect demand for fatty alcohols to increase because the pandemic has raised consumer concerns for health safety and home and personal hygiene,” a supplier said

India, which is currently seeing soaring infections and rising fatalities, is expected to continue to see firm demand for fatty alcohols.  Manufacturing, textile, consumer durables, automobile, travel, and hospitality, are facing disruptions as more states in India impose stringent curbs on public movement and transport to combat the pandemic.  “Despite the renewed lockdown restrictions, the home care manufacturers in India are still running as they are providing essential services,” a supplier said.

Apart from growing demand, logistics issues, high freight costs and volatile upstream costs are likely to lend support to the fatty alcohols market in Asia in the near term, market sources said.  However, with the key Chinese market closed for the Labour Day holidays 1-5 May, spot appetite is expected to remain sluggish in the coming week.  “We will wait and see  until the Chinese market reopens and hopefully we will have a clearer picture,” a buyer said.  Demand for fatty alcohols is strong, a trader said.

"We expect the market to remain firm in the near term, despite the volatility in the upstream palm oil markets,” the trader added.

Wrapping up this April’s news: We reported last month that Clariant and India Glycols formed a surfactant ventures in India. Clariant’s first quarter overall turned out OK according to the company as reported to ICIS. The Swiss producer’s first-quarter results on Thursday showed a return to growth.  Earnings before interest, tax, amortisation and depreciation (EBITDA) margins were stronger than in the same period a year prior, and Clariant hopes to continue this in the second quarter, its CEO Conrad Keijzer said to ICIS.  “We are pleased with our profitability, particularly considering the inflation we saw on raw materials and logistics, which we managed to offset in all business units for the first quarter,” said Keijzer.  “We expect a continued recovery with moderate sales growth compared to last year and see EBITDA margins above pre-covid levels.”

Clariant’s ongoing cost savings programme helped to support the company’s growth, the CEO added, while at the same time compound the Swiss producer’s position as a specialty player.

“We are divesting one third of our portfolio, which are mature businesses. This helps us to focus on catalysts, care chemicals and natural resources, which are pure specialty,” said Clariant CFO Stephan Lynen.  “This transformation sharpens the portfolio from a trading perspective, helping us get away from commodity chemicals into specialty valuation,” he added.  Although streamlining remains a key strategy, acquisitions are not off the table, but there are currently no concrete deals.  “We would love to make value creation in core business, there is pipeline lists of companies in all three business areas, but you need buyer and seller,” said Keijzer.  Despite turbulent macroeconomic conditions in the first quarter, improvement in the aviation sector in Europe helped Clariant mark a return to growth.  Seasonal demand for Clariant’s de-icing products used on airplanes helped sales in Europe rise by 17% in local currency in spite of the restrictions put on air traffic to contain the spread of the pandemic.  The aviation industry is facing challenges not only in the short term, but while the longer term industry may be shaped by environmental concerns, Keijzer believes that it will be resilient.  “Aviation will be there, it is a matter how can we make it more sustainable, but aviation is not an industry that will disappear,” he said.  Strength in Europe is welcomed, but Clariant’s attentions lie in other regions.  “Certainly, China is very important market for chemicals, as it already represents 40% of the global chemical market. For us, it is 10% of our sales, so there is a big growth opportunity,” said Keijzer.

“India is not the size of China for chemicals, but it is an important growth market, particularly for surfactants, and we were very pleased in Q1 with [newly established joint venture] India Glycols, makes us one of the country’s leading surfactants players right away.”

End of News – So what about Black Sabbath’s Tony Iommi as teased at the top of the blog? It’s a pretty well-known story – but I’m going to pull pretty heavily on Wikipedia here.

At the age of 17, Iommi lost the tips of the middle and ring fingers of his right hand in an industrial accident on his last day of work in a sheet metal factory. Iommi described how he "was told 'you'll never play again'. It was just unbelievable. I sat in the hospital with my hand in this bag and I thought, that's it – I'm finished. But eventually I thought 'I'm not going to accept that. There must be a way I can play'." After the injury Iommi's factory foreman played him a recording of famous jazz guitarist Django Reinhardt, who as Iommi would learn was only playing with two fingers on his fretboard hand because of an injury he sustained in a terrible fire.  Inspired by Reinhardt's two-fingered guitar playing, Iommi decided to try playing guitar again, though the injury made it quite painful to do so. Although it was an option, Iommi never seriously considered switching hands and learning to play right-handed.

He decided to continue playing left-handed. To do so, he fitted homemade thimbles to his injured fingers to extend and protect them; the thimbles were made from an old Fairy Liquid bottle [and hence, dear reader, the link to surfactants – you think we just throw in random stories here? No way!] –Two problems: First, the thimbles prevented him from feeling the strings, causing a tendency to press down very hard on them. Second, he had difficulty bending strings, leading him to seek light-gauge guitar strings to make it easier to do so. However, Iommi recalls that such strings were not manufactured at the time, so he used banjo strings instead, until around 1970–71 when Picato Strings began making light-gauge guitar strings. Furthermore, he used the injured fingers predominantly for fretting chords rather than single-note solos. In 1974, Iommi told Guitar Player magazine that the thimbles "helped with his technique" because he had to use his little finger more than he had before the accident. Later, he also began tuning his guitar to lower pitches, sometimes as far as 3 semitones below standard guitar tuning (e.g., on "Children of the Grave", "Lord of this World", and "Into the Void", all on the album Master of Reality). Although Iommi states that the main purpose of doing so was to create a "bigger, heavier sound", slackening the strings makes it easier to bend them.

Iommi reflected in 2016 saying “Right at the beginning I was told by doctors: ‘You won’t be playing guitar.’ But I believed I could do it, and I did.”

Need I say more? Can there be a better more inspirational biographical story for the guy that created heavy metal. He lost the tips of his fingers in a metal-working accident and still played an iconic guitar sound that came to be imitated by millions across the world. So, you think have some setbacks? OK but you know what? You can still be the best in the world. Tony Iommi, the central- casting guy for heavy metal guitarist did it.

OK then – so what about that sound? The one thing I loved about Black Sabbath when  I first heard them at 9 years old, was their completely unapologetic unself-conscious nature. They had something to say and a way to say it  - and they just ploughed ahead, completely oblivious to the critical scorn poured on them by the musical cognoscenti of the time. Here’s track 1 from their first album. A little thunder and lightning, a doom laden riff and Ozzy starts singing about “Satan sitting there, he’s smiling”. In a year when Simon & Garfunkel topped the charts was anything ever so out of step with the culture?

From that point forward, those fairy-liquid bottle tipped fingers inspired so many guitars ranging from those in Metallica, Judas Priest and Iron Maiden to today’s thrash and doom metal bands. A niche band? Well, in the beginning, they created the niche, which turned into a mainstream genre. 46 Million album sales over 19 releases. Not exactly obscure.

Here’s another favorite of mine we had in last month’s blog, but so what. It’s my blog so… also off the first album – The Wizard

Notice not only the riff, but the drums – and bass  - and the harmonica. And no-one listening to this for the first time can claim not to have goosebumps at the 44 second mark with that break. That’s losing-the-tips-your-fingers creativity right there!

Next – also in 1970 came the second album Paranoid. Everyone in the Western hemisphere for sure, but also in many parts of Asia knows the title track and much of lyrics “finished with my woman, ‘cos she couldn't help me with my mind” – but there are many other metallic treasures on these 12 vinyl inches. For example, this iconic opening track with air-raid sirens, blood freezing chords and intensely relevant lyrics. This song is fifty years old today but at the time it was released came just 25 years after the end of WWII.

How about this one from the same album, which has worked its way into the popular culture – Iron Man. Gotta love the incredible thud-thud-thud buildup to another one of the 20th Century’s most recognizable riffs.

The third album, Master of Reality, released in 1971 contains this gem which, on first listen sounds like it could be amalgam of or tribute to every heavy metal song ever recorded. Except – well, no-one else was doing this 50 years ago.
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The Sabs' views on the environmental movement are not known, but this song, coming a year after the first earth day, should be enough to warm the most ardent tree-huggers heart – Into the Void. Check out the most ridiculously ponderous opening segment before the chugging riff imitates the steam-punk progress of a spaceship escaping the “misery and woe” on earth. Then at 3.04 they crank it up again – Hey do you think the lads of Iron Maiden might have listened to a bit of Black Sabbath when they were growing up? Yeah – I think so.

The 4th Sabbath Album, Volume 4, in 1972 contains this song which I believe may be the most upbeat metal song ever recorded. Supernaut.

I could go on and on, but I’ve got a day-job, so, let’s finish with something off Sabbath Bloody Sabbath, which to me as a 12 year old kid, when it was released, had the scariest album cover I had seen then or since. The eponymous title track had a catchy riff for a Sabbath song and some populist lyrics that captured something of the Zeitgiest at that time  - including that bit in the middle – you know that bit you would sing at the top of your lungs when your parents weren’t around…

And don't forget the bit starting at 3:20. Wow – never gets old.

OK – so there it is. The kid with his fingertips sliced off in the metal factory goes on to define a global musical phenomenon. It’s Monday. You have some challenges. Everything's not quite perfect in your life.  What're you gonna do in the week ahead?

One thing you should do is invest in yourself and register for our conference. Sorry - had to do that. The bigger point still stands though. It's Monday. What are you going to do?

Surfactants Monthly – March 2021

Surfactants Monthly - March 2021

Happy Easter and Passover. A time of deliverance and re-birth for many of our readers and perhaps my favourite time of year. By the way, I can't help noting that this month is chock full of news - kinda-like those Easter egss full of Cadbury's buttons..

Before I muse further (scroll to the end), commercial needs dictate that I mention our upcoming online surfactants conference on 25th – 27th of May. Visit the link and check it out and register to attend. It’s not free, this time,  but it’s worth the price of admission.

As a foretaste, if you like, or indeed a sort of literary foreshadowing of what we’ll be dealing with at the event, there is an interview of me by the great Rochelle Ross of ICIS, that you can access at this link. You’ll have to give your contact info to ICIS to see it but don't worry, they are GDPR, strict constructionists and will not abuse your data – at all.

You might have noticed that in our Linkedin group (you’re not a member?!?! Join now, please.) a bit of activity with polls. Here are some interesting results – much of which we will further dig into at our upcoming conference.

OK - Blog news is super-heavy with EO and derivatives as pricing moves up -  by a lot, keeping things interesting.

Price movements dominated the early part of the month. Right at the beginning of  March, Dow, in a customer letter, nominated price increases for March on the following downstream surfactants products (in cents/lb):

Ethoxylates5EO/PO copolymers15

Also in a customer letter dated 1 March, Indorama nominated a 5 cent/lb price increase for its ethanolamines, effective 15 March or as contracts allow. In a separate customer letter also dated 1 March, Indorama nominated prices 3-15 cents/lb higher for its EO derivatives, including polyethylene glycols, alcohol ethoxylates, surfactant blends, and EO/PO block copolymers. "These increases are necessitated by continuing increases in key raw materials and feedstocks as well as market demand / supply dynamics," the letter said.  Indorama shut its site at Port Neches, Texas, and declared force majeure on surfactants in mid-February amid unusually frigid temperatures. In late January and early February, feedstock ethylene spot prices eased down from historical highs but then climbed even higher following the winter storm that caused production issues for nearly 75% of US ethylene capacity.

A few days after these letters, ICIS reported that US February ethylene oxide (EO) contracts rose to their highest level since December 2014, following the same-month feedstock ethylene settlement.  ICIS assesses February EO contracts higher by 0.2 cents/lb ($4/tonne), at 59.4-68.9 cents/lb FOB (free on board).  US February ethylene contracts settled at an increase of 0.25 cents/lb from January, amid higher cash costs and lower spot prices.

Toward the end of the month, the trend was consolidated. ICIS reported that US March ethylene oxide (EO) contracts settled higher by more than 10%, following same-month feedstock contracts.  ICIS assesses US March EO higher by 7.2 cents/lb ($159/tonne), at 66.6-76.1 cents/lb FOB (free on board).  US EO contracts have increased by a cumulative 62% since November 2020, amid strong demand and production issues following the mid-February polar storm in the Gulf Coast. Feedstock ethylene contracts settled for March at a 9 cent/lb increase, the biggest month-on-month jump since October 2005, when contracts also jumped by 9 cents/lb, according to ICIS records.

Since Christmas, EO prices have risen six times, mainly due to strong upstream ethylene values and main downstream derivative monoethylene glycol (MEG).  Although MEG prices fell 5% on Tuesday, snapping eight consecutive days of gains, upstream EO suppliers seek to recover gains made by recent firm MEG values.  Meanwhile, other EO derivatives including ethanolamines, butyl glycol and fatty alcohol ethoxylates (FAE) are under increasing pressure from strong EO values.

At the other end of the surfactants molecule, ICIS reported that US Q2 fatty alcohol contract discussions began in earnest around the beginning of March. Volatile but overall bullish feedstock costs across the oil palm complex - against the backdrop of ongoing supply chain concerns both from southeast Asia and in the US - are likely to underpin the negotiations, against the backdrop of short supply and strong demand for surfactants amid ongoing disruptions in the US market.

Shell and Sasol remained on force majeure for alcohols and ethoxylates products produced at their Louisiana plants, following extreme weather-related disruptions in the US Gulf in February. Sasol confirmed it is restarting its Lake Charles, Louisiana, site. Multiple downstream producers remained on force majeure as well, including Clariant, Oxiteno and Indorama.  Strong demand in Asia and the US against the backdrop of volatile feedstock costs and ongoing supply chain disruptions in the US are likely to put pressure on Q2 contracts.

US spot prices for mid-cut alcohols continue to be heard above $1/lb DEL USG.  Spot prices for C16-18 continue to be heard above mid-90 cents/lb ex-tank range.  Spot prices for C16 continue to be heard above $1/lb DEL MW, as C16 supply is tighter than C18.  Tight supply and higher prices for C16 alcohol are in turn favouring higher C18 blended material, in turn putting pressure on C16-18 blended alcohols as well.  Mass balance premiums have been heard in a range of 5-7 cents/lb or higher over non-certified material.

And in Asia, ICIS noted that Asia’s fatty alcohols market remained relatively subdued the second week in Marchn, as players stayed on the sidelines and adopted a cautious stance.  With the rally in the upstream palm kernel oil (PKO) and competing feedstocks soybean and corn oil prices fizzling out, buyers have retreated to the sidelines to adopt a cautious stance, market players said.  Although demand from India and China is still strong, buying interest has declined, with buyers staying on the sidelines to wait for a clearer picture, market sources said.

“The buyers are adopting a wait-and-see stance and asking for a price discount for the fatty alcohols 12-14 blend, but it is not possible to sell at lower prices due to the margins erosion,” a supplier said.  On 3 March, fatty alcohols 12-14 blend fell by $25/tonne week-on-week to $2,000-2,100/tonne FOB SE Asia, ICIS data showed.

Mid-month, the great Lucas Hall further analysed the alcohols supply chain as follows: Q2 fatty alcohol contract negotiations were ongoing, with settlements largely emerging higher from Q1 on the back of bullish feedstock markets and ongoing shipping logistics constraints globally. Feedstock markets across the oil palm complex continue to face upward pressure from tighter production, lower inventories and bullish costs in other fats and oils markets like soybean oil (SBO).

All prices are on a per tonne basis.

Source: Matthes & Porton

Supply chain disruptions persist following extreme weather-related disruptions in Texas and the US Gulf last month.  Synthetic alcohols producers Shell and Sasol remain on force majeure on production from their Geismar and Lake Charles, Louisiana, sites. Sasol confirmed all plants are running and heading towards their operating target.  Multiple buyers in Texas remained shut and on force majeure amid weather-related disruptions, including to key ethylene oxide (EO) supply. V Tighter surfactants supply because of the supply chain disruptions are creating a bottleneck in demand ahead of the Q2 and Q3 high seasons.  Demand in the oil and gas sector is also increasing as crude oil prices rebound.

Prices

Freely negotiated settlements for C12-C15 alcohols were heard in the $1.00-1.08/lb DEL (delivered) USG (US Gulf) range.

C16 settlements were heard in the $1.00-1.07/lb range.

C18 settlements were heard in the mid-90 cents/lb range.

C16-18 settlements were heard in the high 80-upper 90 cents/lb range.

50/50 C16-18 blend was heard in the 90-upper 90 cents/lb range, as C16 is tight relative to C18.

Higher volumes of C18 being pushed into blended cuts is also tightening the C18 market.

Mass balance premiums were heard in the 5.5-7.0 cents/lb range.

Overall availability is constrained amid ongoing shipping logistics constraints from southeast Asia and supply chain disruptions in the US.

Completing the picture, ICIS profiled the Asia ethoxylates market, which is expected to see further upward pressure in the near term, tracking the Chinese domestic market.  Chinese domestic feedstock ethylene oxide (EO) prices have continued to trend up in China, lending support to rising Chinese demand for April shipments of FAE imports, market sources said.

Chinese domestic feedstock EO prices have risen following the Lunar New Year holiday, to Chinese yuan (CNY) 8,400/tonne ex-tank east China on 10 March compared with CNY6,800/tonne ex-tank east China on 19 February, market sources said.  The Chinese market was shut for the Lunar New Year holidays on 11-17 February.  “In light of feedstock costs pressures and demand, spot offers for April shipments of FAE are likely to rise further,” a regional producer said.  On 11 March, FAE spot prices were up $40/tonne week on week at $1,640-1,680/tonne CIF (cost, freight and insurance) China, ICIS data showed.

By the 19th of March, however, Asia FAE momentum had slowed according to ICIS, as players adopted a wait-and-see stance amid falling upstream crude oil prices.  Players retreated to the sidelines to wait for a clearer picture as market sentiment was dampened by the retreat in crude oil market.  The build in the crude oil inventories in the US had dampened market sentiment.  On 18 March, crude futures tumbled by more than $4/bbl, with US crude futures for April delivery on its fifth consecutive session of decline, closing at $60.00/bbl.

The oil market has been factoring in the fourth consecutive weekly build in US crude oil inventories, based on data from the US Energy Information Administration (EIA), following disruptions caused by February’s winter storm.  However, demand for FAE is expected to remain firm, given that the end-use surfactants industry is recession-proof, and usually grows as the population increases, market sources said.  “We expect demand for surfactants to grow at least 5% this year in Indonesia as people need to wash and clean and all the more so in light of the coronavirus pandemic,” a regional FAE producer in Indonesia said.

In the week ended 18 March, FAE (drummed moles 7, 9) edged $10/tonne lower to $1,650/tonne CIF (cost, insurance and freight) China and $1,680/tonne CIF southeast (SE) Asia, ICIS data showed.  “Although the upstream ethylene or feedstock ethylene oxide may have dropped, this is countered by the rise in the other fatty alcohols feedstock,” another producer said. On 17 March, feedstock fatty alcohols C12-14 blend rose by $50/tonne week on week to $2,100/tonne FOB (free on board) SE Asia, ICIS data showed.

More biosurfactants news as reported by ICIS: BASF has signed two partnership agreements to expand its position in the global bio-based surfactants and actives market, the German-based company said on March 10th.  One partnership is with Japan's Allied Carbon Solutions (ACS), a commercial provider of surfactants from biomass.  It involves an exclusive technology cooperation, commercial agreement and product development for sophorolipids, one class of glycolipids, to address the needs of consumers for sustainable, natural and bio-degradable ingredients and actives.  As part of the partnership, BASF took an equity stake in ACS, making it ACS' single largest shareholder.

The second partnership, with UK-based start-up company Holiferm, is focused on developing and manufacturing sustainable, non-fossil based, fermentation-derived ingredients for other classes of glycolipids, with potential for application in home care, industrial formulators and personal care products.  “While BASF already has solid innovation and production capabilities for surfactants, we are always scouting for opportunities to work with partners well-rooted in technologies which add to our strength in order to expand our product portfolio with additional biobased products,” said Ralph Schweens, president, Care Chemicals, at BASF.

We’ll learn a lot more at our conference coming up in May.

More supply updates: LyondellBasell revised its sales allocation for purified ethylene oxide (EO) for March, according to a customer letter obtained by ICIS on 25th March.  The letter, dated 23 March, revised the allocation amount, which previously was 30%. All other products remained at the same allocation levels.

The allocations apply to all production sites and terminals throughout the US, according to the letter.  The company declared force majeure on 16 February as a result of a winter storm that paralysed much of the chemical production on the US Gulf Coast.

Meanwhile in Europe, ICIS published a handy EO turnaround graphic which you should be able to see below. If not – try fiddling with your ad-blocker or try another browser.

In a related and tremendously insightful focus article, star ICIS reporter, Melissa Hurley reported that European ethylene oxide (EO) April contracts have risen (as of March 31) by double-digits on the back of upstream ethylene moves. EO supply is expected to be snug-to-balanced in the second quarter due to planned maintenances.  The European ethylene contract reference price for April has been set at €1,045/tonne, up by €40/tonne from March.

The vast majority of EO contracts are formula-based, with the price movement representing 80-85% of the change in the monthly ethylene contract price. ICIS uses an average of 82% for the ethylene contract price in its calculations.  Prices were assessed at an increase of €33/tonne on both ends of the ranges, bringing prices to €1,216-1,384/tonne free delivered (FD) northwest Europe (NWE).  This marks the fifth consecutive monthly price increase.

March EO contracts firmed due to double-digit pricing gains in the ethylene contract market.

PLANNED TURNAROUNDS KEEP SUPPLY SNUG

There are several EO maintenance due to take place in the second quarter: PKN Orlen is due to conduct a planned maintenance at the EO and EG facility in Plock, Poland, in the second quarter of 2021. The exact dates are unknown. This has not been confirmed by the company.  There is a planned maintenance expected at BASF's EO facility in Ludwigshafen, Germany, at the end of the second quarter. The exact dates are unknown.  There is a planned EO/EG maintenance expected in June at INEOS Antwerp in Belgium, according to market sources.  Beyond the second quarter, there is a turnaround A planned expected at Dow's EO facility in the Netherlands during September, according to market sources. The exact dates are unknown.

EO DERIVATIVE DEMAND STRENGTH VARIES

The strength of EO derivative demand has been quite varied. Integrated suppliers can tweak output among derivatives, to optimize on better performing products. Glycol ether prices soared in the first quarter due to supply constraints. EO is used to make glycol ethers which can be used in solvents and fuels.  European monoethanolamines (MEA) and triethanolamines (TEA) 99% prices skyrocketed last week on the back of tight supply and healthy demand. Ethanolamines are used in surfactants and personal care products,  Derivative demand was healthy for ethoxylate markets in the first quarter. The second largest EO derivative use is in ethoxylates which is used in applications such as shampoo and kitchen cleaners. \ Meanwhile, monoethylene glycol (MEG) demand softened this month due to downstream polyethylene terephthalate (PET) production issues.

It seems we can’t get away from EO this month. The great Indian Chemical News (ICN) (which I read every morning and so should you), reported that Clariant and India Glycols Limited (IGL) announced a strategic partnership to establish a 51-49% joint venture (JV) in renewable ethylene oxide (EO) derivatives. By combining production and distribution capacity, the JV is expected to become a leading supplier of renewable materials to the rapidly growing consumer care market in India and neighboring countries, while providing Clariant the ability to leverage the EO derivatives globally across the home care, personal care and industrial applications segments of its Industrial and Consumer Specialties business. The partnership is subject to customary regulatory approvals. Under the terms of the proposed agreement, India Glycols will contribute its renewable Bio-EO Derivative business to the joint venture, which includes a multipurpose production facility including an alkoxylation plant located in Kashipur, Uttarakhand (India).

In return, Clariant will contribute its local Industrial and Consumer Specialties business in India, Sri Lanka, Bangladesh and Nepal, held by Clariant India, as well as a net cash payment to attain a 51% stake and thus majority ownership. Clariant International Ltd. will be the sole Clariant shareholder in the JV. U.S. Bhartia would be the designated chairman of the joint venture. The JV will market Clariant’s entire range of Industrial and Consumer Specialties products in the previously mentioned countries, while all other global markets shall be served by Clariant. To support production, India Glycols has agreed to a long-term supply agreement for ethylene oxide made from bio-ethanol as well as further utilities. At its inception, the JV will have approximately 200 employees. Very interesting news. I have to say that, as soon as travelling re-starts, two of the first places I plan to visit are Switzerland and India. Two great, fascinating, different countries. And check out this picture below. This is a real projected image by a Swiss artist,  of the Indian flag on the Matterhorn mountain, a place I have skied many times. How cool is that ? It was done in April of last year.

We missed this last month but here it is: Galaxy Surfactants' Shekhar talking about their Capex plans – again, courtesy of ICN. spread - Ethylene and EO Europe

And finally, again from the great ICN, the starved Indian LAB market is finally getting some relief with TamilNadu Petrochemical investing a total of Rs. 435 crore in a  Linear Alkyl Benzene Plant, HCD Plant and a Propylene Recovery Unit. The Board of Directors of Tamilnadu Petroproducts Ltd (TPL) has approved three proposals - augmentation of capacity of Linear Alkyl Benzene (LAB) plant, modernization of HCD plant and setting up a Propylene Recovery Unit. The capacity of Linear Alkyl Benzene plant would be increased from the existing 120 KTA of which about 90% is utilized at present to 145 KTA at an estimated cost of Rs. 240 crore. Post regulatory approvals, the project  is expected to be completed in about 24 months. Attendees at prior surfactants conferences of ours will know that India is chronically underserved by domestic LAB capacity and so this addition is long overdue.

This is gratuitous but - hey I'll take it where I can get it on this fact and data rich blog...

That’s for the news – Wow -  a lot right?

So – Easter: I first experienced Passover in the US in the mid 80's and have done so regularly ever since. It's a necessary complement to Easter for obvious reasons with its message of deliverance and freedom. My earliest memories of Easter do honestly involve those buttons eggs pictured at the top of the blog. As time passed, I got to appreciate the transcendent nature of the holiday as it focuses every single year on rebirth. But it was only through the Passover story that the whole sense of Easter came into sharp focus - as I think it probably did for a handful of folks a couple of thousand years ago, when they attended that, now famous, Passover seder in the upper room.

Hmm.. serious, albeit optimistic, stuff. So let's end on a lighter note. Many of you  contacted me after last month's Ritchie Blackmore references, asking if there might be another Ritchie riff that I thought worthy of note. Actually that's not strictly, or even partially true. However,  here's a tremendous blues song from the same Rainbow live album as last month, with a lush opening and a heart-stopping vocal performance from Ronnie James Dio. Please enjoy this as irresponsibly as you like.  The fun starts at 1:00 with a Blackmore pallette cleanser before the riff is served up for our delectation at 1:37. But still, after almost 50 years, you still can't help noticing those vocals. I know Dio sometimes sounds like the typical American rock singer who shows up one day in a quintessential English rock band. But in this song, man, he has found his home - or made it his home. In my humble opinion of course. What do you think?

OK well, now we're on the subject of riffs that will stand the test of time: Remember this one, from the same era. Kiss - Detroit Rock City.? Say what you like about these dudes in tights and makeup, this is a heck of a show-opener from 1977.

Another meaty riff from a 1981 live version of a 1972 song by BOC.

BOC - Supposedly the American Black Sabbath? Nah..

Did you  know that The Wizard showed up in a recent episode of Peaky Blinders on Netflix? The connection? Birmingham.

That's it for March, guys. Sign up for the conference !! Here.

Surfactants Monthly – February 202

Surfactants Monthly

February 2021

For a short month, February had a lot of news. Of course, the biggest was related to the extreme low temperatures in Texas and surrounding areas and the impact on the chemical industry. Rather than detail it all here – if it affected you directly, you were tracking real-time – I’ll just note 2 things.

First -  S&P’s Platts reported last week something that caught our attention. The extreme weather knocked 75% of all 40 million mt/year of US ethylene capacity offline, including 100% of ethylene capacity in Texas.  The vulnerability of the US Gulf Coast to weather events is not news. Neither is the concentration of a strategically important industry in this area. Reminders come around every so many years, usually in the form of Hurricanes, including recently Katrina / Rita in 2005, Ike in 2008 and Harvey in 2017. There’s an admonition about having too many really important things in one place – erm.. something about eggs. Well, those strategically important chemical eggs are all crammed into a very fragile, weather-beaten basket and, among other things, it’s a national security risk.

Second – for the real nitty gritty useful detail, you gotta go to ICIS (of course). Check this out – a very cool data-fuelled graphic. I hope it works with your browser.

Hey one more thing before the news: The surfactants conferences are back for 2021. Register Here. World Surfactants starts on 25th May. Demand is likely to be very high.

Now the (non-weather related) news:

First up, I’m usually very skeptical about distribution announcements, as they rarely signify a major development, but this one may be meaningful in light of new capacity added recently by Sasol and the financial ructions the company has been through. Apparently, according to ICIS,  Univar Solutions will be the primary distributor of Sasol’s alcohol and surfactant products in US and Canada  The agreement includes Sasol’s Alfol alcohols and Alfonic. Novel and Safol surfactants for the homecare and industrial cleaning, personal care, coatings, agriculture, and energy markets.

"This partnership utilises our shared organisational strengths,” said Brian Jurcak, vice president of product marketing management at Univar Solutions. “Sasol's expansive alcohol and surfactant portfolio fits well with our vertical market focused approach.”

"Univar Solutions' warehousing, distribution, logistics network, and digital marketplace leadership will enable Sasol to enhance our customer service and help meet our sustainability goals," said Victoria Stolarski, Sasol's director of marketing and sales, global alcohols and US surfactants. "Through Univar Solutions we will gain packaging and shipping efficiencies that will help us reduce both plastic use and fuel consumption."

Not exactly surfactant related but I found this interesting. Right at the end of January, ICIS reported that  Stepan has acquired INVISTA's aromatic polyester polyol business and associated assets.  The acquired business, with manufacturing sites in Wilmington, North Carolina, and Vlissingen, Netherlands, has global sales of about $100m/year. The acquisition price was not disclosed.  The acquisition expands Stepan’s manufacturing capability in the US and Europe, supporting growth of its global rigid polyol business, CEO Quinn Stepan said in a statement on Friday (29 January). Nice add-on and very much in character for Stepan’s M&A strategy

Stepan  continues buying stuff in the following news, from ICIS: Stepan has acquired a fermentation plant in Lake Providence, Louisiana, to support its bio-surfactants business, for an undisclosed sum.  With additional investment, the company expects to be able to produce 20,000 tonnes/year of bio-surfactants at the site.  The deal comes after Stepan in March 2020 acquired NATSURFACT, a rhamnolipid-based line of bio-surfactants derived from renewable sources.  "The acquisition of an industrial scale fermentation plant represents the latest step in our bio-surfactant commercialisation efforts,” Quinn Stepan, CEO of the US-based producer of specialty and intermediate chemicals, said in a statement late on Tuesday.  Fermentation is a new platform technology for the company as it looks to commercialize the next generation surfactants.  “Bio-surfactants, produced via fermentation, are attractive due to their favourable biodegradability, low toxicity, and in some cases, unique antimicrobial properties," Quinn Stepan said. So – this, in my view is great to see. A solid, not betting the company move, to provide capacity for the Logos technology as the business grows. Excellent. Now, it doesn't say anywhere, but I’m wondering if this is the old Myriant plant – same town in LA. That was built to make succinic acid but the process is fermentation. If so – wow! That thing was pretty nice and cost about $80Million to build, most of which was covered by the DOE and DOA – ie, you.. and me. But look, if this is that plant then I am happy that a sensible company now has it and will no doubt put it to good use. And I’m sure that Stepan paid nothing close to a fraction of the original sum. Good for them.  I’m pretty excited to see the output. Yeah that’s right, sounds like cheerleading for biosurfactants. So..?

Meanwhile, on the alcohol beat aroud the beginng of the month, the great Lucas Hall reports that  US fatty alcohols spot prices remain elevated despite downtrend in Asia: Buyers that did not contract their typical quarterly volumes amid the bullishiness in feedstock costs in Q4 continue to pay a premium for spot volumes, despite the recent downward correction in palm kernel costs (PKO) in recent weeks.  Although PKO costs have stabilised and the southeast Asian markets have entered a lull before the upcoming Lunar New Year holiday, spot prices remain above contract levels as sellers work through higher priced feedstock inventory against the backdrop of record high freight costs, tight shipping equipment availability and rebounding-to-strong demand across most end sectors. Mass balance premiums continue to face pressure from tight shipping availability made worse by the recent US ban on palm oil imports from the world's largest palm oil producer by land size - Sime Darby.

Feedstock markets remain volatile, however, with crude palm oil (CPO) costs increasing and palm kernel oil (PKO) costs decreasing week on week.

All prices are on a per tonne basis.

Sasol will remain on force majeure for linear alcohols and ethoxylates at its Lake Charles Chemical Complex (LCCC) in Louisiana through February, confirmed the company, following a hurricane-related outage in 2020. The plant restarted in late October.  US spot prices remain above $1/lb ex-tank for mid-cut and C16-18 alcohols despite lower prices in southeast Asia amid continued high freight costs and stable-to-strong demand in most core end markets.  Mass balance premiums have been heard in a range of 6 cents/lb or higher over non-certified material. Tight vessel availability has I ncreased demand for domestic volumes among synthetic producers, maintaining pressure on the market.

In Europe’s alcohols market, Samantha Wright reports that Second-quarter discussions for European fatty acids and fatty alcohols have been halted by unclear expectations for availability in the next quarter.  In the fatty acids market, most producers are not confirming supply levels for either palm or tallow for the second quarter. Expectations are that availability will become clear by mid-February.

Negotiations are likely to re-start after that point.  Oleic acid is facing the most tightness, with palm and tallow supply limited.  Palm-derived shortages are caused by vessel delays from Asia, which have been further compounded by sharply rising freight costs in January.  Tallow tightness is due to an increase in tallow biodiesel demand coupled with a lack of tallow production amid restaurant closures across Europe.  Tallow stearic supply is also limited, while the palm stearic market is more balanced.

Fatty alcohols buyers are stalling discussions with the hope that supply levels will increase and take some pressure off the market.  There is tightness in the first quarter amid the container vessel delays from Asia, but the market is likely to balance out once delayed vessels arrive in the region.  Currently if players want material in the first quarter it is limited but the market is looking balanced for the second quarter.

Demand remains healthy, especially given production issues with ethylene oxide (EO). EO and fatty alcohols are used together in the production of alcohol ethoxylates.

The problems have caused tightness in the downstream ethoxylates market, which has in turn boosted buying interest for fatty alcohols.

 In Asia’s Alcohols Market – the market is seeing increasing spot interest from China, following the return of market players from the week-long Lunar New Year holidays.

Chinese market players sought to restock and replenish their dwindling fatty alcohols inventories, after holding back from purchases prior to the Lunar New Year holidays, market sources said.  The Chinese market was closed 11-17 February for the Lunar New Year holidays.  “There are more enquiries for C12-14 alcohol blends from China buyers as they are now back from their holidays,” a regional producer said.

Spot prices of C12-14 blend fatty alcohol were stable to firm week on week at $1,950-2,150/tonne FOB (free on board) southeast (SE) Asia on 17 February, ICIS data showed.

Soaring freight costs had bolstered the selling indications of many fatty alcohols, as suppliers and customers face dwindling vessel space.  “Freight costs have doubled or even tripled in some cases due to the tight vessel space, and this is exerting upward pressure on fatty alcohol prices,” a separate supplier said.  Single-cut C10 alcohol saw prices rising by $50/tonne week on week to $2,500-2,650/tonne FOB SE Asia on 17 February, ICIS data showed.  “C10 alcohol supply is tight and we are seeing strong demand from the US for the construction segment, with April shipment sold at $2,630/tonne FOB SE Asia,” another regional producer said.

At the other end of the surfactant molecule: US January ethylene oxide (EO) contracts settled at a six-year high, in line with same-month feedstock ethylene contracts.  ICIS assesses EO at an increase from the previous month of 5.2 cents/lb ($115/tonne) FOB (free on board), at 59.2-68.7 cents/lb.  US January feedstock ethylene contracts settled 6.5 cents/lb higher from December, amid limited supply and strong derivative demand.

The majority of EO contracts are formula-based, and price movement comprises 80% of the change in the ethylene price and an additional conversion fee, or adder.  As you know, like ethylene, EO contracts are settled at the beginning of the month for the previous month’s price.

And in ethoxylates news from Asia: ICS notes that Asia’s fatty alcohol ethoxylates (FAE) market is seeing upward pressure due to rising feedstock costs and bullish market sentiment following the return of Chinese players from the Lunar New Year holidays.  Selling indications for March shipments are likely to rise further due to the continued erosion in margins from cost pressures, demand, and supply concerns, market sources said.  “The feedstock fatty alcohol prices and ethylene oxide prices have gone up significantly. We have no choice but to increase our offers as our margins have been severely eroded,” a regional FAE producer said.  Restocking activities by Chinese players post-Lunar New Year holiday have added upward pressure on prices, market sources said.  The Chinese market was closed from 11-17 February for the festive holiday.  On 25 February, FAE spot prices rose by $75/tonne week-on-week to $1,570/tonne CIF (cost, freight and insurance) China for drummed material, ICIS data showed.

Supply concerns due to the ripple effect from an unexpected polar storm, which has crippled production in Texas, a major petrochemical production hub in the US, are also expected to add upward pressure.  Crackers, refineries, plants and factories shut down in Texas due to the unprecedented cold snap, disrupting supply and impacting the global trade flow.  Clariant, Indorama, Oxiteno and Sasol were some of the plants in the surfactants business that shut in the US due to the cold snap.  “The winter storm was unprecedented in the US, and the supply disruption may prompt some producers in Asia to divert their supplies to the US,” a regional producer said.  “All the commodity prices in China are rising due to the bullish sentiment as well as supply disruptions from the winter storm in Texas,” a trader said.  Upstream Chinese domestic ethylene oxide prices hit Chinese yuan (CNY) 7,600/tonne ex-tank east China on 25 February, up from CNY6,800/tonne ex-tank on 19 February, ICIS data showed.  Meanwhile, feedstock fatty alcohol C12-14 blends rose to $2,075/tonne FOB (free on board) southeast Asia on 25 February, up from $2,025/tonne FOB SE Asia on 3 February, ICIS data showed.

We don't talk much about silicone surfactants here, but mid-month, Evonik provided a statement on their line of these products and so we give it you here. : Evonik has improved the sustainability of its entire European silicone surfactants portfolio. The materials, used as stabiliser additives for polyurethane (PU) applications, now include only low cyclics or low volatile organic compounds (VOC).  All products in this portfolio are either compliant with or have surpassed the standard safety requirements.  Of Evonik’s globally available surfactants, most contain levels below the required 0.1% for each cyclic siloxane species found in finished PU foam products.

Cyclic siloxanes are necessary building block-materials for siloxane polymers which are used as silicone surfactants in the PU foam industry.  Finished PU foam products are used across the construction, automotive and appliance industries and promote energy efficiency in insulation applications.  Evonik started to minimise cyclic siloxane content in its silicone surfactants in 2003.  VOCs are gases emitted from solids or liquids, and are heavily regulated due to the potentially hazardous impact on the environment or human health. // OK so there you have it. You may be familiar the rush to find silicone alternatives in cosmetics but the matter does impact surfactants, in a small way, also.

In news from Brazil.:  Surfactants producer Oxiteno reported  a Q4 operating profit versus a loss during the same time in 2019 because sales rose faster than costs.

The following shows the financial performance of the company.

Figures are in millions of reais (R).

ource: Ultrapar

Sales rose because of higher volumes and a weaker real, said Ultrapar, the parent company of Oxiteno.

The following tables break down Oxiteno's sales volumes. The first is organised by type of product. The second is by the destination of the volumes. Figures in both tables are in thousands of tonnes.

Source: Ultrapar

Specialty volumes rose because of increased demand in segments for agriculture, coatings and the home and personal care. Sales also rose in the US, where the company has a plant.

Source: Ultrapar

Meanwhile, cost of sales rose because of the devaluation of the Brazil's domestic currency and higher sales.  Looking ahead, Oxiteno expects to report R800m-1,100m ($148m-203m) in 2021 adjusted earnings before interest, tax, depreciation and amortisation (EBITDA). That compares with R784.9m in 2020.  Ultrapar also owns fuel distributors Ipiranga and Ultragaz, liquid bulk storage firm Ultracargo and drugstore chain Extrafarma. As we have reported here, Ulltrapar has announced its intention to divest Oxiteno.

Interesting news from Lonza The company has entered into a definitive agreement with Bain Capital and Cinven to acquire Lonza’s Specialty Ingredients business and operations for an enterprise value of CHF 4.2 billion. Lonza’s Specialty Ingredients business operates across 17 manufacturing sites globally and has approximately 2,800 permanent employees. The business is a leading provider of microbial control solutions for Professional Hygiene and Personal Care products. It also offers the custom development and manufacturing of specialty chemicals and composites to support the electronics, aerospace, food and agrochemical industries. The transaction is expected to close in H2 2021, subject to customary closing conditions.  BofA Securities and UBS are acting as joint financial advisors to Lonza. Surfactants folks will know that Lonza has a surfactants business based out of Willamport, PA, supplying eithoxylates to the food industry, among others. It never seemed core to Lonza overall and this split confirms that impression. But will the Williamsport business be core to the new PE owned specialties business? Well, it’s more core now than it was but let’s see.

And finally (in the news section) from the recent edition of Mining Weekly (yes that’s right) an old friend of the blog was quoted as saying that Sasol would no longer need to raise cash through a rights issue. Here’s the article. :

Chemicals and energy group Sasol confirmed that it would no longer pursue a rights issue in light of progress made, through assets sales and cost savings, to shore up its debt-laden balance sheet. In a recorded results presentation, president and CEO Fleetwood Grobler said that the decision not to implement a rights issues, which had been capped at a possible $2-billion, was made after securing $3.3-billion from asset disposals since March last year.
He indicated that further asset disposals were being pursued, including the sale of its stake in the Rompco gas pipeline from Mozambique to South Africa, which should lift the value of disposals to $3.8-billion by December 2021.

Thereafter, proceeds from asset sales should fall sharply.

Grobler said the group was also on track to delivered a further $1-billion in permanent cost savings during its 2021 financial year, having already reported savings of $1-billion in 2020.

“This significant progress, together with a more encouraging macroeconomic outlook has mitigated the need for us to do a rights issue,” Grobler announced.

At December 31, Sasol’s total debt had fallen to R126.3-billion compared with R189.7-billion as at June 30, with proceeds from asset sales used to repay the US dollar syndicated loan, as well as a portion of a revolving credit facility. These action reduced Sasol’s US dollar denominated debt by $2-billion to $8.2-billion.

Gearing decreased from 114.5% at June 30, 2020 to 76% at the end of December 2020. Speaking against the backdrop of a strong recovery in the group’s financial results, with earnings increasing by more than 100% to R15.3-billion from R4.5-billion in the prior period, Grobler asserted that Sasol “had turned that corner” and that its current focus was, thus, on delivering on its ‘Sasol 2.0’ strategy. The JSE-listed group was deploying the strategy to streamline operations and make its chemicals and energy units less reliant on a recovery in chemicals and oil prices. Good for them.

So – that’s it for (the news in) the short month.

Just a short coda to the month – not related to anything really. I’ve been mining the back-catalogue of Deep Purple recently. Check this out – the opening track to Live in Japan – recorded in 1972. One of the many things I like about it as an opening song to a live show is that it’s keyboard led – that is the intro is led by Jon Lord's Hammond organ and the first solo is actually a keyboard solo at 2:14. We don't get to hear the inevitable Ritchie Blackmore indulgence (in a good way) until 4:18. It’s worth waiting for though. Wow. Thing is that Richie on a good night was incredible – and on a bad night, well…. . But this was a good night.

Were any of our Japanese readers there that night? If so, get in touch and tell us what it was like.

One good night, at which I was present: He’d left Deep Purple by then. But listen to this monstrous riff that opens Greensleeves, live in 1976. Just ignore the rather cheesy intro by RJ Dio and take in that opening riff at 2:34. Look, yeah, it’s not Bach or Mozart, but I have a sense that gargantuan riff and those solos woven through the piece will last for a while.

Here’s one more thought: Go back to about 2:18 in the song above, the quiet guitar part just before the titanic riff. Does it remind of you of anything ? Maybe it’s just me, but it immediately takes me back to the first 2 minutes of this great classic….

From 1977, so .. maybe..

OK, OK  - so now we’re on Rush. This is what the perfect expression of guitar/bass/drums sounds like. You should know this  - live in Cleveland in 2012..

That’s it. Beautiful.

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Surfactants Monthly – January 2021

Surfactants Monthly – January 2021

Well, it was a bit different to last January, eh? No meetings in Orlando and that nice mid-winter golf outing on the Sunday. But look, most of us are working, getting a nice salary and not facing foreclosure, eviction and bankruptcy unlike folks in some industries.  Something here for you to look forward to: Our upcoming slate of surfactants conferences for ’21 – still online.  We have i) World on 25 – 27th May and ii) EU/Asia on 9 – 10th November. Go to the site for more information . We also have the training courses starting March 9th.  Right now, we are not taking registrations, but you can “register interest” here . So you might want to do that. I want to  highlight particularly the awards. We are re-launching and refurbishing these as they are becoming a hugely popular feature.

By the way, if you want to see what I looked like without a haircut in the first US lockdown in 2020 see the video I recorded to outline our training courses. If you’d rather not, you can get all the key information on the site, without, thankfully, having to see the video.

This first piece of news just missed the cut-off for last month and so my apologies if it is already old for you : According to ICIS, Solvay will sell its North American and European amphoteric surfactant business to OpenGate Capital, a private equity firm based in Los Angeles, California.  “This agreement represents another critical step in the execution of our strategic plan as we further focus our home and personal care portfolio on growing specialty formulations and custom solutions,” said Michael Radossich, president of Solvay's Novecare global business unit.  The Belgian chemical company said the sale includes three main production sites supporting the amphoteric products lines located in University Park, Illinois, Genthin, in Germany, and in Halifax, UK, along with a tolling business in Turkey.  The agreement includes tolling and service agreements between Solvay and OpenGate to ensure a seamless transition and minimal customer disruption. Solvay expects to close the sale by the end of March, pending completion of required regulatory approvals.  The financial terms of the contract were not disclosed by the company.

Here’s a bit more to consider. This is basically Solvay selling the McIntyre business that they acquired back in 2009 (I recall it well). I recall particularly that McIntyre was a pretty nice specialties business at the time. No real sense of how it has progressed over the last 12 years. Heading up the new independent business will be John  Foley, familiar to many as having headed up North American Novecare for Solvay before a stint as CEO of KMCO. I know nothing about Opengate. From the website, they look like a fairly typical mid-market PE. I can only speculate that there would have been some competition for this asset – especially among established industry participants or those in adjacent spaces. It was probably a competitive bid and so congrats to Opengate for winning this one. Let’s see if they can restore some of the former glory. First order of business – what’s the new name.  Send me your suggestions and I’ll publish them in next month’s blog. Here’s one to get you started: McIntyre Chemical.

In European Fatty Alcohols – Samantha Wright of ICIS wrote at the beginning of the month: European fatty alcohols supply is likely to remain balanced through 2021 as there were no production issues in the region at the end of 2020.  Availability will depend on feedstock supply, with the palm oil markets expected to see some tightness heading towards 2021. Adverse weather conditions in Asia coupled with a disruption to the supply chain caused by the coronavirus have significantly reduced palm oil harvests Upstream palm kernel oil (PKO) availability has been less impacted than crude palm oil (CPO) stocks as there was previous length in the PKO market -although the sharp rise in CPO prices has pushed up PKO values as well.  If securing palm material in the first quarter remains difficult this could impact PKO supply if inventories are depleted. Downstream surfactants demand is likely to remain stable in the first half of 2021. There was a slight boost in buying interest at the beginning of the pandemic as detergent application use increased, but demand has been relatively steady for most of 2020.

There is no reason to believe that buying interest will not remain at current levels heading into the first quarter [ says Samantha – interesting]. Some players are concerned that production margins for surfactants could be squeezed next year following recent price gains in PKO.

Toward the end of the month, Samantha went on to report that European fatty alcohols first-quarter contracts have been agreed at triple-digit increases amid recent hikes in feedstock palm kernel oil (PKO) costs.  PKO values have almost doubled since the end of September, steadily rising from around $750/tonne at the time to $1,366/tonne last week, both prices on a delivered (DEL) Malaysia basis, according to trading house Matthes and Porton.  Tightness arose in the market at the end of the fourth quarter amid the global container shipping shortages.

This has continued into the first quarter, and limited availability is likely to continue through the quarter and possibly into the second quarter dependent on how long it takes to catch up with delayed orders.  Demand is healthy from the downstream alcohol ethoxylates market, though ongoing force majeures in the ethylene oxide (EO) market are halting orders in some cases. This is balancing out the fatty alcohols market slightly amid limited material; however, when EO players return to the market and alcohol ethoxylates demand increases, tightness could reappear.

Continuing with the Fatty Alcohol beat in the US, Lucas Hall writes in ICIS: US Q1 fatty alcohols contracts have largely been finalised, with freely negotiated settlements having largely emerged at an increase from Q4 amid bullish feedstock costs, record freight costs and higher delivery costs against the backdrop of stable-to-strong demand. The Q1 quarterly assessment will be made next week. Mid-cut alcohols faced more significant upward pressure than C16-18 alcohols, amid expectations of continued   strong demand across the core personal care sector throughout the pandemic in 2021. C16-18 prices posted smaller increases amid expectations of a slower, more uneven demand recovery across industrial end segments in 2021.

Overall bullish feedstock costs across the oil palm complex continue to put pressure on the wider market. Bullish feedstock costs are squeezing production margins amid uneven downstream demand in southeast Asia, weighing on production. Limited inventory space is also weighing on production amid tight vessel availability in the region.  Mass balance material remains tight from the summer, sustaining upward pressure on premiums. The US ban on palm oil imports from Malaysian producer Sime Darby is expected to further tighten mass balance markets, adding to the pressure. Sime Darby is the largest palm oil producer by land size.

Sasol remains on force majeure for linear alcohols and ethoxylates at its US Lake Charles, Louisiana, Chemical Complex (LCCC)  following a hurricane-related outage in 2020. The plant restarted in late October.  Q1 contracts have largely emerged at an increase from Q4.  Prices for mid-cut alcohols have been heard in the low-80 to mid-90 cents/lb DEL (delivered) USG (US Gulf) range.

Prices for C16-18 alcohols have been heard in the low-80 to upper-90 cents/lb DEL USG range.  C16 supply from southeast Asia is tight, driving a premium for volumes with higher C16 content over C18.

Prices for mass balance premiums have been heard around 4-6 cents/lb, with premiums holding more firmly at the 6 cents/lb range. The sharp increase in offers prompted some demand destruction for Q1 volumes. Some buyers adopted a wait-and-see approach as a result, buying less volumes or spreading their volumes across multiple producers in order to mitigate exposure to the countervailing cost pressures. However, continued bullishness in feedstock markets on top of lengthening lead times continues to put pressure on the market, with spot prices being heard above $1/lb for product landing in March. Synthetic alcohols prices have been heard mixed amid the ongoing force majeure in the US market.  Demand into Mexico is mixed amid recent [ and continuing] ethylene oxide (EO) disruptions in the country.

Lucas continues his analysis toward the end of the month: Relatively bullish feedstock markets, record high freight costs, and tight shipping equipment availability continue to maintain pressure on US fatty alcohols markets against the backdrop of stable-to-strong demand across the core cleaning sector and rebounding demand across most other downstream sectors from the onset of the coronavirus pandemic last year.  Although feedstock costs across the oil palm complex have entered a downward correction in recent weeks amid decreased demand ahead of the Lunar New Year holiday, record high freight costs from Asia to the rest of the world and tight shipping equipment availability continue to pressure the wider market.

Meanwhile, the news for fatty alcohols’ companion building block, ethylene oxide is reported for the US as follows: US December ethylene oxide (EO) contract prices settled at an increase, following the same-month feedstock ethylene contract.  ICIS assesses US prices higher by 1.8 cents/lb ($40/tonne), at 54.0-63.5 cents/lb FOB (free on board).  This represents the highest level since October 2018.

It seems we can’t avoid news out of Brazil here at the blog. Around mid-Jan, ICIS reported that Ultrapar (soon to be former owner of Oxiteno) announced it suffered a cyberattack and as a result interrupted the operation of some of its systems, the Brazilian conglomerate said on Tuesday.  The company said that the interruption was a precaution, and it is partially impacting the operations of its subsidiaries.  This is the second major Brazilian company to report a cyberattack in the span of months. Braskem reported a cyberattack in October 2020.  Ultrapar is currently operating in contingency mode while it evaluates the extent of the incident, the company said. Ultrapar, as you know, is the owner (for now) of Oxiteno. By the way, other companies in our larger industry have had major hacking problems. Symrise was hit by a ransomware attack in December which impacted operations globally. Gotta be careful, dear reader. One of my colleagues had his email hacked and was sending weird enough emails to us that we noticed – but only more or less by chance.

Still in Brazil – The great Al Greenwood of ICIS reports  - Petrobras plans to sell eight of its refineries by the end of April. Earlier, Petrobras had planned on signing purchase and sales contracts for the refineries at the end of 2020. It amended the deadline, which was approved by Brazil's antitrust regulator (CADE).

The following shows the eight refineries that Petrobras wants to sell.

Source: Petrobras

The eighth refinery, SIX, is in Sao Mateus do Sul, Parana.

LUBNOR's capacity includes 2,000 bbl/day of naphthenic base oil.

Petrobras has received binding offers for LUBNOR, REMAN and the SIX unit.

Back in December, Petrobras said it was seeking final offers for RLAM. It had started talks with Mubadala to sell the refinery in July.  Those talks had finished, and the final offers will be based on the negotiated versions of the contracts with Mubadala, Petrobras said in December. It expects to receive the final offers in January.  On 10 December, Petrobras said it expected to receive binding proposals for REFAP in Rio Grande do Sul state and REPAR in Parana state.  One of the bidders for REPAR is Ultrapar, a Brazilian conglomerate that owns the fuel retailer Ipiranga and is still, but not for long, the owner of Oxiteno. Other bids came from a consortium led by Raizen and China Petroleum & Chemical Corp (Sinopec).  In the first quarter of 2021, Petrobras should receive binding proposals for RNEST in Pernambuco state and REGAP in Minas Gerais. Interesting right? -  that Ultrapar should view Oxiteno's surfactants as a sell and a refinery as a buy. Think about that..Ultrapar considers themselves smart financial players. I do also. In their view, then, perhaps they see peak surfacant valuation coupled an opportunty to buy into refining at a lower than average valuation. What do you think?

Finally two great pieces of investment and expansion news from some good friends of the blog.

First up – from Libra Chemicals in the UK, as announced on their website:

"Libra Speciality Chemicals are delighted to announce that we have cut ground on our latest multi-million-pound capital investment programme in Irlam, UK, continuing our commitment to the future of the UK chemical industry.

Following on from the construction of our industry-leading betaine plant in 2019, we are now:

• Installing new technology to produce novel low salt betaines.

• Expanding the betaine plant capacity from 32ktpa to 50ktpa to meet demand.

Low Salt Betaines

With the rapidly increasing shift away from sulphates, our customers are seeking to formulate handwash, body wash and hair care products with alternative surfactants that give better efficacy. Sulphates, such as SLES, are increasingly suffering from negative press and increasing legislation concerned with residual levels of 1,4 dioxane, ethylene oxide and also sulphate. There are also other reasons why formulators want to move away from SLES – it is a skin sensitiser, it can cause the skin to become dry, it can strip out oils in the hair leaving it dry and damaged and it can affect dyed hair.

Betaines are well known for excellent detergency and foam boosting properties and do not suffer from the problems listed for SLES. However, standard betaines contain ~6% salt, which causes major issues with viscosity control in formulations, limiting the inclusion levels to ~2%.

Libra’s new technology will produce betaines with ultra-low salt levels, typically 0.5% salt (but can even be 0.05%), giving formulators great freedom to include betaines at 10 -12%, offering the opportunity to make fantastic new products for the coming years.

Capital Investment

This project will include:

• An additional 40,000-litre reactor to make the betaine CAPA intermediate (cocamidopropylamine).

• An additional 60,000-litre reactor to make the finished betaine products.

• A new high-capacity tank farm, adding an additional 865,000 litres of storage for products, and weighbridge complex dedicated to our betaine plant.

• A complex system of plant to desalt the betaines to produce an exciting new range of low salt betaines available for formulators."

Next up Colonial Chemicals – a long-established private company, making waves recently. I’ve been impressed with some of the new products and initiatives of recent years.  Here form their website on January 20th.

"Colonial Chemical, Inc. is pleased announce the start of construction of a new specialty chemicals manufacturing plant in Dammam, Saudi Arabia. The new facility is named Colonial Chemical M.E. Arabia. This facility is a joint venture with Sadeem Investments and Earth’s Reservoir for Oil and Gas, EROG. Colonial Chemical, Inc. is providing the technology and operations knowledge for the plant while Sadeem Investments and EROG are responsible for local operational oversight and construction support. The Board of Directors overseeing the joint venture is headed by David Anderson, Colonial Chemical, Inc. President, as the Chairman. Mohammed Abduldaim, EROG President, is the Vice-Chairman, and other members include Dr. Peter Chetcuti, David Anderson Jr and Douglas Wynn.

This operation will primarily provide a source of locally manufactured specialty surfactants and other chemicals for oilfield, industrial lubricants, water treatment, paper, paints, coatings, personal care, household, and industrial cleaning applications. The new plant will offer manufacturing technology capabilities for a variety of chemicals as well as toll blending capability for finished formulations and custom chemical manufacture. The plant will allow customers in Saudi Arabia and the region to achieve high local content levels required by localization initiatives such as IKTVA, NUSANED and NIDLP.

Construction is underway on a nine-acre plant that will include reaction vessels, distillation columns, toll blending and mixing vessels, pilot scale equipment for development, warehousing and tank farms. Additionally, construction will include state-of-the-art laboratories for R&D and formulation development and administrative offices for supply chain and customer service personnel. The plant will also house packaging and labeling operations.

Manufacturing operations are expected to commence in Q4 2021. Raw materials will be sourced locally to produce amine oxides, quaternary ammonium compounds, hydroxypropyl sultaines, betaines, propionates, ether carboxylates, imidazolines, phosphate esters, EPI-sulfonates, and phosphates.

“Colonial Chemical has long been a significant provider for oil field service companies as well as products for personal care, household, and industrial cleaning applications in the U.S. The new operation in Dammam will take advantage of local sourcing throughout the value chain and position Colonial Chemical, M.E. Arabia as a preferential source of product and services for customers in that region,” said David Anderson, President, Colonial Chemical, Inc. “Along with shorter lead times, Colonial Chemical M.E. Arabia will also offer the benefit of toll blending and manufacturing which is a highly desirable function in this market. We have built mutually beneficial relationships in the past few years with our local investors in this new operation and are all excited to see our plans move forward.”

Colonial Chemical, Inc. is a privately held manufacturer of market-leading specialty surfactants with a focus on developing safe and innovative ingredients for modern formulary. The company supplies high quality products to the personal care, household, oil & gas, and industrial lubrication marketplace. Colonial Chemical serves North America and over 50 countries internationally. Learn more at www.colonialchem.com."

And then more recently from Colonial some management changes assuring a continuation of the business under current ownership and control – nice to read..

“Colonial Chemical, Inc. is pleased to announce two new promotions at the company. Effective January 25th, David Anderson, Jr. will be promoted to the position of President. In his new role, David will assume responsibility for the total operation of Colonial Chemical, Inc. and to lead in the company’s strategic goals and future expansion.

David Jr. joined Colonial Chemical in December 2009 as Northeast Territory Manager, the first full-time salesperson for the company. He has progressed through the positions of Sales Manager and Vice President of Sales and Marketing. David Jr. has a Bachelor of Science degree from Georgetown University and a Master of Arts degree from Yale University. Prior to Colonial, his previous position was four years with Robert Walters in Tokyo, Japan as a Technical Recruiter and Manager of the IT Sales & Marketing Recruitment Team.

David Anderson, Sr., the company founder, has been named to the position of Chairman. Mr. Anderson, Sr. has been with the company for 33 years and working on his 49th year in the surfactant industry. As Chairman, his primary role will be to lend his experience, knowledge and expertise to coach and consult with the management team and ensure Colonial continues to grow and be successful. Mr. Anderson, Sr. will also be active in the startup and development of the newly announced Colonial Chemical M.E. Arabia.

“David Jr. has one of the strongest work ethics and overall skillsets in this industry, and a great deal of the growth of the company in the past few years rests on his shoulders,” says David Anderson, Sr. “Since joining us full-time in 2009, he’s been a tremendous asset to our organization, and we’re confident that under his leadership, he’ll continue to guide us to even greater success in this expanded role.”

“Colonial intends to remain a privately-owned, family company – free of outside investment for many years to come,” stated Anderson. “We continue to believe that a stable ownership structure benefits our customers, our employees, and our suppliers the most.”"

That’s it for this month’s news. Please get ready to participate in our next digital event and please do think carefully about your awards nominations.

Let me finish with this:

Think about how fragile our civilization here, that we’re enjoying right now, is. I’m talking more about the COVID impact than any other event in the news, but pick your societal pressure. History is replete with great civilizations that succumbed to plagues, military defeat, social collapse or a combination of all three and more. Most readers (not all) of this blog are in places where standards of living are historically high and human rights are pretty much taken for granted. Don't though. Don't take any of it for granted. If you look at the fate of historical cities like Babylon or Tenochtitlan, you’ll see no civilization lasts forever. This one won’t either, if past trends continue, but there’s no need to hasten the end or make it more painful than its needs to be. What to do? Simple to say and hard to do. Restrict evil and pursue truth. Not rocket science right but hard nonetheless. The great Aleksandr Solzhenitsyn has  a couple of things to say about these matters. ..

First from the Gulag Archipelago:

“Gradually it was disclosed to me that the line separating good and evil passes not through states, nor between classes, nor between political parties either -- but right through every human heart -- and through all human hearts. This line shifts. Inside us, it oscillates with the years. And even within hearts overwhelmed by evil, one small bridgehead of good is retained. And even in the best of all hearts, there remains ... an unuprooted small corner of evil.  Since then I have come to understand the truth of all the religions of the world: They struggle with the evil inside a human being (inside every human being). It is impossible to expel evil from the world in its entirety, but it is possible to constrict it within each person.”
And this one …..” “The simple step of a courageous individual is not to take part in the lie. "One word of truth outweighs the world.”

Hmm .. we’ve seen this next video already from Akira the Don, but it’s worth another watch – the things that you do and you don't do are far more important than you think…..and you can read the Gulag Archipelago and decide if that’s a place you’d like to visit… because that’s what happened in the 20th Century.

We have this thing in the west, Freedom, that has brought incredible prosperity, safety and fulfillment. What is it though. What is Freedom? Here’s one perspective. It may not be yours, but worth a listen ..

Wow – that was quite serious, wasn't it? How about we end on more of a feel-good note – still with a message though..

December 2020 – Monthly Review

December 2020 – Monthly Surfactants Review

Happy New Year, my dear readers and thanks for all your great comments and expressions of support over the past year. Every time, someone tells me they read these blogs, I get a bit of a chill. It’s excitement mingled with some pride, obviously but also a bit of nervousness. If folks are really reading this stuff, it had better be good – or at the very least, not boring. The one commandment I have for our blog here is “above all, do not be boring”. If this ever happens, please do let me know, won’t you?

A great clutch of news items this month. As always, most of the news is provided courtesy of my good friends at ICIS. I get no recompense from them for promoting their service, but, as you know, we produce a series of conferences together. In any case, if you like what you read here or experience at the conferences, you should subscribe to their stuff. Fair enough?

Spoiler alert: The end of the blog contains what I believe to the biggest news of the month, if not the year – out of Brazil. It’s not too surprising though..read on..

But first up – Lucas Hall reports from the Alcohol beat. As of mid-month, US Q1 fatty alcohols contract negotiations are ongoing, with freely-negotiated settlements largely emerging at an increase from Q4, tracking bullish feedstock costs and record freight costs against the backdrop of stable-to-strong demand. Mid-cut prices face major upward pressure compared to C16-18 prices.  C16 supply from southeast Asia is tight, while C18 supply is ample amid weak demand.

Feedstock costs across the oil palm complex were mostly stable but remain overall bullish, maintaining pressure on the wider market. Freight costs remain at record highs amid tight vessel availability and strong shipping demand in the US.  Mass balance material remains tight from the summer, sustaining upward pressure on premiums.

Demand across the core personal care sector is stable to strong, depending on the end product. Demand in other end segments is largely rebounding but overall uneven.  Sasol remains on force majeure for linear alcohols and ethoxylates at its US Lake Charles, Louisiana, Chemical Complex (LCCC)  into December following a hurricane-related outage earlier in the year. The plant restarted in late October.

Prices for mid-cut alcohols have been heard in the low-80 to mid-90 cent/lb DEL (delivered) USG (US Gulf) range.  Prices for C16-18 alcohols have been heard in the upper-70 to upper-90 cent/lb DEL USG range. Volumes with higher concentrations of C16 were at the higher end of the range because of the tight supply environment.  Prices for mass balance premiums have been heard around 5 cents/lb.

The sharp increase in offers has prompted some buyers to adopt a wait-and-see approach, buy less volumes or spread their volumes across multiple producers in order to mitigate their exposure to the countervailing cost pressures.  Some sellers are unwilling to offers volumes unless they account for the feedstock and freight cost increases.  Synthetic (petrochemical) alcohols prices have been heard mixed amid the ongoing force majeure in the US market.  Demand into Mexico is mixed amid ongoing ethylene oxide (EO) disruptions in the country. [this, by the way, is not an unusual situation].

Attendees at my surfactants business essentials course will know that BASF regularly evaluates its portfolio of surfactants businesses and cast a critical eye on the resources that it allocates to its various business segments. It should come as no surprise, then that the company announced that it would sell its Kankakee, IL, manufacturing site to private equity buyer One Rock Equity Partners. BASF had acquired the plant when it purchased Cognis a decade ago.

The company decided to put the site, which produces surfactants and other vegetable oil-based raw materials, up for sale after determining that it no longer fit its core strategy.  The deal is expected to close in the first half of 2021, with the value of the site reported at potentially $250m when rumours first emerged.

The site employs 160 people, and One Rock intends to grow the units into a standalone business, according to managing partner R Scott Spielvogel.  BASF has been moving to rationalise its manufacturing footprint in the surfactants and personal care space, according to care chemicals division head Ralph Schweens.

Surfactant history buffs will already know that the facility was built in 1948. Originally home to General Mills Chemicals, Henkel bought the company in 1978. In 2000 Cognis spun-off from Henkel. BASF acquired Cognis in 2010. The site manufactures more than 200 products used by the Care Chemicals, and Nutrition & Health industries. The products are used as ingredients in soaps, detergents, shampoos, pharmaceuticals, and food additives.

Best of luck to all the folks involved with this business and best of luck to the new owners. It’s no fun being a non-core business in a large company, so I think, ultimately this should be for the best for all concerned. [see our last item in the blog, by the way]. We’ll be looking out for news along the way. From a surfactants point of view, this was BASF’s only sulfonation site in the North America (having recently sold the Mexican business to Stepan). It therefore would have been nice, for industry consolidation, if, for example, Stepan, Pilot or Solvay could have acquired this site. Well, let’s see what happens in the coming years.

Late in the month, Joe Chang wrote an excellent article on M&A in ICIS Chemical Business. There’s a little snippet on surfactants that I will reproduce here: “Flavours and fragrances (F&F), personal care ingredients, as well as paints and coatings, adhesives, water treatment, building products, surfactants and some value-added distribution assets are generally highly sought-after and command relatively high multiples, said Federico Mennella, managing director and co-head of the global chemical and materials practice at Rothschild & Co.”  Good to know.  Again – see our last section of the blog.

From Europe: Some good analysis on the Ethylene Oxide (EO) market by Melissa Hurley of ICIS. : European ethylene oxide (EO) supply is tight as the year draws to a close and the situation is expected to continue in January 2021.  EO supply has tightened due to production limitations in Europe.  Earlier in December, there was a force majeure declaration at the INEOS Germany plant, which has not been confirmed by the producer. It is unclear if the issues have been resolved for EO or if problems are persisting on downstream monoethylene glycol (MEG) in Germany. Some think the issue will last until the end of the year and unconfirmed reports suggest the plant is expected back on stream sometime in January.

BASF’S Antwerp EO/ethylene glycol (EG) unit was out for maintenance in October and November and had its restart delayed. The outage was not confirmed by the producer.

“EO seems to be very tight in January. We are getting several requests from non-contract customers and also for additional volumes from contract customers”, a supplier added.  Tightness in the upstream ethylene market has been identified as a contributing factor, filtering downstream to the EO market.

Check out this cool graphic – I hope it works for you in your browser – if not – hey why not subscribe to ICIS ?

The European ethylene market is tighter than expected because of ongoing production constraints and healthy demand amid upward cost pressure from feedstock gains. In the Netherlands, there was mention of minor production issues at the Moerdjilk Shell facility after reports of cracker flaring was heard at the start of the week. This has not been officially confirmed.  There is a larger turnaround expected in the second quarter of 2021 at Ludwigshafen, Germany. Once again, this has not been officially confirmed by BASF.

The upstream 2021 cracker turnaround schedule will be bigger than originally expected as some of last year’s turnarounds were postponed in 2020.  Additionally, as new cases of Covid-19 surge, border control has tightened especially in and out of the UK, causing delivery nightmares. “EO deliveries to UK are very uncertain because of the border closures. There is the uncertainty whether drivers can return to mainland,” added a market player.  EO demand has been solid or high for this time of year and it has been a challenge to cover requirements, a buyer added this week.

2021 adder fees stable-to-soft; some talks ongoing: 2021 EO adder fee talks have so far been agreed at roll overs and varied decreases with outstanding agreements expected to be concluded by January. The holiday period will draw market players away from the market temporarily.  The level of decreases are dependent on the length of the contract, volume requirement and starting point. Formulas can also vary in terms of ethylene cost pass through.  In 2020, EO adder fees were lower year on year, mainly driven by the relaxed supply situation and poor downstream demand which characterised 2019.

European EO December contract prices increased on the back of higher ethylene feedstock costs.  The January ethylene contract price is set to emerge soon for a clearer picture of formula-related prices.

Back over in the US, ICIS published some interested data on refinery operations from the EIA. Here’s the screenshot.

Interesting right? Obviously the drop in demand is largely COVID related due to decreased commuting to work. Good? Bad? Indifferent. I’ve enjoyed the lighter traffic up and down the 95 this year, but how much of my enjoyment is on the back of folks who have lost their livelihoods in those industries that relied on people physically showing up in NYC? Hmm.. I don't feel so good about the lovely commute now.

The final news of the year – that is the final thing I write in the blog – even though it hit the ICIS newswire around the middle of the month -  is something that the legendary Al Greenwood reported: The Brazilian conglomerate Ultrapar is considering the possible divestment of surfactants producer Oxiteno. The divestment is among the strategic alternatives it is considering for the company, Ultrapar said. These would fall in line with Ultrapar's growth strategy and allow Oxiteno to continue expanding. Wow – big news but certainly not head-scratching”

Oxiteno is ramping up production at its new surfactants plant in Pasadena, Texas, in the US. As you all know - the company is the sole producer of ethylene oxide (EO) in Brazil. It also makes ethylene glycol.  In addition to Oxiteno, Ultrapar also owns the fuel distributor Ipiranga, which has placed a bid to acquire the Presidente Getulio Vargas refinery (REPAR) in Parana state in southern Brazil.  If Ipiranga's bid is successful, it would be the company's first refinery.  Ultrapar also owns the fuel distributor Ultragaz, liquid bulk storage firm Ultracargo and drugstore chain Extrafarma.

Well, how about that. Here’s a little more background. The company published on it’s website on December 14th , a document that reads in full, as follows:

“São Paulo, December 14, 2020 – Ultrapar Participações S.A. (B3: UGPA3 / NYSE: UGP, “Ultrapar” or “Company”), in order to clarify news published by the press, communicates the following:

• Consistent with the message the Company has been providing to its shareholders and the capital markets, Ultrapar evaluates periodically its portfolio of businesses, in order to maximize the value generation to is shareholders and stakeholders.

• Also aligned with the strategy the Company has been developing and informing the market, the priority in capital allocation for the next years is centered in the existing opportunities in the Oil & Gas value chain in Brazil, where the Company operates with three businesses and has structural competitive advantages.

• Oxiteno was built and has been developed by Ultrapar for more than 40 years and has an outstanding position in Brazil and Latin America, with modern industrial facilities and world-class technology in the chemical industry, a sector that has been going through a restructuring and consolidation process worldwide.

• Therefore, consistent with the growth strategy of Ultrapar and in order to allow the continuous expansion and strengthening of Oxiteno, Ultrapar is evaluating strategic alternatives to this business, which includes potential divestment.

The Company will maintain its shareholders and the market timely informed of any material announcement.”

Interestingly, 4 days prior, Ultrapar published their 2021 invesment plan which looked like this.

It includes the equivalent of USD 53.1M at Oxiteno in logistics optimization to increase productivity. I’m not sure what that means exactly. Perhaps something to do with storage and pipelines? In any case, the owner is saying that their priority for investment in the coming years, is going to be the oil and gas value chain. Therefore they can’t really support the chemicals business in the manner to which it has become accustomed. Time for a new owner that is willing and motivated to do so.

Comment: As readers know, I have a bit of a soft-spot for Oxteno. I spent some time in Brazil and I was present at the birth of Oxiteno USA, back in 2007. Oxiteno is a young company. Literally and in outlook and attitude. It was at my first meeting there in Sao Paulo, that I realised I was the oldest person in the room, by a good few years - for the first time in my career. They are also serious. They study and think about the business they are in - at all levels in the company. You may be surprised how many companies really don't do that.  For over 10 years, Oxiteno has been a big supporter of our conferences and courses providing many speakers and attendees around the world. The company has also provided much great material for our blog. I say this to inform you that my comments here may not  be strictly objective.

So – first off, as I said – this announcement is certainly not hard to understand. Oxiteno has been looking increasingly out-of-place in the Ultrapar portfolio as Ultra continued to invest in oil and gas production and distribution over the last decade or 2. The establishment of a US presence (a 13 year ambitious project which continues today) was a huge achievement for Oxiteno and certainly changed the contour of the business from a purely Latin American one. However, the parent was increasingly doting more on its other children, especially since the elevation of Pedro Wongtchowski, who ran Oxiteno for many years (and had a deep attachment to the business) to the board of Utlrapar in a non-executive role. Having said all that, I am sure this decision was a very emotional one for all involved.

Oxiteno itself was formed by Ultrapar in 1970 under the management of Paulo Cunha. The first plant, making EO, was in Maua, just outside Sao Paulo. History buffs will also recall that 1970 was the year in which Brazil defeated Italy 4-1 in the World Cup in Mexico City, with Pele scoring the first goal. It was Pele’s last world cup for Brazil and the team, with this third win, got to keep the Jules Rimet trophy, as it was then known.

In 1974, Oxiteno’s second plant was opened in Camacari. During he 70’s Oxiteno also formed a joint venture with ICI (as it was then) to produce ethoxylated surfactants. In the 80’s oxiteno bought out ICI’s stake in the JV. The 80’s further saw a new plant in Triunfo and a new R&D center in Maua for Oxiteno. Also in the 80’s (in 7/20/80 if you must know) -  that other great Brazilian institution, Gisele Bundchen, was born  in Horizontina Brazil.

The 2000’s saw a lot of action with the purchase of Canamex in Mexico in 2003, which came with 2 plants (Guadalajara and Coatzacoalcos) and a HQ in Mexico City. That same decade saw expansion into Argentina with a sales office, Venezuala with an ethoxylation plant (purchased from Arch), sulfonation assets in Mexico, purchased from Union Quimica and, in 2007, the incorporation of Oxiteno USA. In 2008, Oxiteno opened their fatty alcohol plant in Camacari – a huge investment. Similarly, for Gisele, the 2000’s saw her international breakthrough. In 2000 alone, she appeared on 37 Vogue covers.

In April 2012, Oxiteno bought its first plant site in the US, from Old World in Pasadena, Texas. The company went on to make massive investments there include a modular alkoxylation system, fabricated off-site in a novel partnership with Thyssen.  The following month, Oxiteno bought American Chemical’s Uruguayan sulfonation assets in Montevideo. That same year, Gisele made 5,600 appearances in commercials in Brazil alone as well as appearing in Banco do Brasil’s first global ad campaign.

So what happens now? Over the years, speculation about a suitor for Oxiteno has been a bit of a parlor game in the industry. SABIC, Reliance, Sasol, Chemchina, BASF, Huntsman and others have been tipped, with varying degrees of seriousness. All would certainly give the company a good look-over if provided the opportunity. Until recently, I would have said Sasol could be a fit. However, their recent stretching on the capital front would seem to put them out of contention. Although, a motivated third party may well see an interesting opportunity to put together the chemicals businesses of the South African and Brazilian parents. SABIC, who through their recent investment in Clariant, is now knee-deep in specialties, would also be a reasonable fit.  The challenge for any acquiror is Brazil itself. An acquisition of Oxiteno is still a bet on Brazil, although less so since the large capacity built in the USA. On paper, a Stepan / Oxiteno combination would be quite logical and Stepan does have solid experience in Latin American. Such a combination, however, would be a bet-the-company move for Stepan, something they have avoided through their almost 90-year history. But – getting Oxiteno onto the NYSE via a combination with Stepan could be quite interesting in terms of unlocking value. Then there are the many SPAC possibilities out there. They’re endless, of course, but SPACS affiliated with chemical industry veterans will already be in touch with the folks on Avenida Brigadeiro Luís Antônio. Of that we can be sure. Regardless of the buyer, this is a once-in-an-industry-lifetime opportunity. It's not as if a serious buyer could say to themselves - "Oh well, if we don't prevail here, we can just wait for the next Latam/Global surfactants powerhouse to come along".

So, let’s see. As we’ve said in the blog a fair bit recently. It’s the end of an era and beginning of another. Whoever buys Oxiteno, one must expect it will be a significant core business for them. This means that the business will enjoy a status that it clearly does not enjoy today with current owner Ultrapar (otherwise it would not be for sale). That’s got to be good in the long run for the business and most of the employees.

I have to wonder though, if Oxiteno ownership ceases to be Brazilian, must this blog also retire our gratuitous use of a certain supermodel to lavishly illustrate the merest mention of the company? Maybe we’d better.

Surfactants Monthly – November 2020

Surfactants Monthly

November 2020

We had an election. I checked outside every morning this past month. The sun rises (eventually) and when I step onto the cold bathroom tile and extend my left hand to flick the light switch, the lights light, every, single, time. Turn on the shower and, wow, beautiful hot/warm/turbulent-flow water at just-the-right pressure gushes forth, releasing also a rather pleasant steam cloud – just like the past thousands of mornings. I step into the plate glass enclosure (is this getting too graphic for you? Don’t worry, we cherish our G-rating at the blog) and confront 5 different body washes and soaps at eye-level. I ignore all of them and grab my Irish Spring off its own shelf. Aaah the fragrant aroma of the old country… top o’ the morning to you, world. I stretch a vocal chord or two and summon one of the household gods. Alexa, play the best guitarist. Bucky Pizzarelli fills the translucent temple with a glissando. Alexa – not funny. Dave, Michael, Alex and Eddie enter stage left and ..tcchmff, tttlnk, tttlnk, waoawohhhhng.. Eruption erm, well, erupts into consciousness. Pulse quickens. Four-decade old memories float up, of a younger, leaner, more testosterone-drenched time. Girl, you really got me now..another voice joins, (harmonizes?) Shut up, I’m still sleeping. Ablutions complete in respectful silence, I towel off, don M&S WFH-wear and pad along the 20 yard carpeted commute to the office where I change people’s lives, then change them back again with a couple-a-clicks on the MacBook. Changing lives is hard work. I need coffee, but it’s all the way downstairs. I need a coffee machine up here. Couple-a-clicks and I get one on its way for delivery before 10.00AM tomorrow. Still have to schlep downstairs today, though. Life goes on.

From the bond desk: [I’ve always wanted to start a column, like that. Today, courtesy of of the newshounds at ICIS, I get to do it.] At the beginning of the month, S&P Global Ratings downgraded Vantage Specialty Chemicals to CCC+ from B- because the company's has large amounts of debt in relation to its earnings, the credit rating agency said. The outlook is negative [S&P added, as If to rub it in..]. Vantage, as we all know is a large (top 2 in size in N. America) fatty acid manufacture with a sizeable specialties business grafted on. It’s owned by HIG.  S&P said the coronavirus has lowered demand from the company's industrial customers. S&P also noted softness in Vantage's high-end personal-care segment.

S&P estimates that Vantage's debt will remain at 9x EBITDA. [which I have to  say, is considered pretty high these says. I mean not Gordon-Gekko high but high enough in a post-2009, mid-COVID era]. According to S&P, If the economic downturn persists, then that should squeeze Vantage's liquidity and pressure its cash flow, S&P said. In October 2022, a revolver has a maturity date [man, don't you hate those]. For now, Vantage's free cash flow remains positive and the company has ample liquidity, S&P said. As far as the revolver, S&P expects Vantage will address it before it becomes current [I’m going to resist juvenile references to Captain Obvious here. We’re better than that at the blog]. [Seriously though, I trust they can weather the storm and do what they can to lean on the consumer, non-specialty busines that has provided such a boost to Stepan and others this year. The blog likes these guys and wants them to succeed.]

News from Brazil: I feel we have to address an issue again here. I know there are some readers who assume that any news item involving Brazil is seized upon by the author of this blog as an excuse to spend hours on Google-Images finding just the right photo of Gisele with which to illustrate the piece. I have to dispel that scurrilous accusation right now and remind you that that we need no such excuse. Thank you. And in any case, research has shown that blog-posts with images of supermodels generate approximately 10130 X more clicks than those featuring tankers of ethylene oxide. So there’s a valid commercial and journalistic reason for our selfless dedication to aesthetic excellence. You’re welcome.

ICIS reports Oxiteno reported a spike in third-quarter operating income because sales rose faster than costs.  The table shows the company's Q3 performance. Figures are listed in millions of reais.

Source: Oxiteno ($1 = R5.66)

Oxiteno attributed the rise in revenue to an increase in the home and personal-care segment in the Brazilian market. The rise marks a continuation of the trend that began in the second quarter. [Good for them. There’s some of that market mojo that Vantage has to try to tap into] Revenue also benefited from the recovery in the automotive fluids and coatings segments. Sales also rose from its new US plant in Pasadena, Texas. [That’s gotta be welcome news for those guys]

The following table shows Oxiteno's sales volumes, listed in thousands of tonnes. One table lists volumes in terms of product type, the other in terms of geography. [In Oxiteno-speak, commodities is basically MEG and specialties is everything else, more or less]

Although sales prices fell, these were offset by a weaker real.

More News from Brazil: [Hey, we just comment on the news, here. We don't create it.]. The great Al Greenwood of ICIS penned an absolutely outstanding analytical piece on Oxiteno. I’ll give you some snippets here. For the whole thing, though, you should probably get a jump on your New Year’s resolutions and subscribe.

Al reports that Joao Parolin, CEO of Oxiten has noted, in an interview with ICIS, that the coronavirus has caused a permanent shift in buying habits in Brazil, which will cause demand for cleaners and other products to remain elevated after the pandemic subsides. Demand for the product lines used in cleaners rose as a result of the pandemic, said Joao Parolin, CEO. He made his comments in an interview with ICIS.  The coronavirus has changed other buying habits in Brazil as well.

Like many parts of the world, consumers are working from home, and they are taking on improvement projects to make their houses more accommodative for work, Parolin said. This trend has manifested itself in many of Oxiteno's products that are used in construction and paint.

Another sector that has performed well is agriculture. Even though Brazil's GDP fell by 11.4% year on year in the second quarter, agriculture actually rose by 1.2%, according to the state statistical agency (IBGE). It was the only main sector to rise year on year.

Overall, Brazil's economy staged a strong recovery in the third quarter, which Parolin attributed to customers replenishing inventories and the county's generous assistance programs.  The highlight was a package that gave Brazil's neediest reais (R)600/month. Parolin said Brazil's response to the pandemic was among the largest among emerging economies.

A trend that could slow growth is Brazil's rising unemployment rate. It reached 14.4% in the fourth week of September, according to IBGE. That's up from 10.5% from the first week of May.  Some economists expect the rate could reach 16-17% at the beginning of 2021, Parolin said.

In operations news for Oxiteno, a new plant started up in the Capuava petrochemical complex that will capture and purify the carbon dioxide (CO2) produced by Oxiteno's ethylene oxide (EO) plant.  The plant, built by Air Liquide, will be able to process 20,000 tonnes/year of CO2. The gas will be used in various medical and industrial applications. The plant is ideally located since it is near several industrial customers, Parolin said. The plant builds on the long relationship between the two companies.

Production should reach 120,000 tonnes/year of mixed products in 2022-2023 at Oxiteno's new surfactants plant in Pasadena. That is up from 50,000 tonnes of mixed products in 2020. In Mexico, Oxiteno has had to find ways to work around the shortage in ethylene. Mexican state energy producer Pemex uses ethylene to make ethylene oxide (EO), which Oxiteno uses to make surfactants.  All of Mexico's ethylene plants rely on ethane as a feedstock, and ethane supplies have fallen with the country's oil production. The shortage of ethane has lowered ethylene production, which has trickled down to Oxiteno's operations in Mexico.  "Ethylene oxide has been challenging," Parolin said. "Year to date is still below what we intended to receive."

From the Fatty Alcohol Desk: Lucas Hall – alcohol guru at ICIS reported mid-month: Bullish feedstock costs across the oil palm complex are weighing on early discussions for Q1 and 2021 US fatty alcohols volumes.  Palm kernel oil (PKO) costs continue to rise amid tighter production at the end of the harvest season and continued strong export demand in key markets like China and India. Recent estimates suggested that Malaysia's palm oil production in October may drop by another 10% from September. Higher prices for other vegetable oils like coconut oil amid an active and later than usual typhoon season are adding to the pressure.

Bullish feedstock costs are increasing supply chain concerns across the wider market amid squeezed margins in southeast Asia and the pandemic globally. Q4 supply is sufficient to meet demand. Some buyers are looking to negotiate Q1 and 2021 volumes early in order to secure supply amid the wider uncertainty in the market.  Q4 alcohols contracts were assessed in early October.

Volatile but overall bullish feedstock costs - in addition to tighter production amid ongoing outages globally - underpinned the negotiations, despite slowing demand during the Q4 destocking season.  Bullish feedstock costs continue to put upward pressure on the wider market, with players largely unwilling to negotiate Q1 or any 2021 contracts until at least December until a clearer feedstock outlook emerges.

Early discussions have largely been discussed at a 5-15 cent/lb increase from Q4 for both mid-cut and long-chain alcohols, based on feedstock price fundamentals.

Mid-cut alcohols production is largely sufficient to meet demand.

C16 supply from southeast Asia is relatively tight compared with C18, prompting a higher blend of C16 over C18.

Sasol has restarted and is ramping up operating rates at its US Lake Charles, Louisiana, chemical complex (LCCC) as of late last month.  The company remains on force majeure for several chemicals at the LCCC, including alcohol and surfactant products.  The restart is likely to ease production concerns over short-chain and C18 alcohols in the US.

In More Sasol News: We’ve been following the Sasol story for obvious reasons and we also like to find the moral in the story when we can. In prior blogs we’ve noted the keen interest by Sasol shareholders in securing more liquidity (i.e. cash ) for the company. And we’ve noted that the Lyondell deal addresses only part of that cash requirement. Read on from an ICIS insight piece by ICIS’ Tom Hall: Shareholders in South Africa energy and chemicals group Sasol expressed their views remarkably strongly at this year’s annual general meeting (AGM) on 20 November.

The company is beset by problems, the low oil price and the Lake Charles Chemical Project (LCCP) cost overrun just two of them. Creating a company that is fit for the future has been the challenge for some time now.  How do you realign a coal to oil and chemicals company into one that can function adequately in a lower carbon economic environment?  Investors got a better idea of what ‘Future Sasol’, the term adopted by management to describe the company’s future proofing strategy, looks like at an investor event on 2 December (see below – Sasol 2.0).

A significant proportion of shareholders voted against non-executive reward motions at the AGM, clearly venting their frustration with non-exec remuneration. The company did not have to consider an attempt to force a link between its climate goals and executive pay and rewards.  Sasol is in a particularly difficult position in the current lower oil price environment and, while it battles against the impact of the Covid-19 pandemic on its businesses and operations, it has to invest to further reduce its significant carbon dioxide (CO2) and greenhouse gas emissions.

Sasol has had to manage spectacular cost overruns at the US complex – a 1.5m tonne/year steam cracker and downstream polyethylene (PE, 890,000 tonnes/year), ethylene oxide (EO, 350,000 tonnes/year) and ethylene glycol (EG, 250,000 tonnes/year) and more specialised chemicals project.  It hit a period of maximum gearing [that’s leverage for US readers] in the most recent financial year, which ended on 30 June, as the Louisiana chemicals project neared completion.  In its fiscal year second half, Brent crude hit a 21-year low while the pandemic put even greater strain on its balance sheet.
Sasol is looking at carbon offsets, CO2 sequestration and other measures to help further reduce its greenhouse gas emissions. But the company is a coal to liquids producer and, as such, is restricted in what it can do. It is talking to Air Liquide about the French company acquiring the massive oxygen plant at Secunda in South Africa, where Sasol coal gasification plants are mammoth greenhouse gas emitters.  According to company data, in total, Sasol emitted 56.5m tonnes of CO2 equivalent greenhouse gases in 2019.

The sale to INEOS of its stake in the Gemini PE partnership, announced earlier this week, further reduces Sasol’s footprint in the US and seems to mark the end of the company’s global expansion ambitions for the time being.  Aside from selling down its stake in the joint venture, the bigger deal for the company this year has been the agreement to sell half of the base chemicals assets at the Lake Charles complex to LyondellBasell.  Sasol CEO Fleetwood Grobler said at the time of the announcement of that deal, in October, that the US olefins and polymers specialist could take full ownership of the assets in future.

If LyondellBasell were to take full ownership of the large-scale commodity chemicals assets, that would leave Sasol with the more specialised Guerbet and Ziegler alcohols, surfactants, and ethoxylates production at the site. [i.e.surfactants continues to consolidate its grip on core business status at Sasol. Great to hear.]

Aside from some scattered alkylbenzene and phenol assets, the Lake Charles specialties would be the last vestiges of Sasol’s grand North American ambitions, leaving the bulk of its remaining chemicals presence outside South Africa in Marl, Germany.  [ouch !? Tom!] Although prompted by the “perfect storm”, in Grobler’s words, of a crashing oil price and surging global pandemic during the year the company hit peak leverage multiples to bring the delayed Lake Charles complex over the finishing line, the retrenchment is in keeping with strategy.

Chastened by the extent that delays and technical issues bloated the budget for Lake Charles, the co-CEOs that ran the company before Grobler said that the debacle had caused them to refocus on more manageable investments of $500m-1.0bn.  The US divestments are likely to help Sasol complete the structuring of its debt facilities by the end of the calendar year but come at one of the lowest moments for the market in living memory.

The purchase of the brand new Lake Charles assets stake cost LyondellBasell $2bn, giving it – in conjunction with a 50/50 polyolefins joint venture in China with Liaoning Bora Enterprise – the equivalent of “full capacity of a new and operational world-scale cracker complex with little exposure to risks from project execution”, CEO Bob Patel said at the time.  The price tag was at least $1bn below the replacement cost for a 50% stake in the assets, Patel added, while it cost INEOS $404m to acquire the 50% outstanding stake in the 470,000 tonne/year high density polyethylene (HDPE) project. The deals are not inherently negative but could be net present value destructive, according to an investment banking source, agreed as they were at the bottom of the cycle.

[In perhaps one of the greatest paragraph headers that I have seen in an industry publication, Tom notes that …]There is a Plan but Woes Mount.Tom continues..
Sasol’s management has done well to draw up and execute a plan to deal with such unprecedented disruption, but company leverage remains above the level required to maintain its current junk rating, according to Moody’s vice president Rehan Akbar. [That is shareholders want more money]

Moody’s downgraded the company to Ba1, below investment grade, in March 2020 and subsequently slashed the rating further to Ba2 with a negative outlook.  “We have to recognise that it's a very challenging time, they probably deserve some credit for making a plan and executing on it. At the same time I think there is more work to do because the leverage is still relatively high for where we think a Ba2 rating is and that's why the outlook is negative,” Akbar said, speaking after the Lake Charles stake sale but before the Gemini sale.  “When you look at ethylene derivatives there are still a lot of supply/demand imbalance concerns, oil prices are still fragile, and I don't think anyone is expecting a very strong uptick in oil prices next year either,” he said.  “The outlook over the next 12-18 months is uncertain, the macro picture is also uncertain, so that is why we have rested on negative outlook because there is still material debt on the balance sheet and it does weigh on the rating,” Akbar added.

Some great news from Stepan:  ICIS reported that Stepan has appointed Scott Behrens as president and chief operating officer (COO), effective 1 January 2021. Behrens, who has been vice president and general manager, surfactants, since 2014, has been with Stepan for more than 25 years, holding a series of leadership positions. Stepan, to date, has not listed a COO as part of its leadership team. I’ve known Scott for some decades. Congrats and kudos to him and Stepan for this great move. Relentlessly focused execution. That’s what Stepan, and Behrens, do.

Sasol 2.0 News: Some good stuff potentially coming out of adversity. In a strategy update December 2nd, reported by ICIS, Sasol unveiled a series of 2025 targets to help improve profitability and cut costs as it aims to recover from the impact of a low oil price environment and problems with its Lake Charles chemicals projects in the US.

It also today finalised the sale of a 50% stake in the Lake Charles cracker and polyethylene (PE) plants through the formation of a joint venture (JV) with LyondellBasell. It also revealed amendments to its debt covenants.

The new Sasol 2.0 2025 targets include:

• 5-10% rise in gross margin

• Lower net debt ratio from 4X  to around 1.5 X EBITDA

• 30% reduction in capital expenditure

• 1% cut in working capital to 14%

• 15-20% cut to cash fixed costs

• Will enable breakeven at $30-35/bbl oil compared with $35-45/bbl now

• Polymer price basket assumption of $800/tonne

CEO Fleetwood Grobler told ICIS:  “The Lake Charles JV is a clear indication that we will in the future put less emphasis on polymers and base chemicals where we don’t own technology. We have a much stronger right to succeed in specialty areas where we have proprietary technology and customer intimacy compared to a commodity which is sold by everyone.”  Grobler highlighted Sasol’s leadership in advanced materials where he said the company is one of the top 2-3 in specialty alumina products such as a 99.9% pure grade for scratch resistance and LED lighting.

Sasol’s Zieglar and Guerbet technology produces C6-C36 alcohols with plants in Germany and the US, enabling the company to offer a wide range of surfactants, he said.  He said for these areas of advanced materials and essential care chemicals its broad portfolio puts Sasol in the top three globally. [And he’s right. Sasol is a global surfactants powerhouse, with a strong diverse portfolio of intermediates, particularly in alcohols]

The CEO hopes to grow chemicals inorganically once the finances improve: “After this organic growth period our next realistic target is to ask how we can get some adjacencies to broaden our offering by doing acquisitions within our capital allocation framework."  [This is an excellent strategy and will be critical to do right because there’s  a bunch of other companies out there with a lot more ready cash looking for similar sorts of acquisitions. Building on synergies with Sasol will be key]

Sasol’s use of the Fischer–Tropsch process also means it can harness the opportunities green hydrogen will present, said Grobler.  The CEO said that while Sasol has a competitive position in coal, they want to gradually increase the amount of gas it uses to help cut carbon intensity. This gas will also be used for chemical production. “South Africa is a developing country and lacks the pipeline infrastructure you have in the US and Europe. It will take time to develop that. If we want to get more access to gas, we will have to focus on improving access,” he added.

During the strategy presentation, Grobler ruled out separating or selling Sasol’s chemicals businesses. He said: “Splitting the oil and chemicals business is not a consideration as we believe there is more value in the two businesses together.” [Let’s see if the market buys that. It works for Shell and Exxon so… maybe]  He also said that there would be future opportunities to debottleneck and increase capacity of the Lake Charles cracker and PE plants by 5-10% with very low capital expenditure. The Lake Charles performance chemicals assets can also be debottlenecked.

And finally, at the beginning of December:

More Fatty Alcohols News: ICIS’ Lucas Hall again reports - Q1 fatty alcohols discussions continue to face pressure from overall bullish feedstock costs across the oil palm complex and record high freight costs against the backdrop of stable to strong demand in the core personal care and hygiene markets.

Costs across the oil palm complex remain relatively firm but showed signs of softening if not lacking direction. Freight costs remain at record highs amid strong container demand in the US.  Demand for mid-cut alcohols remains stable in the core personal care market. Demand for C16-18 alcohols and particularly C16 alcohol remains strong. C16 supply in southeast Asia is tight, adding to the pressure.  Mass balance material remains tight from the summer, maintaining upward pressure on premiums.

Sasol remains on force majeure for linear alcohols and ethoxylates at its US Lake Charles, Louisiana, Chemical Complex (LCCC)  into December following a hurricane-related outage earlier in the year. The plant restarted in late October.  Discussions for Q1 material have been discussed at a 5-30 cent/lb increase from Q4 for both mid-cut and long-chain alcohols, tracking higher feedstock and freight costs.  Discussions for mid-cut alcohols have been heard in mid-70 to 100 cents/lb range and higher.

Discussions for long chain alcohols have been heard in the low-80 to low-90 cent/lb range.  Discussions for mass balance premiums have been heard around 5 cents/lb.

The sharp increase in offers has prompted some buyers to adopt a wait-and-see approach until a clearer feedstock outlook emerges.

From the EO Desk: US November ethylene oxide (EO) contracts settled at a decrease, following same-month feedstock ethylene contracts.  ICIS assessed US November EO lower by 1 cent/lb ($22/tonne), at 52.2-61.7 cents/lb FOB.  This was the second consecutive monthly decrease.

OK so that’s it for the month. Life goes on and honestly, for many, if not most of the readers of this blog, things are just fine. I’m guessing about half of you loved the election result and half of you just shook your head in despair. For all of you – life goes on. Have I said that enough yet? Because, here’s the thing: For some folks, life is not going on. For some it has not quite ended but been put into some sort of dream-like stasis that we might only know from our reading of Orwell or Huxley or Rand or Chekov or any one of a number of perceptive essayists. Certain empire state business owners have been pushed into a place where they have nothing to lose and so they’d rather be taken away in handcuffs for serving drinks than face financial ruin. In the California Republic, exceptions have been made by party leaders for public gatherings for the purpose of peaceful protest. Interestingly, this very night, in Santa Monica, spontaneous protests about all sorts of worthy causes are scheduled to take place at independent eateries across this beachfront town. Does this not seem a bit, well, Orwellian to you? Well, at least we are OK. For now.

Surfactants Monthly – October 2020

October 2020 – Monthly Review

What a month! Another record for basic surfactants but – what will we all be doing at the end of January? We won’t, most likely, be in Orlando, FL as the ACI has made the prudent decision to go virtual for their annual meeting. Not unexpected but I’m sure I’ll miss being there in person and I expect you will too. No matter, the industry as a whole does great and continue to …. what? You know.. “make civilization civilized”. Our next surfactant event comes up in about a week on November 10th. It’s the digital European and Asian Surfactant Conference. It’s free, but you have to register or you may be locked out for platform capacity reasons. Register here.

Here’s something to think about. I’ve been in and around surfactants for almost 40 years. And, like most people, I’ve been a daily surfactant user for almost 60 years. I still meet people that cannot even pronounce the word surfactants – and that includes some lifelong friends. Now and again, I’ll come across someone (not in the course of business) who knows what they are and what they do and that our entire civilized world depends on them. That is a true joy. Anyway – as part of my weekend routine, I like to browse YouTube for, usually, rock music, but often, insights into the culture’s view of what our industry does. Here are two great videos talking about surfactants from I guess what you could call amateur cosmetics V-loggers. These two ladies do a pretty nice job of explaining what surfactants are in terms that most people can understand. You may find some things to quibble with but overall, not bad. Kudos to them. I'd love to see more like this.

First Tara Lee from Columbus, OH

And a lady who rejoices under the appellation “Swavy Curly Courtney” who actually teaches a class on curly hair – Fair enough!

It is honestly, and this may not surprise any of you, my dream to have Kim Kardashian (or Kylie or Kendall - but not one of the minor Kardashians) talk about surfactants in a factual positive manner. On the off-chance, that this remains just a dream, it's a good thing that, in the meamtime, more or less normal mainstream people like Tara and erm.. Ms. Swavy Curly talk about them, right?

Right at the beginning of the month, US September ethylene oxide (EO) contracts settled at their highest level in two years, in line with feedstock ethylene contracts. ICIS assesses US EO contracts for September at 53.8-63.3 cents/lb ($1,186-1,396/tonne) FOB (free on board), higher by 2.6 cents/lb from the previous month. This is the highest EO contracts have been since October 2018, when they were at 54.0-63.5 cents/lb, according to ICIS data.

US September feedstock ethylene contracts settled higher by 3.25 cents/lb, amid production constraints.  EO demand remains strong into cleaning supplies amid the ongoing pandemic.  These derivatives are more profitable than ethylene glycol (EG), encouraging producers to divert EO feedstock into surfactants and other end uses.

Demand into EG also has been reduced amid a heavy turnaround slate and unplanned outages.  The following EO/EG sites were experiencing issues as of the beginning of October:

according to market sources; not confirmed by company

More fallout and commentary on the Sasol / Lyondell deal that we reported on last week. First the great Al Greenwood reported in ICIS Moody's Investors Services downgraded its ratings for LyondellBasell to Baa2 from Baa1 following the company's announcement that it will acquire a 50% stake in some of the units at Sasol's chemical complex in Lake Charles, Louisiana, US. The new score, which applies to LyondellBasell's senior unsecured ratings, remains within Moody's investment-grade range.  Under the agreement, LyondellBasell will pay $2bn for the stakes in the plants, which are in Sasol's complex in Lake Charles.  The plants in the joint venture have a capacity to produce 1.5m tonnes/year of ethylene, 470,000 tonne/year of linear low density PE (LLDPE) and a 420,000 tonne/year of low density PE (LDPE). The joint venture agreement does not include Sasol's alcohols and ethoxylates plants – [so that means that the surfactants business remains wholly within Sasol’s ownership and control – good for Sasol and the business, I think (and the industry actually – also in my opinion). ]

Moody's acknowledged that LyondellBasell is getting a good deal, as the price tag is well below the replacement costs of the joint venture's units.  However, LyondellBasell's credit profile would be very weak for its Baa1 rating through 2022, said John Rogers, senior vice president and lead analyst for Moody's. In addition, companies around the world are adding new capacity, which could put pressure on selling prices and margins.

Low oil prices could add more pressure to margins. Many of LyondellBasell's crackers can use ethane and other gas-based feedstock. Most of the world's crackers rely on oil-based naphtha.  When crude prices are high, ethane crackers have a cost advantage against those that use naphtha. Low oil prices erode that cost advantage. West Texas Intermediate (WTI), the US benchmark price for oil, should remain between $40-50/bbl in 2021, limiting the US feedstock advantage.

The combination of growing global capacity and weak oil prices over the next couple of years will make it more difficult for LyondellBasell to generate free cash flow and lower its debt, Rogers said.  One of LyondellBasell's main products is PE, and margins for the material have risen after a string of price increases that took place from July to September, Rogers said.  Prices could rise again in October because of the shutdowns caused by Hurricane Laura, Moody's said. Once US PE production returns to normal, prices and margins could fall.  Demand for PE for packaging should remain strong, Moody's said. It is unclear when other uses for PE will return to pre-pandemic levels.

Moody's expects LyondellBasell to keep capital spending near $2bn and dividend payments at $1.5bn.  During the second quarter, LyondellBasell reported 3.0x in terms of net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). It should reach 3.5x by the end of 2020 before falling to 2.8x by the end of 2022, Moody's said.  Free cash flow should remain positive over the next 12-18 months, Moody's said. In November 2021, $1bn of long-term debt is scheduled to mature. Another $2.8bn matures in March 2022.

Back to Sasol: As you will recall, the Lyondell deal was part of a plan announced in March to reduce, a lot of, debt. The company is not out of the woods yet. Sasol is trying to raise as much as $5 billion through further asset sales and might have to consider a rights issue. I think we have to stay tuned, unfortunately for further chapters of this story.

At last: As anyone who has attended one of my Asian or Indian conferences knows, the question of Indian LAB capacity is a vexing one – that is why isn’t there more capacity for a good, growing surfactant intermediate in one of its important markets?  India continues to import LAB despite a healthy domestic demand and insufficient domestic production capacity. ICIS finally reported this month that State-run Indian Oil Corporation (IOC) is including a capacity increase of its existing linear alkylbenzene (LAB) plant in its refinery expansion project at Gujarat by 2022.  “We plan to increase [the capacity] by 20,000 tonnes/year,” said a source close to the company. The country’s largest refiner is reviewing its refinery expansion plants because of a gradual rise in the use of cleaner fuels and changing demand patterns in Asia’s third largest economy, IOC Chairman S M Vaidya said.  The nameplate capacity of IOC’s current LAB plant in Vadodara stands at 140,000 tonnes/year, and supports the Indian domestic market with three other local suppliers. So the increase is not huge but it gives me an excuse to play this song by the great Etta James…

Our monthly look at the detergent alcohols market with Lucas Hall of ICIS - US Q4 fatty alcohols contracts were assessed mostly higher, tracking higher feedstock costs across the oil palm complex. Slower demand as the market enters the Q4 low season somewhat offset feedstock cost pressures.  Feedstock costs across the oil palm complex have plateaued amid the Golden Week Holiday in China in early October. However, the market remains volatile and overall bullish amid ongoing supply concerns, with renewed coronavirus-related lockdowns and other movement restrictions across parts of southeast Asia and Europe prompting wider uncertainty in the market.

At the same time, demand has seasonally slowed as the market enters Q4. Demand across the core cleaning sector has come off from the second-quarter boom amid the onset of the pandemic, with most major surfactants producers largely satisfied on volumes and citing less demand for incremental volumes. The demand recovery in industrial end markets has started to pick up as the US economy continues to reopen, but overall demand is expected to remain lower than pre-pandemic levels through the end of the year. Demand is typically slower during the Q4 destocking season.

Mid-cuts: Q4 natural C12-14 mid-cut alcohol contracts were mostly heard in the mid-to-upper 60 cents/lb delivered (DEL) US Gulf (USG) range.  Natural mid-cut contracts outside the US Gulf were mostly heard at the equivalent of the upper 60s to low 70s DEL USG range.  Synthetic C12-C15 contracts were mostly heard toward the top end of the range.

 Long chains  C16-18 blended alcohol contracts were heard in the 79-84 cents/lb DEL USG range.  Single-cut C16 contracts were heard in the low-to-upper middle 80 cents/lb DEL USG range.  Single-cut C18 contracts were heard in the low-to-upper middle 80 cents/lb DEL USG range.

Single-cut alcohols are tighter than blended cuts, leading to a slight premium over the blended C16-18 cut. The market is snug to tight amid tighter production in southeast Asia and the ongoing outage at Sasol's Lake Charles plant.

Meanwhile, over in Europe, the fatty alcohols fourth-quarter contract price range narrowed this week amid heavy fluctuations in feedstock palm kernel oil (PKO) over recent months.  Fatty alcohols fourth quarter prices moved up €40/tonne on the low end while remaining stable at the high end, with values now at €1,120-1,200/tonne FD (free delivered) NWE (northwest Europe).

PKO prices increased mind-month, following a slight decrease in values earlier.

PKO values have fluctuated heavily in recent months, leading to some contract discussions being slightly delayed as players adopted a wait-and-see approach. The majority of contracts have now settled.  Fatty alcohols availability remains healthy, despite several ongoing planned maintenances in the region. One plant has now returned to production following a planned shutdown.  Downstream surfactants demand remains steady, with interest in end-use detergent applications remaining healthy.

And finally, the great Stepan Chemical continues to keep civilization civilized with it’s surfactants while posting another record quarter of financial results. As reported by ICIS, Stepan's Q3 operating income in its surfactants segment more than doubled, driven by demand for cleaning, disinfection and personal wash products during the coronavirus pandemic. The strong performance in surfactants more than offset declines in Stepan's polymers and specialty products segments.

Key Points from the Stepan Q3 Report:
- Surfactants volume increased 8%, and selling prices were up 7%.

- Polymer operating income fell due to a 5% decline in global polymer sales volume.

- North American rigid polyol sales volume declined 8%, reflecting construction project delays and cancellations due to the pandemic. Lower demand within the phthalic anhydride (PA) business also contributed to the sales volume decline.

- Specialty products operating income fell, primarily due to lower margins within the  medium chain triglycerides (MCT) product line and customer order patterns within the food and flavour business.

Stepan’s Outlook:
Surfactant volumes in the consumer product end markets should remain strong as a result of heightened demand for disinfection, cleaning and personal wash products, CEO Quinn Stepan said.  Although global demand for rigid polyols has slightly recovered, the business will likely continue to be challenged short-term as re-roofing and new construction projects have been deferred or canceled, the CEO said. However, the long-term prospects for rigid polyols remain attractive as energy conservation efforts and more stringent building codes should increase demand, he added.

One last thing. Eddie Van Halen died last month. Van Halen's first album came out in 1978 and I remember, fondly, hearing the following, tracks 2 and 3 on the radio back then. It was a breath of fresh air at a time when Abba topped the UK charts.

By the way, talking of keep civilization civilized, if you are wondering what happened to the uncensored version of my opening remarks to the September digital surfactants conference, they are on YouTube at a private link (that is you can’t search for it and it doesn’t show up on my channel). As a reader of this blog, you can see it below.

See you on November 10th. Gotta Register!

Surfactants Monthly – September 2020

Surfactants Monthly

September 2020

There’s a lot to cover this month and so – straight into the news:

Some minor news first from Sasol. We’ll cover the big news at the end of the column, for which this picture is a summary:

Early in September, Sasol expected power to be restored to its Lake Charles site in Louisiana by early to mid-October, the company said in a statement.  The site has been shut since 25 August, ahead of Hurricane Laura.  "The critical path for startup is restoring reliable external electrical power service from Entergy, Sasol’s local provider," Sasol said in the emailed statement.  "Entergy currently expects full load service, industrial-level reliability power will be available to Sasol and other industrial partners in Lake Charles by early-to-mid October," Sasol added. "Sasol’s site damage assessment is well-advanced as well as debris removal from site," the company said. "Sasol will communicate the repair scope and estimated timelines when complete.  "We can confirm there was wind damage to the cooling towers as well as some insulation and building damage but maintain no apparent damage to major process equipment at this stage."  The company said several hundred contractors are performing cleanup and restoration work to ready the site for startup once electrical power is restored.  Sasol produces ethylene, propylene, ethylene oxide (EO), ethylene glycol (EG), phenol, linear LDPE (LLDPE), surfactants and other chemicals at the Lake Charles complex.

My rule regarding event is “you gotta be there” and so we don’t normally report on what went on at conferences etc., unless, it is already reported in the media. So – here we go with an article by ICIS on my recent co-produced surfactants conference which was online and had over 850 people registered(!). The incomparable Robert Fry gave a master-class on the economy. Here’s how ICIS reported on a small portion of it. :

The US recession caused by the coronavirus was the “shortest ever” and is technically over, according to economist Robert Fry, but a full recovery is unlikely until the first half of 2022.  “Technically this recession is over, as the way the economy defines a recession it is just the part where economic activity is contracting. When it starts growing again, the recession is officially over,” said Fry.  Consultant economist Fry spoke about the impact of the pandemic on the US economy at the ICIS World Surfactants Virtual Conference.  “I would call the recovery a script V, not a symmetrical V. We get an initial fast recovery in the third quarter, mostly the goods sector bouncing back, but since we don’t get a recovery in services, growth slows until we get a vaccine.”  Demand for products downstream of the surfactants market initially marked a decline in sales when the pandemic hit the US, but has since started making a recovery.

This reflects the trend demonstrated for the rest of the manufacturing sector, which although not yet back to levels marked in February 2020, has been key in stabilising the economy.

“It is interesting to the point of shocking that all of that decline in consumer spending in the services sector, the recovery has been less than half,” said Fry. “In a normal recession it is investment and consumer spending in durable goods that goes down. This time there has been a big hit to services but spending on goods has come back so strongly that it is now higher than it was before recession.”

Fry – former chief economist at DuPont – attributed this to pent-up demand from the second quarter being met, the fiscal stimulus increasing disposable income and the shift in spending from services to goods.  “People may have discontinued their gym membership and bought a Peloton…these people are not going to the gym any time soon, so the effect could be very lasting and very persistent,” he said.  Another boon for the chemicals sector is the increase in the construction sector, as the indicator for single family housing is now at its highest point since the 2008-09 recession, as people move from city apartments to the suburbs. “Single family is the leading indicator for the housing sector, so this is a good sign for the rest of the economy, especially the goods producing part, as things like carpeting, paint, appliances and furniture should respond well,” said Fry.

Going forward, Fry anticipates that growth will accelerate in the third quarter before flattening out, although this may come in the fourth quarter, depending on when inventories are built back up.  “Given what we have seen in goods spending and that inventories got very lean, I think we will see further increases in manufacturing, so that continues to bounce back at a pretty strong clip.”  There are still myriad factors that remain weakened by the economic devastation caused earlier in the year.

GDP is tipped to recover to pre-pandemic levels, from the biggest quarterly decline on record since the Second World War, in the first half of 2022.  Unemployment in the US remained pitched at 8.4% in August, down from levels of 14% in April, despite previously hitting a 50-year low after four years of declines.

“The pace of recovery and whether or not we have a double dip depends on how many businesses go bankrupt and how that ripples through the financial system and fiscal and monetary policy,” said Fry.  Ultimately, the services sector will remain in limbo until a vaccine will encourage more consumer spending in spaces such as restaurants and gyms.  Because there is no set timeline for this, companies will need to plan for different scenarios to allow for this uncertainty.  “The strength and timing of recovery depend more on medical breakthroughs than economic policies… there has been more uncertainty this year than any year I have been an economist,” concluded Fry.

A news snippet from Brazil: Andres Pires de Oliveira Dias, the CFO of Brazilian conglomerate Ultrapar, owner of surfactants producer Oxiteno, has resigned after five years in the position to pursue other opportunities.  The board has appointed Rodrigo de Almeida Pizzinatto, who is already a member of Ultrapar’s executive board and currently CEO of Extrafarma, as his replacement, the company said in a release.  Oxiteno is Brazil's sole producer of ethylene oxide (EO) and Latin America's largest specialty chemicals producer. In addition to Oxiteno, Ultrapar also owns fuel distributors Ipiranga and Ultragaz, liquid bulk storage firm Ultracargo, and drugstore chain Extrafarma.

As expected, Stepan Company has completed its acquisition of Clariant's anionic surfactant business and associated sulfation equipment located in Santa Clara, Mexico. Financial terms of the deal were not disclosed.  "This acquisition supports Stepan's growth strategy in Latin America and enhances our ability to support our customers' growth in the Mexican Consumer and Functional markets for surfactants," CEO F Quinn Stepan Jr said. "We look forward to transitioning customers' supply to Stepan's Ecatepec and Matamoros Mexico facilities over the coming months." [Another solid step in the consolidation of the surfactant market, especially in North America, by Stepan.

Mid-month, Malaysia’s PETRONAS Chemicals and German chemicals and surfactants producer PCC announced that they plan to jointly build an oxyalkylates facility at Kertih in Malaysia’s Terengganu state.  The plant will produce ethoxylates and polyether polyols after starting up in 2023.  In a related development, PETRONAS has agreed to acquire a 50% stake in PCC’s Malaysian subsidiary, PCC Oxyalkylates Malaysia Sdn Bhd.  Capacity or financial details were not disclosed.

Right at the end of the month, Lucas Hall, alcohols guru at ICIS wrote a superb piece. We excerpt it here: US Q4 fatty alcohols contracts are being finalised. Settlements for freely-negotiated contracts of both mid-cut and long chain alcohols have largely emerged at a slight increase from Q3, tracking higher feedstock costs and ongoing production disruptions in the market globally. Seasonally-slower demand as the market heads into Q4 is somewhat offsetting feedstock cost pressures.

Feedstock costs across the oil palm complex have plateaued as China enters the Golden Week Holiday on 1 October and some other northeast Asian countries go on holiday next week. Although feedstock costs have plateaued, the market remains volatile and overall bullish amid ongoing supply concerns with renewed movement restriction being implemented across producing countries in southeast Asia.  Demand has seasonally slowed as the market enters Q4, with demand across the core cleaning sector having stabilised following an earlier-year boom alongside the onset of the coronavirus. Demand in industrial end markets is recovering but expected to be slow through the end of the year. Demand is typically slower during the Q4 destocking season.

Sasol expects to resume its Lake Charles operations by mid-October, the company said in early in September. The company remains on force majeure for linear alcohols and surfactants after Hurricane Laura disrupted power at the complex.

Sasol's force majeure has prompted an increase in surfactants demand from other suppliers. However, supply from the wider market is overall sufficient to meet demand, as demand is expected to be seasonally slower in Q4.  The outage at Indorama's US Port Neches, Texas, plant as a result of the storm has also weighed on demand for Q4 alcohols. The plant began restart operations on 9 September after shutting on 25 August.  The demand recovery for C16-18 and single cut C16 and C18 alcohols is starting to pick up, as demand in industrial end markets like automotive and oil and gas - where they are used in the production of durable plastics and other polymers - improves as movement restrictions ease and economies reopen.  C16 alcohols are tighter relative to the blended C16-18 and C18 cuts, leading to a slight premium for C16 alcohols relative to the two.  Mass balance premiums are largely in the 3-5 cent/lb range.

Some of you may know that ICIS keeps a really comprehensive database of supply and demand. Here is a excerpt of some information relating EO/EG capacity as of the beginning of October.

Of the nine EG producers in North America, six are idled and/or have separately declared force majeure due to planned maintenance, unplanned outages or aftereffects from Hurricane Laura.

The outages and force majeure declarations cover 61% of US EG capacity, according to the ICIS Supply and Demand Database.

The following EO/EG sites are experiencing issues:

Now for the big Sasol News

As first reported by ICIS on Friday October 2nd by Tom Brown. LyondellBasell has agreed to form a joint venture with Sasol that will see it take a 50% stake in certain assets at the South Africa-based firm’s petrochemicals complex in Lake Charles, Louisiana. The 50/50 joint venture will see the US-based firm pay $2bn for a stake in the 1.5m tonne/year cracker at the complex, as well as low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) production units at the site, along with related infrastructure.  The joint venture will operate under the name Louisiana Integrated PolyEthylene JV and includes customary rights for each partner around the potential future sale of its ownership stake, the  companies said.

“The transaction is expected to be accretive to both cash flow and earnings per share within one year, with significant upside as market conditions continue to improve,” said LyondellBasell CEO Bob Patel.  Under the terms of the deal, LyondellBasell will operate the US base chemicals assets on behalf of the joint venture in an arrangement that will see some Sasol employees transferred to the US firm.  Sasol will retain full ownership of the Ziegler and Guerbet alcohols, ethylene oxide and glycols, and ethoxylates production facilities at the site.  The deal is expected to close by the end of the year. [So – interesting. Sasol JV’s out the basics and holds onto the more specialized and surfactants related products] .

ICIS’s Joseph Chang, in an excellent analysis, goes deeper into the deal later in the day: LyondellBasell’s $2bn deal to take a 50% stake in Sasol’s Lake Charles, Louisiana cracker and polyethylene (PE) operations is considered a “deep value investment” near the bottom of the cycle with low execution risk, its CEO said on Friday.  “LyondellBasell is making a deep value investment in leading assets during trough conditions where we believe there is significant opportunity for cyclical upside,” said Bob Patel, CEO of LyondellBasell, on an investor call.

“We’re able to be opportunistic… and the cyclical upside is a big driver in terms of why do this as opposed to de-lever or do [stock] buybacks. We just think it’s a unique opportunity to acquire world-scale and new assets,” he added.  LyondellBasell picks up a 50% stake in Sasol’s 1.5m tonne/year ethane cracker along with a 470,000 tonne/year linear low density PE (LLDPE) and a 420,000 tonne/year low density PE (LDPE) unit. Patel estimates that a well-executed new cracker complex with downstream PE units, utilities and infrastructure would cost roughly $6bn today.  Sasol’s Lake Charles cracker complex, which also includes detergent alcohols and ethoxylates and was beset by cost overruns, cost around $13bn.  LyondellBasell will fund the deal with cash and debt. At the end of Q2, it had $2.6bn in cash and $14.3bn in debt. Following the completion of the deal, expected by the end of 2020, it will focus on paying down debt.

LyondellBasell expects the Sasol deal to be accretive to earnings per share and cash flow within a year. Annual synergies of around $50m are expected by the third year on improved uptime and operating rates from LyondellBasell’s operational expertise.

The CEO drew parallels between the Sasol cracker investment and its 50/50 Bora JV in China which started up in September 2020.  “When the two JVs are taken together, we are essentially acquiring the full capacity and the immediate financial benefits of a new and operational world-scale integrated cracker complex with minimal exposure to the risks from project execution, timing uncertainty and opportunity costs that are typically incurred during the multi-year construction of these facilities,” said Patel.  “The other thing I like about both these JVs is that in one case we’re leveraging low-cost feedstocks (Sasol) and in the other we’re producing in the fastest growing market in the world (Bora). So we’re not just betting on one thing - we’re doing both,” he added.

LyondellBasell will operate the Sasol cracker and PE assets, and sell all the products through its global marketing network. Picking up an extra 300,000 tonnes/year of excess ethylene capacity from the Sasol cracker, LyondellBasell will bring its net long ethylene position to around 800,000 tonnes/year which it considers manageable given its extensive US pipeline network. New downstream projects will not being considered until mid-decade and beyond, said Patel.  Patel outlined the potential earnings before interest, tax, depreciation and amortisation (EBITDA) from its recent growth investments it expects to harvest over the next three years - over $200m in annual synergies from the A. Schulman acquisition, $180-200m from its US Hyperzone high density PE (HDPE) plant, $400-450m in 2023 from its propylene oxide/tertiary butyl alcohol (PO/TBA) project, and unspecified amounts for its Bora, Sinopec (PO/styrene) and Sasol JVs for a total of “over $1bn in incremental EBITDA”.

 And on top of this, the CEO sees cyclical upside with ethylene and PE margins getting back to 2017-2019 levels in the next 3-5 years.  PE demand growth in China has rebounded to almost normal levels at around 4-5% year-to-date through August, with US demand growth of about 1.5%, he noted.  On the supply side, Patel noted delays and cancellations of projects due to crude oil price uncertainty as well as financial constraints.  “I’ve been through a lot of cycles in the 30-plus years I’ve been in the business.. and what’s key is that you pay bottom of the cycle valuations that reflect bottom of the cycle [conditions],” said Patel.

Toward the end of the day, ICIS Al Greenwood noted that the deal will allow Lyondell to acquire a 50% stake in ethylene and polyethylene (PE) plants at a price below their replacement value, according to Fitch Ratings Service.

Under the agreement, LyondellBasell will pay Sasol $2bn for the stakes in the plants, which are in Sasol's complex in Lake Charles, Louisiana, US.  Fitch said it views the joint venture favourably as an opportunistic deal because it is below the replacement cost of the plants. As a result, LyondellBasell is effectively adding capacity while avoiding completion and start-up costs.  In addition, the plants are on the US Gulf Coast, giving them access to low-cost ethane, Fitch said.  LyondellBasell will operate the plants on behalf of the joint venture, so it could find ways to improve the operations of the plants and to expand margins, Fitch said.  The complex's LDPE plant will increase LyondellBasell's exposure to the more resilient packaging and consumer-health end markets, Fitch said. It also increases the company's exposure to the more cyclical automobile and industrial sectors.  The deal should close by the end of 2020.

Fitch commented about the joint venture as part of the credit ratings it issued for LyondellBasell. It rated the company BBB, which falls within Fitch's investment-grade ratings.  Because of the Sasol deal, Fitch expects LyondellBasell's debt to rise in relationship to its earnings before interest, tax, depreciation and amortisation. (EBITDA).

Debt-to-EBITDA should rise to 4.5x in 2020 from 2.1x in 2019 because of the joint venture; the decline in sales prices and volumes; and steps the company took to increase its liquidity.  Once LyondellBasell completes the joint-venture deal, debt/EBITDA should start falling, Fitch said. By 2023, it should approach or even drop below 2.5x.  In regards to LyondellBasell's cash flow, it should be slightly negative in 2020 after LyondellBasell pays dividends. In 2021 and 2022, free cash flow should swing to $700m-$900m. Afterwards, free cash flow should exceed $1bn. Total net debt should fall below $12bn by 2023.  Revenue should decline by 22% in 2020. It should start growing sequentially thereafter and return to 2019 levels by 2023, Fitch said.

Fitch made its forecasts based on the assumption that Brent crude prices will be $41/bbl in 2020, $45/bbl in 2021 and $50/bbl in 2022. Long-term, Brent oil prices should be $53/bbl.  LyondellBasell makes PE, polypropylene (PP), olefins, chemical intermediates and oil products. It also has a compounding business. Fitch said it is the third largest chemical company after BASF and Dow.

Some more about the deal appeared in the financial press. Bloomberg noted that Sasol has been looking to reduce borrowings after a series of cost overruns and delays at its Lake Charles chemicals project in Louisiana were exacerbated by a historic rout in the oil market. The deal will cut debt to about $8 billion from $10 billion, the company said, building on the disposal of other assets such as last month’s sale of an air-separation unit to Air Liquide SA for 8.5 billion rand ($509 million).

“This sale was widely anticipated and the $2 billion price is broadly in-line with our assessment of market expectations,” Morgan Stanley analysts led by Christopher Nicholson said in a note to clients.

While the Lake Charles stake has been the market’s main focus in Sasol’s asset sales, a process to sell its 50% share in a natural gas pipeline that runs from Mozambique to South Africa is still underway.

Alongside the asset-sale plan, Sasol is considering a rights offer of as much as $2 billion before the end of June even after saying the move is a last resort. “This, if implemented, would allow Sasol to operate sustainably within its covenant thresholds,” the company said, adding that the timing and amount to be raised would be dictated by the market. Lake Charles was approved in 2014 at an estimated cost of $8.1 billion, but has exceeded the company’s worst-case scenario and is now expected to cost $13 billion. The debacle cost former co-Chief Executive Officers Bongani Nqwababa and Stephen Cornell their jobs after an investigation found serious mismanagement in the development of the plant. They were replaced late last year by Fleetwood Grobler.

That's it for September. Keep an eye on the calendar for our upcoming surfactants events in partnership with ICIS. Next up November 10 - 11.

Surfactants Monthy August 2020

Surfactants Monthly August & Early September 2020

First the ads: Our 2020 surfactants conference, September 16 – 18th  is online and free (free of charge – yes that’s right!). Go to this link and register. You gotta register. Can’t just show up on the day. There is a practical limit to how many people can be accommodated on the platform. I don't know what that is but we have well over 500 already. Sign up. https://www.icisevents.com/ehome/index.php?eventid=200176800& That’s all the ads I have for you this week. From here on it’s solid red meat – that is news. No music or musings this time. We’ll have some of that at the conference.

The news:

As expected, Oxiteno had a pretty good second quarter as ICIS reported. Second-quarter operating income was positive versus a loss from the same period in 2019 because sales rose faster than costs (ah yes, that is the way to do it, I’m told).

The following shows the company's financial performance. Figures

Source: Oxiteno

Oxiteno attributed the rise in sales to a weaker currency. The average exchange rate of the real was R5.39 to the dollar during the second quarter, compared with R3.92 during the same time in 2019.  About a third of Oxiteno's volumes are sold outside of Brazil, so these tend to benefit from a weaker currency.

The following breaks down Oxiteno's sales volumes by region.

Source: Oxiteno

Demand weakened from the coatings, automotive and oil-and-gas segments. This was partially offset by higher volumes from home and personal care as well as from the company's crop-solutions segment.  Exports rose from Brazil and sales rose in the US, Oxiteno said. It’s nice to see sales continuing to rise in the US as that was quite an investment in alkoxylation recently. FInally; to those critics who have asked me if I have to use every mention of Oxiteno as a flimsy excuse to publish a picture of Gisele. The answer is yes.

The month started with EO news from China: China’s domestic ethylene oxide (EO) list prices dropped by another yuan (CNY) 400/tonne ex-tank or the equivalent of about 6% early in the month, according to market sources.  The recent downtrend was mainly attributed to downstream demand volatility, such as in the monoethylene glycol (MEG), which in turn led to supply cuts at MEG’s production facilities.  Another main downstream ethanolamines, whose demand was not performing as expected because of recent rains and flooding, also affected upstream EO.  One of the largest EO producers in China - China Petroleum & Chemical Corp, or Sinopec, announced the revision of its list price to CNY6,600/tonne ex-tank.

Toward the end of the month however, China’s ethylene oxide (EO) list prices rose by another yuan (CNY) 200/tonne ex-tank in three days from 18 – 21 August, market sources said.  Sinopec, one of the largest EO producers in China, announced the revision of its list price to CNY7,000/tonne ex-tank.  “This [rise] is so sudden,” said a Chinese trader, adding that there was no real basis for the rise since downstream sectors were not doing very well.  Values of EO’s main downstream monoethylene glycol (MEG) firmed this week on supply cuts in Asia and the Middle East, which may support EO’s rising trend.  However, even as demand in another main downstream sector ethanolamines picked up this week, overall sentiment was still poor.

As is now customary in general, the US went in a different direction: US July ethylene oxide (EO) contracts rose on an increase in same-month feedstock ethylene contracts.  ICIS assesses July EO contracts at 49.4-58.9 cents/lb ($1,089-1,298/tonne) FOB (free on board), higher by 0.8 cents/lb from the previous month. Feedstock ethylene contracts for July settled higher by 1 cent/lb, on higher spot prices and an increase in cash costs. Cracker issues limited supply as demand continued to recover.  The majority of EO contracts are formula-based, and price movement comprises 80% of the change in the ethylene price and an additional conversion fee, or adder.  Like ethylene, EO contracts are settled at the beginning of the month for the previous month’s price.  Demand remains strong for high-purity EO for use in surfactants in cleaning products. Although downstream ethylene glycol (EG) is seeing healthy demand from packaging and construction, overall levels remain below normal due to depressed demand for polyester fibre. Yes – and that is a reminder to my surfactants students, that you gotta look at the entire economic picture of the asset you have deployed – and that will often depend on a number of completely different markets and products. Think about it.

Now updating to the beginning of September: US August ethylene oxide (EO) contracts have settled at an increase, on higher feedstock ethylene contracts.  ICIS assesses August EO at 51.2-60.7 cents/lb ($1,129-1,338/tonne) FOB (free on board), up by 1.8 cents/lb from the previous month.  US August ethylene contracts settled at an increase, as cracker issues curbed supply and downstream demand mostly remained strong. The August EO settlement is the fourth consecutive increase and the highest EO contract price level since January.

Meanwhile in Europe: The European ethylene contract reference price for September has been set at a rollover from August, at €785/tonne. The vast majority of EO contracts are formula based, with price movement comprising 80-85% of the change in the monthly ethylene contract price. ICIS uses an average of 82% of the ethylene contract price in its calculations. September EO contract prices are between €1,033-1,201/tonne free delivered (FD) northwest Europe (NWE). There is some uncertainty surrounding supply balances as Shell entered turnaround this week.

The EO/EG Shell Moerdijk turnaround started early September and is expected to last for around six weeks, according to market sources. The exact dates are unconfirmed by the company though. Previously the turnaround was due to start in the second quarter but was postponed. In mid August, the cracker experienced a factory failure, but later came back online. The company did not have comments on the status of individual units, according to a press spokesperson. A short turnaround at BASF's Antwerp EO/EG facility is expected to take place at the end of October. The dates are unclear, as this has not been confirmed by the company. Some market sources added that it could take a minimum of two weeks; others suggest it will be a short turnaround.

Downstream MEG supply is very limited, due to local constraints and also lack of imports in the wake of Hurricane Laura. Previously, some downstream polyol sources referred to low availability of EO, key ingredients in polyols production, particularly in southern Europe.

More shuffling of the deck in surfactants capacity in Asia, with BASF playing dealer and croupier (I’m not sure if this is an appropriate analogy. The last time I went to Atlantic City, it was 1984, I was driving a convertible, thinking I was a hotshot and the car got towed and, well, I never went back). As reported by ICIS, BASF will raise its alkoxylate capacity in Asia Pacific through acquisition of production facilities from China’s Shanghai Petrochemical Co (SPC), the company said in a statement.  The new investment will help double BASF’s alkoxylate capacity at its Jinshan site in Shanghai from end 2020.  Capacity figures are not revealed – good for them. “This investment reinforces BASF’s commitment to China and makes Jinshan a significant production base for a range of products across the Care Chemicals portfolio in the region,” said Dr. Stephan Kothrade, President and Chairman Greater China, BASF.

The great Lucas Hall, who will be speaking at the conference next week wrote one of a few excellent analyses on fatty alcohols in ICIS news as follows:  A growing supply overhang from Q2 alongside weaker demand in Q3 is expected to weigh on the US fatty alcohols market ahead of the start of Q4 negotiations, even as feedstock costs across the oil palm complex remain volatile.  Some mid-cut alcohols sellers and buyers are looking to destock or resell spare volumes amid sufficient supply for the cleaning sector and continued slack demand in industrial end markets.

Single cut C16 and C18 demand is also slow amid decreased demand in industrial polymer markets because the downturn in the automotive and construction sectors. Blended C16-18 cuts demand is slightly more stable.  This comes after market participants stockpiled in Q2 as the onset of the coronavirus pandemic prompted a sharp uptick in demand across the cleaning sector.

The March plunge in crude oil futures as well as lockdowns and other movement restrictions put in place to thwart the spread of the virus, meanwhile, weighed on demand in industrial sectors like automotive, construction and oil and gas.  These sectors are recovering slower than expected, even as crude prices recover and movement restrictions have eased.  While the pandemic initially prompted supply chain disruptions from Southeast Asia and Europe, as of Q3 the supply chain has largely been restored.  Now that demand has slowed and panic-buying largely ceased, imports that were originally contracted in Q2 are now arriving in Q3, leading to a growing supply overhang.  Nonetheless, volatility in across the feedstock oil complex is expected to be a major factor in the Q4 negotiations.

Despite volatility, feedstock costs are generally trending higher, underpinned by an increase in exports over the last couple months against the backdrop of alleged lower than expected production during the summer palm harvest.  While the upward trend is likely to put upward pressure on the early Q4 negotiations, buyers are likely unwilling to accept commensurate price increases given easing supply chain constraints and the softer-than-expected demand environment in the aforementioned end markets.

Some expect the uptrend in feedstock costs to continue amid increased demand for edible oils in China and elsewhere over July and August against the backdrop of upcoming turnarounds globally. Feedstocks have also seen support from revised supply expectations in southeast Asia following poor weather and alleged labour shortages in the region during the summer palm harvest.  In response, buyers have largely adopted a wait-and-see stance, sitting on their current volumes amid expectations that the summer harvest will ultimately result in higher palm oil stocks and prompt a further downward correction in prices.

Hurricane Laura hit a lot of chemical production capacity, starting late August, and that included surfactants. ICIS did an outstanding analysis of the impact on chemicals here https://subscriber.icis.com/news/petchem/news-article-00110545466 It may require a subscription, but if you’re not a subscriber, by now, come on, why not ? (OK that was one more ad)

Indorama (formerly Huntsman) in Chocolate Bayou, TX shut down it’s 182,000 MT / yr LAB plant.

Sasol declared force majeure on the performance chemicals portfolio produced at its US Lake Charles, Louisiana, Chemical Complex in the aftermath of Hurricane Laura.

The force majeure includes alcohol, surfactant, alkylate and glycol products. The complex remained shut on September 1st after the energy and petrochemicals major brought it, along with units in Greens Bayou and Winnie, Texas, down in preparation for the storm hitting the US Gulf Coast last week. Early assessments indicated no damage to process equipment and no flooding impact from the storm surge, although high wind speeds resulted in damage to the cooling towers at the Lake Charles complex. Greens Bayou and Winnie units were not affected by the storm.  However, an electrical blackout continues as a result of the damage to the transmission lines coming into Lake Charles, keeping the complex's operating units offline.

Sasol's Lake Charles site has a linear alcohols capacity of 110,000 tonnes/year, according to the ICIS Supply and Demand Database.  The Lake Charles site has a surfactants capacity of 230,000 tonnes/year, according to ICIS Supply & Demand.

Map and product list - Dowload the Pdf from ICIS showing key impacts of the hurricane

Finally in interesting sustainability news: Unilever ups the ante again with a bold pronouncement, September 2nd :  Unilever will derive 100% of the chemicals used in its cleaning and laundry product formulations from renewable or recycled carbon by 2030, eliminating its use of fossil fuel-derived carbon in the sector, the company. Unilever also committed to halve the use of virgin plastics in plastics packaging by 2025.  The aim is at the core of the company’s ‘Clean Future’ innovation programme, which will look at ways to change how some of Unilever's best-known cleaning and laundry products are created, manufactured and packaged.  Petrochemicals such as soda ash (? Not sure what this means) and surfactants such as ethylene oxide (EO) (surely – surfactant intermediates?) are used in the manufacture of household cleaning products, and polymers such as polyethylene (PE), polypropylene (PP), and polyethylene terephthalate (PET) are used in primary and secondary packaging.  The move is part of the company’s wider pledge of net zero emissions by 2039, and is expected to reduce Unilever’s carbon footprint of product formulations used in cleaning and laundry products by 20%.  The company has ring-fenced €1bn for the Clean Future project, which will be used to finance biotechnology research, CO2 and waste utilisation, and low carbon chemistry. This investment will also be used to create biodegradable and water-efficient product formulations.

Peter ter Kulve, Unilever’s president of Home Care, said, “As an industry, we must break our dependence on fossil fuels, including as a raw material for our products. We must stop pumping carbon from under the ground when there is ample carbon on and above the ground if we can learn to utilise it at scale."  Ter Kulve concluded, “A new bioeconomy is rising from the ashes of fossil fuels.”  According to data submitted to the Ellen MacArthur Foundation’s Global Commitment pledge, Unilever used 610,000 tonnes of plastics packaging volume in 2018. Whether or not the company intends to reduce its virgin plastics use through light weighting and substitution to alternative packaging types, or to increase the amount of recycled content in its packaging is not clear. – So my comment – clearly a big impact on surfactants like LAB and Ethoxylates. And potentially a boost for Palm derivatives and possibly bio-surfactants. Let’s see.

That's it. Here's a pitch as to why you should register for the conference next week - if there's space left.

Alright then, here's one music video that is exactly as advertised. Enjoy:

Surfactants Monthly – July 2020

Surfactants Monthly – July 2020

Lots of interesting news this month, essentially all of it coming to us courtesy of ICIS and so, I will plug again their online services. Check them out and subscribe if you like what you see. I get nothing if you do, by the way. I just happen to like those guys as I’ve been working with them now for 10 years on my conferences.

Speaking of conferences, our surfactants events this year will be all online in super-high quality digital format. We’ll bring you the same relevant topics and highly original speakers you have come to expect along with a lot of new stuff that we want to try (how about a meditation session for example?).  You will now be a better-informed more highly-educated and just all round better person coming out of these events. But there’s more. The events this year are free. That’s right. It’s not a typo. They are free of charge. No strings attached. We want to support the industry and so we are doing it all absolutely free. You have to register and I encourage you to do so soon as there will be a practical limit to attendees on the platform. Here’s all the details for the September 16 – 18 event: I’ll see you there right?

Web: https://www.icisevents.com/surfactants
Reg page only: https://www.icisevents.com/200208928
Date: 16-18 September 2020
Time: 8am-4pm EST

End of commercial. The news starts here:

 We ended last month’s blog with a snippet about Pilot Chemical’s launch of low dioxane ether sulfates, helping customers to comply with the imminent NY state regulation of dioxane in consumer products. By the way, they have a sort of a special website section on the product range here with a neat hourglass motif indicating that time is indeed, on this occasion, running out. Meaning, I assume, that the NY State law is coming into effect whether you like it or not.

That got me reminiscing a bit. I remember in the 90’s a lot of talk around whether North America would follow Europe in restricting dioxane content for the bulk of the market. In fact, in the US, the FDA had been regularly monitoring dioxane in cosmetics since 1979. However, it took the NY state legislature to move dioxane (and its restriction in ether sulfates) firmly into the mainstream last year. Ideas have their time and sometimes old ideas become new again with a new lease on life. Something to bear in mind. Ideas can often be put safely into hibernation awaiting a more favorable climate for their implementation. Or they can be implemented quietly waiting for their time in the mainstream spotlight. Like sustainability for instance. Seventh Generation toiled away in obscurity in the beginning until reaching the status of core global platform brand of Unilever. This dioxane thing reminded me of all that.

We don't talk much about propylene oxide here but it is used in surfactants (EO/PO block copolymers and such) so I thought I’d throw in this summary from ICIS at the beginning of July:  -- The July European propylene oxide (PO) formula-based contract price has increased by €60/tonne, the result of a €75/tonne rise in the monthly propylene contract.  This brings the PO contract price up to  €1,264-1,364/tonne FD (free delivered) NWE (northwest Europe).  It was the second month of rising prices. In May, the PO contract price reached its lowest level since April 2016.

Each month, 80% of the propylene contract movement (if there is one) is typically taken into account when determining the PO contract price. The start of the year also sees an adder applied - which dropped by €150/tonne this January on predictions of a looser supply and demand balance.  Downstream producers now face the task of trying to hold onto margins at a time when demand remains curtailed. Over 80% of PO is consumed by the monopropylene glycol (MPG) and polyols markets.  MPG sellers previously said that they would independently target increases in July if propylene were to rise.  Prices for MPG reached their lowest level for almost 11 years in June due to slow demand. Future demand is also uncertain. The construction sector  is slowly increasing offtake of unsaturated polyester resins (UPRs) downstream of MPG, but many construction projects have been cancelled going forward  and June activity was below expectations.

There is also a question mark over MPG demand into de-icer for aircraft and runways this winter as a decrease in flights is expected. Polyols price discussions for July are underway, with producers looking to repair margins after recent increases in upstream feedstock costs. Prices hit close to 10-year lows in June for polyols.  Some improving demand for flexible polyurethane (PU) foam has been seen, while supply is generally ample.  For PO, much depends on developments in the downstream construction and automotive industries, where activity has increased, although both face tough months ahead.  It had previously been suggested that the typical downstream summer lull might be cut short this year, particularly in southern Europe, which could help stimulate downstream markets. However this is uncertain.

On a more positive note, the eurozone manufacturing sector purchasing managers’ index (PMI) for June rose to 47.4, rebounding from 39.4 in May.  Lack of visibility going forward will keep pressure on operating rates for PO. It is also unclear how much material is still being held within the chain, with downstream customers having built up inventories during the coronavirus crisis.  Trading of PO in and out of Europe has been limited to less than 2% of the market in recent years. This can be put down to strict safety regulations which makes shipping of PO over long distances very expensive. As a result, it is likely that PO sellers will have to keep operating rates reduced until co-product and downstream demand improves in Europe.

In more familiar territory, ICIS reported that US June ethylene oxide (EO) contracts settled 0.4 cents/lb ($9/tonne) higher, tracking rising feedstock ethylene costs.

June contracts were assessed at 48.6-58.1 cents/lb free on board (FOB) US.

June ethylene contracts settled 0.5 cents/lb higher, tracking higher spot prices and rising cash costs.  As readers know, the major EO producers in the US today include BASF, Dow, Eastman Chemical, Indorama Ventures, Lotte Chemical, LyondellBasell, Nan Ya Plastics, Sasol and Shell Chemical.

Over in China: ICIS reports that domestic ethylene oxide (EO) list prices plunged by yuan (CNY) 600/tonne ex-tank early on July 19, according to market sources.

The fall was mainly due to poor performing downstream derivatives such as monoethylene glycol (MEG) and ethanolamines, in a poor economy.  Since early April, EO prices in China have risen by 31% to peak on 15 July at CNY7,600/tonne ex-tank because of the uptrend in feedstock ethylene prices. One of the largest EO producers in China - China Petroleum & Chemical Corp, or Sinopec, announced the revision of its list price to CNY7,000/tonne ex-tank.  Upstream ethylene falls of about 5% also contributed to EO’s plunge, ICIS data showed.

A few good chunks of news from Stepan this month. First up, Clariant finally offloads it’s last remaining sulfonation plant and, true to form, Stepan snaps it up as the company continues to execute from its playbook to consolidate its position in North American surfactants. As reported in ICIS: Stepan has agreed to acquire Clariant’s anionic surfactant business and associated sulfation equipment at Santa Clara, Mexico, the US-based producer of specialty and intermediate chemicals said on Wednesday.  "The purchase of Clariant's surfactant business in Mexico will enhance our ability to support our customers' growth in the Mexican consumer and functional markets for surfactants," said CEO  F Quinn Stepan. Stepan plans to transition manufacturing from Clariant's Santa Clara site to its Mexican sites in Ecatepec and Matamoros over the coming months. The acquisition is expected to close in Q3, subject to regulatory approvals. Financial terms were not disclosed. This comes a couple of years or so after Stepan acquired BASF’s surfactants assets in Mexico including the aforementioned Ecatepec site. Nicely done by Stepan.

Next – Stepan reported a record Q2 for its surfactants business, it said in its quarterly earnings presentation.  Reported surfactant operating income was a record $48.5m, an increase of $16.4m, or 51%, compared with Q2 2019.  The increase was primarily attributed to a 10% increase in global surfactant volume and an improved product mix.

Sales volume growth was principally higher because of increased demand across global consumer product end markets, namely cleaning and disinfectant products, as a result of the coronavirus, as well as a $5m operating income improvement in Mexico.  Stepan reported record quarters in Mexico and in Brazil. Mexico net sales increased $5m because of sales volume growth of more than 33% and an improved product mix. Brazil's sales volume growth was more than 32%. Stepan plans to continue its surfactant diversification strategy into functional markets, including in agricultural and oilfield chemicals. At the same time, Stepan said the global market for disinfectant products is tight, particularly in the industrial and institutional space. Although Stepan has sufficient capacity to meet surfactants demand, including through the acquisition of Clariant's surfactant business in Mexico, there are not enough raw materials to offer larger volumes to the market. So there it is. I don’t really need to say much more about the essential nature of our industry. Yet more evidence there in the Stepan results of the critical role that surfactants play in our civilization. It’s not hyperbole. No surfactants. No civilization. Think about it. You should take some modest satisfaction in what you do every day, dear reader.

ICIS’s Lucas Hall has really gotten his teeth into the fatty alcohol patch at ICIS. His July coverage included the following: -- US fatty alcohols supply and demand are finding more balance as H2 demand eases, delayed imports arrive and producers take summer and fall maintenance. Supply and demand fundamentals are rebalancing as feedstock costs surge, putting upward pressure on the market.  Q3 demand is easing following Q2 stockpiling and panic buying amid the onset of the coronavirus pandemic.

chain disruptions Supply chain disruptions in Asia, and to a lesser degree Europe, caused many Q2 volumes to be delayed into Q3, prompting some buyers to dip into the spot market to cover their positions. As such, many manufacturers took on less contractual volumes for Q3 as they await their Q2 volumes to arrive over the next couple months.  Some producers will take maintenance over the summer and fall, further reducing supply.

Indorama had an unplanned outage at its ethylene oxide (EO)/ethylene glycol (EG) site in Clear Lake, Texas, late last week. The outage is expected to last into next week and may further weigh on demand, as multiple companies toll manufacturer their surfactants with Indorama.

The wider market faces pressure from a strong rally in feedstock costs across the palm oil complex. Palm oil harvesting activities in Indonesia and Malaysia have been impacted by flooding following heavy rainfall, putting upward pressure on palm oil prices. Malaysia also forecast a much lower palm oil yield in July amid a coronavirus-related labour shortage during the harvest, adding to the pressure.  Market participants are hesitant to commit to forward-looking supply agreements amid an uncertain feedstock outlook. Some expect feedstock costs to increase with recovering edible oils exports globally and improving biodiesel production. Recent news regarding poor weather conditions and labour concerns in Malaysia during the ongoing harvest have only added to concerns. Others are wary of the impact of a second wave of the pandemic on demand.

As I flicked through my morning copy of the Korea Herald last week I came across more on the continuing Sasol story regarding the Lake Charles, LA site. OK fine, I actually read about it in Al Greenwood's article on ICIS. Al cites the Herald and according to him, Hanwha Solutions has submitted a bid to acquire a 50% stake in the chemical complex that Sasol is developing in Lake Charles, Louisiana, in the US.  The size of the bid is Korean won (W) 2tr-4tr ($1.7bn-3.4bn), according to The Korea Herald, which attributed the information to unnamed industry sources.

The bid was for what the publication called an ethane cracking centre. The Herald did not specify if the bid was limited to the complex's cracker or if it included other downstream units.  In a statement, Sasol said, "Our expanded asset disposal process has yielded good interest by strong contenders for a number of our assets."  Hanwha did not immediately respond to a request for comment after hours in South Korea.  The Korea Herald reported that Hanwha refused to confirm or deny the bid.

Another publication, BusinessKorea, reported that Hanwha formed a consortium with Daishin Private Equity, which has about W750bn under management. Daishin plans to invest some of its blind funds and to raise money from major institutional investors.

Daishin did not immediately respond to a request for comment after hours in South Korea.  Hanwha received more support from South  Korea's four largest financial holding companies, BusinessKorea reported. The four pledged to provide W2tr to finance any acquisition.  LG Chem also participated in the final bid, BusinessKorea reported. LG Chem did not immediately respond to a request for comment after hours in South Korea.  SJL Partners, a South Korean private-equity firm, participated in the preliminary tender, BusinessKorea reported. SJL Partners did not immediately respond to a request for comment after hours in South Korea.  The Sasol project also attracted interest from INEOS, LyondellBasell and Chevron Phillips Chemical, according to a source from the financial community, which made the comment in mid-June.  The three were proceeding into a second round of bidding.  At the time, INEOS and Chevron Phillips Chemical each said that they had no comments.  LyondellBasell declined to comment.  BusinessKorea reported that the non-Korean companies participating in the preliminary tender included ExxonMobil.  ExxonMobil declined to comment.

Earlier on 12 March, Sasol said it was reviewing a number of actions to address challenges created by the coronavirus and the decline in oil and chemical prices. Among those actions was "the potential for exploring partnering options at Sasol’s US Base Chemicals business”.  Sasol would maintain a majority interest in the project, but the size of the minority stake in the complex would be significant.

It is unclear if Sasol still plans to maintain a majority stake, given the report of Hanwha submitting a bid for a 50% stake.  Sasol is under severe financial stress from the debt taken on for the Louisiana project and the collapse in crude oil prices.  The cost of the project has risen from $9bn to up to $12.9bn.  Among the units at the project, the 1.5m tonne/year ethane cracker is producing to plan within pipeline specifications. The ethoxylates unit achieved beneficial operation at the end of January.  The linear low density polyethylene (LLDPE) and the ethylene oxide/ethylene glycol (EO/EG) units were producing at targeted levels.  The fatty  alcohols expansions were expected at the end of the second quarter.  Sasol plans to start-up the new 420,000 tonnes/year low density polyethylene (LDPE) plant by the end of October.

In other Sasol news, the company announced an agreement to sell gas facilities to Air Liquide in a deal worth 8.5B rand ($515M. The sale includes the air separation units used to supply Sasol's fuels and chemicals processes at plants in Secunda, South Africa, which comprise the biggest oxygen production site in the world.

As I understand it, Sasol is looking for about $5Bn to deleverage their balance sheet. The Hanhwha deal would get them some of the way there and the Air Liquide deal helps. Let’s see. If I was Sasol, I’d want to make sure I had the dry powder available to take advantage of opportunities going forward. My gut feeling says there should be a better partner out there than Hanwha, but of course they have to pay, because, right now the shareholders really want to see some of the green stuff.

OK that’s the news this month.

What are you listening to these days?           

This lockdown has, for me been a great time for Iron Maiden. It seems that many workout videos on Youtube have some pretty lame music accompanying them. But turning down the private label synthetic version of Miley Cyrus and cranking up the Irons behind the video works wonders for the adrenaline. Here’s a couple of songs spanning 30 years.

From 1981 – Transylvania and, if you’ve got the time, keep listening for Phantom of the Opera right after it. I saw them on this tour. A much-needed antidote to the likes of Rick Springfield, Hall & Oates and Shakin’ Stevens (no kidding) that dominated mainstream pop in those days.

And from 2011, the lads played Santiago in front of a crowd of basically the same age as the 1981 crowd at the Rainbow. Listen to the singalong at the beginning. Nice, right? Best sellers that year in the mainstream? Adele, Katy Perry. Gotta love a bit of variety though..

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Surfactants Monthly – June 2020

Surfactants Monthly – June 2020

Guide to this month’s huge blog post – in order of the sections below:

Business – dates for your calendar

Musings – thoughts, music videos. You know the stuff we do

News – what happened in surfactants in June

Guest Posts – from Clariant and Modular Genetics

More Musings – there’s a Rush video this month, so keep reading

End

Business

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The 10th World Surfactactants Conference will place - online - September 14 - 16th. Stay tuned for a great announcement about this. It will be unique and I believe you will love it.

P2 Presents – Know Your Customer July 9th at 10.00 AM and 2.00 PM. This is free! We go deep into the heart and mind of a cosmetics and makeup consumer. What can we, as ingredient suppliers and brand managers, learn from what we hear? A lot. Join me in this unscripted and somewhat surprising presentation by green chemistry company, P2 Science. Think about this: In the last few months, two Kardashian sisters (Kim and Kylie Jenner) have had their cosmetics companies valued, in transactions, at over $1 Billion each. At the same time, cosmetics, as a category is down due to the pandemic, private label is in the ascendant and brands in general are under fire from all directions for all sorts of reasons. What do do? Listen to your customer, really intently. You’l be surprised at what you learn. You must register in advance here: It’s free though.

Musings

So, I’m reading that the ‘burbs are now the place to be. With cities full of COVID and looting, the suburbs are looking like a peaceful, socially distanced, idyll with decent schools, nice lawns, landscaping and, actually pretty good drive-thru options for, like, coffee and stuff and there’s a Wholefoods not that far, sometimes. I’m told by a colleague that New Jersey is one big suburb and I think he’s right. You know how Scotland became known as the land of the mountain and the flood, thanks mainly to the poetic work of Walter Scott? (O Caledonia! stern and wild…) anyway, New Jersey is known as the land of the jughandle and the stripmall, thanks mainly to the fact that it is. Nonetheless, realtors tell me that folks can’t wait to relocate over the bridges and through the tunnels to NJ from NY. And the pattern is repeated elsewhere from Chicago to Los Angeles. What does this mean? Well, for the chemical industry, it’s probably good. Suburbanites consume more than city dwellers if only because the have more place to put stuff. This pulls through the entire value chain. And as for chemicals themselves, I reckon the average 1 acre lot round here consumes enough lawn chemicals in a given summer to keep a small to mid-sized country’s farming sector supported for a year.

But what of the spiritual and moral effects of suburbanization, I hear you ask? Is this an unreservedly positive trend we are seeing? Well, 70’s pop group, The Members said it best in their classic Sound of the Suburbs. A cautionary tale for putative suburban migrants.

 Same old boring Sunday morning
Old man's out washing the car
Mum's in the kitchen, cooking Sunday dinner
Her best meal. Moaning while it lasts…

Having said that, however, these same boys caution against a starry eyed view of the city, even if your suburban life seems like a dead end. Because, well..

Living in a bedsit
Travelling on a tube train
Working all day long
And you know no-one, so you don't go out
And you eat out of tins and you watch television
Solitary Confinement..

Take a listen. The lyrics at one point almost breach the blog’s G-rating rule, but not quite, I think.

News

The month starts with a healthy slug of EO news in a focus article by Antoinette Smith of ICIS.

May ethylene oxide (EO) contracts settled at an increase, in line with upstream ethylene contracts. The increase is amid a mixed picture for downstream demand. ICIS assessed May EO contracts at 48.2-57.7 cents/lb ($1,063-1,272/tonne) FOB (free on board), higher by 2.8 cents/lb from the previous month.

Demand for EO from downstream ethylene glycols (EG) has remained steady to lower. Monoethylene glycol (MEG) exports to China continue at high levels, and North American demand into polyethylene terephthalate (PET) packaging for cleaning products and sanitizers remains strong. However, consumption from water and carbonated drinks is easing, as consumers work through volumes from [COVID induced] panic purchases.

Summer is the typical peak season for PET, especially in bottling for carbonated drinks. Because of lockdown measures, high US unemployment and related drops in consumer spending, that peak remains in doubt, and may already have occurred, with increased purchases as lockdowns began. In addition, a carbon dioxide (CO2) shortage could ultimately affect demand for PET bottles. The start of summer typically marks a demand spike from the beverage industry, which uses CO2 to carbonate drinks, said Rich Gottwald, president of the Compressed Gas Association, a trade group.It is unclear how the coronavirus will affect this seasonal trend in the key carbonated drinks sector, but if drink production is lower, demand for PET bottles may decline as well.

Automotive production recently resumed after a two-month hiatus, increasing demand for antifreeze-grade MEG. Vehicle production rates are unlikely to reach pre-virus levels before 2021, however, according to Rhian O'Connor, ICIS lead analyst.

Demand for diethylene glycol (DEG) remains subdued, with construction projects only starting to ramp back up as lockdown measures ease. The peak summer season could yet occur, but is likely to be below levels previously expected for this year, even if a second wave of coronavirus infections does not occur.

Capital expenditures have been scaled back across many sectors, reducing demand for DEG end uses.US construction spending in April fell month on month, but rose year on year on a seasonally adjusted basis, the US Census Bureau said.

Higher purity EO uses, such as cleansers and disinfectants, have surged in demand amid the coronavirus pandemic, and that demand is expected to continue in the near future. For example, in downstream glycol ethers, demand from the cleansers and disinfectant markets is steady. Packaging adhesives, paper coatings and do-it-yourself (DIY) paints continue to drive some glycol ethers demand, although demand from those sectors is expected to dissipate as demand from automobile production and contractor paint projects increases.

The upstream ethylene settlement was higher than the previous month, by 3.5 cents/lb, on rising spot prices and higher cash costs. Feedstock ethane supply has been reduced because of lower drilling rates, but is still ample on generally weak demand due to the coronavirus.

Meanwhile in China, the domestic ethylene oxide (EO) list prices rose by yuan (CNY) 200/tonne early on Wednesday, according to market sources. This rise marks the fifth consecutive rise every week since late April. A hike of CNY200-300/tonne was reported in every announcement, with the latest increase last Monday. One of the largest EO producers in China - China Petroleum & Chemical Corp, or Sinopec, announced the revision of its list price to CNY7,200/tonne ex-tank. The continuous growth in EO prices was generally attributed to strong feedstock ethylene values and robust performance of main downstream monoethylene glycol (MEG).

Lots of new news re Sasol this month. As reported in April’s blog, Sasol is looking for a partner (ie money) for it’s Louisiana site and hired BofA to run a process. As anyone who has been around this sort of situation knows, once a process like this gets underway, in the public eye, many outcomes are possible and change can occur rapidly and often unpredictably. There is often immense shareholder pressure on management to make something happen and produce the value.

So, mid month, the great Al Greenwood of ICIS reported that Sasol is attracting bids from at least five companies who are interested in acquiring a stake in the chemical complex it is building in Lake Charles, Louisiana. If Al reports it, I believe it to be true, even if the information probably came from an IBanker running the process (I’m just guessing on that score) The source confirmed an earlier article from Bloomberg, which reported that INEOS, LyondellBasell and Chevron Phillips Chemical were proceeding into a second round of bidding for a stake in the complex. Two potential buyers from Asia [which makes perfect sense] have also entered the second round, the source said. LyondellBasell did not immediately respond to a request for comment. INEOS said it had no comments. Chevron Phillips Chemical said it had no comments.

Sasol said, "Our expanded asset disposal process has yielded good interest by strong contenders for a number of our assets." The stake could bring Sasol more than $2bn, Bloomberg reported. Earlier on 12 March, Sasol said it was reviewing a number of actions to address challenges created by the coronavirus and the decline in oil and chemical prices. Among those actions was "the potential for exploring partnering options at Sasol’s US Base Chemicals business”. Sasol would maintain a majority interest in the project, but the size of the minority stake in the complex would be significant. Sasol is under severe financial stress from the debt taken on for the Louisiana project and the collapse in crude oil prices. The cost of the project has risen from $9bn to up to $12.9bn.

Among the units at the project, the 1.5m tonne/year ethane cracker is producing to plan within pipeline specifications. The ethoxylates unit achieved beneficial operation at the end of January. The linear low density polyethylene (LLDPE) and the ethylene oxide/ethylene glycol (EO/EG) units were producing at targeted levels The fatty alcohols expansions are now expected at the end of the second quarter. Sasol plans to start-up the new 420,000 tonnes/year low density polyethylene (LDPE) plant in the second half of 2020.

In additional Sasol news, ICIS reported Sasol has raised its debt ceiling with lenders, plans to abandon oil activities in West Africa and will review jobs as the troubled company refocuses on specialty chemicals, gas and renewables. [That’s smart, but honestly when I think Sasol, I don't necessarily think renewables, but let’s see..]

The company said in a recent press release it has negotiated an increase in debt covenants from December from three-to-four times (3x - 4x) net debt in relation to earnings before interest, tax, depreciation and amortization (EBITDA). It was granted a waiver for its June covenant. Sasol now has to prioritise debt reduction and has agreed to no dividend payments or acquisitions while leverage remains above 3x net debt/EBITDA. The company’s credit rating was downgraded by two notches earlier this year, adding around $40m to annual interest payments.

In March, it launched a rights issue aiming to raise $6bn in cash by the end of 2021. Sasol said on Thursday it has liquidity headroom above $1bn.

In April, Sasol announced significant cuts to capital expenditure, a freeze on company pension fund contributions, and salary cuts for managers. It also has an accelerated asset disposal programme. The company said that after South Africa’s lockdown was eased on 1 June it has ramped up production at units which had been closed by falling demand for fuel and chemicals. These include ammonia, nitric acid and chlor-vinyl plants in Sasolburg which restarted in May.

Sasol said its new business model, called Sasol 2.0, will focus on specialty chemicals where it has differentiated capabilities and strong market positions which can be expanded over time. The energy business will comprise the Southern African value chain and focus on gas as a key feedstock, with renewables as a secondary energy source. All oil growth activities in West Africa will be discontinued. “The reset of the strategy necessitates a revised operating model, which is still under development and will be announced in the second quarter of financial year 2021,” it said in a statement. There will be a strong focus on cash generation; and the two market-facing divisions each responsible for their own profit and loss, management of resources, and development.

A focused and robust review of the business, and the associated workforce structures, is underway and a detailed update will be provided to stakeholders alongside the full year results,” it said. These are due to be published in September.

Sasol is currently a major coal producer, with the company championing coal-to-fuel and chemicals  production using the Fischer-Tropsch process after the second world war. It was number 48 in the 2019 ICIS Top 100 Chemical Companies, with 2018 chemicals revenues of $7.56bn.

Another large multinational, vertically integrated into surfactants is enjoying somewhat less stressful times. That’s Saudi Aramco. In an outstanding article, which I will excerpt here, ICIS’s Joseph Chang notes that Saudi Aramco will boost its chemicals investments in emerging economies, especially in Asia. They’ll pursue opportunities for partnership in many Asian countries such as India, Malaysia, China and South Korea to build on and grow our business as a crude supplier and a downstream investor. In India, Aramco continues to work with the Abu Dhabi National Oil Co (ADNOC) and a consortium of Indian oil companies - Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum - to build a mega refining and petrochemical complex in Raigad, on the west coast.

The project is estimated to cost around $70bn, according to the UAE state-run news agency in November 2019.

Joe goes on to note that Aramco will make a greater push to compete not only in large scale petrochemicals, but further downstream in specialty chemicals as well - a shift highlighted by the completion of its $69.1bn acquisition of a 70% stake in SABIC on 17 June. “Together with SABIC, we can now accelerate our growth in petrochemicals by integrating world-class production of feedstocks by Aramco with conversion into petrochemicals, increasing existing chemicals volumes and further enhancing our international reach,” said Aramco’s SVP of Downstream. As blog readers well know, SABIC is a major player in petrochemicals and polymers, as well as specialty engineering plastics, composites, thermosets, additives and surfactants. SABIC in March 2020 lifted its stake in Switzerland-based specialty chemicals company Clariant from 24.99%, to 31.5%, closer to the one-third level that would trigger a mandatory takeover offer based on Swiss securities law. Clariant’s portfolio includes catalysts, personal and consumer care chemicals and ingredients (i.e. surfactants), additives, flame retardants, functional minerals, oil and mining chemicals and aviation fluids.

 Aramco is also banking on major efforts in R&D and sustainability to improve its competitive position going forward. R&D is not the first thing that comes to mind when thinking about the world’s largest oil producer. However, the company has a global network of 12 R&D centres and employs around 1,300 scientists and engineers.

Aramco, SABIC, Clariant – very interesting and certainly room for more chapters in this story, Sasol perhaps? Or something a little more downstream involved in sulfonation, ethoxylation, specialties etc.. Let’s again see. This market continues to consolidate into the domain of the giants – the Godzillas and King Kongs as I’ve often spoken about. Aramco though. That’s a big bugger for sure. It’s the world’s biggest oil producer and the world’s largest company by market cap at $1.9 Trillion. It is owned and controlled by the government of Saudi Arabia, which means King Salman and his son.

In detergent range alcohol news: ICIS’ Louis Hall reports that US Q3 fatty alcohols contract negotiations are ongoing. Q3 contract prices will be assessed the second week of July. The negotiations are largely being driven by supply and demand fundamentals versus outright movements in feedstock costs. Freely-negotiated mid-cut contracts are emerging at a wide range while C16-18 contracts are emerging at a narrower range. Although some Q2 volumes of both mid-cut and C16-18 alcohols are delayed into the third quarter as a result of supply chain disruptions during the coronavirus outbreak, stockpiling and panic buying has largely ceased. As a result, many buyers are committing to less volumes for Q3 as they await their Q2 volumes and gauge the supply and demand outlook for the second-half of the year. Some suppliers are still tight on material, however - especially on mid-cuts - prompting a wide range freely-negotiated contracts.

As note above, Sasol reached beneficial operations at its Lake Charles, Louisiana Ziegler alcohols expansion on 18 June and Guerbet alcohols unit on 23 June, with limited commercial volumes expected available in July. Most of the volumes are already accounted for and not expected to have a major impact on Q3 contracts. At the same time, feedstock costs remain volatile, with some players expecting the easing movement restrictions to put upward pressure on the oil palm complex amid pent up edible oil demand, and others expected the summer harvest season to put downward pressure on the market. Some oleochemicals producers will also take seasonal maintenance over the summer.

Freely-negotiated mid-cut alcohol contracts are emerging at a range from the low-60s to upper-70s lb cents/DEL (delivered) US Gulf. Freely-negotiated C16-18 alcohols contracts are emerging at a range of the upper-70s to lower-80s cents/lb DEL US Gulf. RSPO trademark premiums have risen, given lingering Q2 supply constraints, with premiums heard at 3-5 cents/lb depending on the supplier/manufacturer.

The other big hydrophobe, LAB, made some news in India this month as reported by ICIS’s Yuanlin Koh. Domestic linear alkylbenzene (LAB) producers in India have hiked their offers for July by about 12% from June. The hike comes amid higher feedstock crude and benzene costs seen from June, and limited domestic material in the country.

There are four major producers in India – namely Reliance Industries, Indian Oil Corporation (IOC), Tamilnadu Petroproducts (TPL), and Nirma Limited – who announce their list prices at the beginning of each month. In July, Reliance’s list prices were at Indian rupees (Rs) 111/kg ex-tank, IOC at Rs120/kg ex-tank, TPL at Rs125/kg ex-tank, and Nirma at Rs110/kg ex-tank. Buyers in the market have yet to respond to the hike in prices, but suppliers are confident that some buyers would be able to procure at these levels. “We are not going to give any discounts,” said a domestic producer. This sentiment was echoed by at least one other manufacturer.

In miscellaneous surfactants news: someone sent me this “media advisory” like we’re a real news outlet or something. I’m not sure what to make of that honestly but here it is for your information: Actually, if you want to send me news – about your own company (not your competitors for example) that you’d like to see in the blog, then that’s fine by me. Just make it interesting, you know?

BASF increases prices of betaines and alkanolamides in North America

FLORHAM PARK, NJ, June 26, 2020 – Effective July 15th, 2020, or as contracts allow, BASF Care Chemicals North America will raise list and off-list prices of certain betaine and alkanolamide surfactants by $0.04 per kilogram. These product lines include the BASF Dehyton® and Comperlan® brands.

Betaine amphoteric surfactants are commonly used in shampoos, shower and bath preparations and skin cleansers. Products that use alkanolamide surfactants include non-irritating shampoo, liquid bath soap, hair care products, lotions, creams, cleaning products and cosmetics, pharmaceutical, biochemical and biomedical products.

I couldn’t resist this weird news form Marmite. In a time of societal unrest and pandemic, Marmite is teaming up with the Unilever-owned brand to launch a body spray and shower gel. [Yes this is not a joke. It’s from Cosmetics Business Magazine]. Marmite, the 'love it or hate it' British breakfast spread staple, has partnered with male grooming brand Lynx for the launch of two body care products. The Lynx Africa & Marmite launches (from £2.84) are said to combine the Lynx Africa fragrance with that of the yeast extract, which gained a Royal Warrant from the Queen in 2016. Key notes include marmite, white moss and green herbs with woody scents of creamy sandalwood. With Marmite branding featuring on packaging, the Lynx Africa & Marmite Body Spray and Lynx Africa & Marmite Shower Gel also carry the red, green and black tones of the Lynx range.

Lynx's parent company Unilever said the collaboration is the brand’s biggest fragrance challenge to date and sure to divide opinion as well as peak consumer curiosity. Jamie Brooks, Lynx Brand Lead, said: “Lynx Africa is turning 25 this year, and to celebrate, we’re adding another unexpected fragrance mash up to our portfolio,” he said. “Having launched Leather & Cookies [wait what? I love these guys!] earlier this year, we’ve decided to step it up another notch, taking on our biggest fragrance challenge yet, by collaborating with one of the most polarising and iconic brands in the UK – Marmite. “With Lynx Marmite we’re bringing the world of food into the fragrance category with a pairing no one knew they needed. “Love it or hate it, it’s guaranteed to get the country talking, and is definitely one for the lovers.” [I’m honestly intrigued and a little disturbed by this last comment. What does he mean by this? Is there a subreddit we can consult? In the interest of maintaining the blog’s G rating, I’m moving on]

A fascinating piece in Bloomberg this month talked about returning to work in thoroughly disinfected offices and how the cure may well be worse than the disease for some people. This may not be the typical media hysteria around chemicals. It’s worth a read. Here’s a condensed version. It’s worth checking the link to “List N” which has products on there from Stepan, P&G, Clorox, Ecolab, Pilot and others:

Businesses across the U.S. have begun intensive Covid-19 disinfection regimens, exposing returning workers and consumers to some chemicals that are largely untested for human health, a development that’s alarming health and environmental safety experts. The rush to disinfect is well-intentioned. Executives want to protect employees while abiding by U.S. Centers for Disease Control & Prevention guidelines (and to avoid liability). Pre-pandemic, corporate cleaning staffs typically “freshened” lobbies every three hours, sanitized restrooms every four hours and cleaned other areas at night, said Rich Feczko, national director of systems, standards and innovation at Crothall Healthcare, which cleans hundreds of hospitals.

That pace has now accelerated. “Our frequencies have ramped up in public places like lobbies and elevators to 6-8 times per day,” said Feczko. Restrooms are cleaned every two hours. “Before the pandemic, clients were happy if their trash was emptied and vacuum marks were in the plush carpet,” said Jill Frey, owner of Ohio-based Cummins Facility Services. Now, customers ask for sanitization (reducing pathogens on a surface) and disinfection (killing all pathogens). “This is a hazardous proposition,” said Dr. Claudia Miller, an immunologist, allergist and co-author of Chemical Exposures: Low Levels and High Stakes. “Cleaners tend to go in with hugely toxic chemicals. We’re creating another problem for a whole group of people, and I’m not sure we’re actually controlling infections.”

Cleaning companies are selecting disinfectants from hundreds on List N, the month-old compendium of products approved by the Environmental Protection Agency to kill the novel coronavirus. Those chemicals have passed tests to show they’re effective against the pathogen, but “this doesn’t mean that they have been approved because they’re considered safe with regard to human health,” said exposure scientist Lesliam Quirós-Alcalá, an assistant professor at Johns Hopkins Bloomberg School of Public Health.

The article ends up - In the meantime, commercial landlords can’t wait for science, and may be incentivized to choose the cheapest methods, said Michael Silver, chairman of commercial real estate group Vestian. “If a business comes up with a great plan, and the landlord agrees, then who’s paying for it?” Silver said. “You wonder why anyone would want to go back to work to begin with.” [indeed – wow! ]

A strange piece from Reuters about BASF. Although in light of what we learned about Saudi Aramco above, maybe not so strange. : BASF, the world’s largest chemicals maker by sales, said it was mindful of the risk of an unsolicited takeover approach or of an attack from activist investors and was ready to react. Speaking at BASF’s virtual annual shareholders’ meeting, Chief Executive Martin Brudermueller said he could not rule out unwanted attempts to take control over the company, given the decline in its market value. “We are monitoring market developments and are preparing for such situations,” said Brudermueller, adding that being transparent about its business and future strategy was the most important tool to ward off unwanted approaches. The group’s market value has lost more than 20% this year to 49 billion euros ($55 billion) as the coronavirus pandemic weighed on global industrial demand for BASF’s chemicals and plastics. [Hmm.. for a $1.9Tn market cap company, like Aramco (do I have to spell it out), this is a tasty morsel no?

We’ve written a lot about dioxane in recent months. Here’s something from Pilot Chemical as reported in Global Cosmetics: Pilot Chemical has launched Calfoam ES-701 10 MAX and Calfoam ES-702 10 MAX, 70% active solutions of sodium lauryl ether sulfate with a 1,4-dioxane specification below 10 ppm, which provide drop-in solutions for compliance with looming 1,4-dioxane end-use product regulations*. [Jumping right in with a clear product offering. Good for them. ]

Guest Posts

Now we have two brief guest posts from Clariant and Modular Genetics

First up Clariant

Dirk Leinweber – Director Competence Center Surfactants at Clariant - presented during the recent European ICIS surfactant conference in 2019 about bio-based surfactants and showed how sustainability fuels innovation at Clariant. Dirk focused on key structural features of bio-based surfactants like oleochemicals and sugars and showed that “green does necessarily clean”!

Our newly developed glucamide surfactants – GlucoPureTM – are sugar surfactants for maximum performance. Sustainability is a key driver for new product developments in the home care industry. The consumer however is not willing to sacrifice cleaning efficiency, since performance is still the single most important feature in any Home Care product. GlucoPureTM is the next generation of sugar surfactants based on sugar and natural oils such as RSPO certified palm or sunflower oil, resulting in a Renewable Carbon Index of up to 96%.

GlucoPureTM doesn’t compromise on performance. You can finally have a surfactant with a truly green profile and a top cleaning effect. Our application tests show a much superior cleaning performance when compared e.g. to alkyl polyglycosides. GlucoPureTM can replace amine oxides in green formulations, keeping the cleaning performance and improving the toxicological profile significantly. Finally, GlucoPureTM is one of the mildest surfactants in the market. Internal Zein tests proved this surfactant to be milder than traditional surfactants, such as alkyl ether sulfates, alkylsulfates and even betaines.

In Personal Care our Glucamide surfactants are marketed as GlucoTainTM and they indulge the senses through a range of individual foam structures – from fluffy to rich and light to caring, in skin and hair care products. GlucoTainTM embraces mildness without compromising on cleansing and is ideal for new platforms and sulfate-free formulations. GlucoTainTM is suitable for hair care and skin cleansing applications such as shampoos, shower gels, soaps, facial cleansers and shaving foams.

GlucoPureTM and GlucoTainTM qualify for EcoTain® – EcoTain® is our label for sustainability excellence products and solutions showcasing best-in-class performance. They highlight our contribution to a sustainable future and add value to our customers and society as a whole. Each product and solution carrying the EcoTain® label has undergone a systematic, in-depth screening process using 36 criteria in all three sustainability dimensions: social, environmental and economic. Through this process, EcoTain® sets an ambitious benchmark, which distinguishes products that significantly exceed market standards in general and have best-in-class performance in one or several criteria screened. We evaluate the overall benefits and impacts across the entire value chain and product life cycle. By uncovering value-adding sustainability benefits, EcoTain® empowers our customers to differentiate in the market and contributes to their sustainability goals. EcoTain® inspires and helps us realize our vision of becoming the global leading company for specialty chemicals. We will reach this goal by making meaningful contributions to our customers and society as a whole, through outstanding offerings and by continuously developing our product portfolio towards sustainability excellence.

Clariant cares about our homes – ensuring that ingredients are safer for the people who work with them as well as for the end user and the environment is a primary concern. EcoTain® home care ingredients have a much friendlier composition, avoiding substances of (high?) concern. The concept also involves careful sourcing of raw materials with the focus on renewable resources wherever possible. Because “less is more”, multifunctional products are preferred in order to reduce the complexity of formulations, as are strategies to reduce energy and water consumption during production and application. And to help cut the cost of logistics and transportation along with their environmental consequences, EcoTain® products are produced in multiple sites around the world.

Next Up Modular Genetics

This guest post is from Kevin Jarrell, CEO, Modular Genetics, Inc. (Modular). I recently participated in a panel discussion at the 8th ICIS European Surfactants Conference in Amsterdam, 2019. Neil was an excellent moderator, prompting my colleagues and me to share our views on the future of the biosurfactant sector of our industry. This topic is of keen interest to us all. Consider, for example, the results of Neil’s live conference survey. The meeting attendees ranked the ascent of bio-based surfactants as one of the most important current trends in our industry. For those of you who missed the panel discussion, I’ll offer a brief summary of the key points.

Biotechnology methods are being used successfully to develop surfactants with structures and functions similar or identical to those of surfactants in commercial use today. These technical advances enable the manufacturing of “drop-in-replacement” surfactants, synthesized from carbohydrate without the use of oil as a raw material, creating an opportunity to maintain price and performance while reducing the need for oil as a feedstock for surfactant manufacturing. The main message is biotechnology is creating a new supply chain for surfactant production. Neil and others at the conference repeatedly referred to this new supply chain as the “third leg”. In the early days of our industry, surfactants were manufactured from petrochemical feedstocks. Over time, a second “leg” was added—a second feedstock for surfactant manufacturing--oils derived from plants. Biotechnology is the third wave, enabling direct conversion of carbohydrate into finished surfactant products without the use of oil as a raw material. The third wave is growing, enabling us to meet customer needs with biodegradable surfactants, produced by fermentation of carbohydrate, and purified using only water as a solvent. Biosurfactant producers are scaling-up, customers are buying, and a new supply chain is being established. Stay tuned to this Blog for future updates!

More Musings

I know at least a few of you know already what comes next in this section. The subject of suburbs cannot go without mention of their Canadian equivalent, sudivisions.  Nowhere is the dreamer of the mystic so alone. The suburbs have no charms to soothe the restless dreams of youth.  You’ve been forewarned.

Hey by the way, can you believe the musicianship?. Incredible!

That’s it. Don't forget to sign up for July 9th and July 14 – 16th

P2 Presents – Know Your Customer July 9th

Surfactants Training Course July 14- 16th.

Short Preview

But let's end with this

Neil

Surfactants Monthly – May (and early June) 2020

Surfactants Monthly – May (and early June)

This May was to have been the month of the 10th ICIS World Surfactants Conference in Jersey City, co-produced by your correspondent. Surfactants X as I called it in those super-bowl daydream moments. I’d alternately assume the personas of Bill Bellichick, Vince Lombardi, Joe Montana, George Best and Tom Brady (“hey Gisele, get in on this selfie with Tiger, Cardi and Oprah!”). Then I’d come to in my study where I’ve been for the last 3 months, with the dog’s head resting on my knee. Fine. I have a big-screen TV now for video calls and have that badge of honor of the modern day ‘net warrior, zoom neck (it’s a thing. Google it). I have a super-hi-def streaming cam that faithfully details every facial imperfection across 14 timezones. A studio mic that detects every prevarication, obfuscation and deflection in my voice. And on top of all this, United has extended my exalted elite status through to the end of ’21. Is this not truly the best of all possible worlds!?

The conference did not happen, of course. But stay tuned to this blog. We have some very special things planned for this year and next year. I think you’ll like them a lot.

On the P2 front, we’ve taken advantage of the becalming of the economy to engage in marketing LAMF (as the kids say.. do they still say that? It was Johnny Thunders and the Heartbreakers who popularized the term in 1977 – so not kids any more I guess..). Check out the website and this page in particular https://p2science.com/resources/ and Linkedin.

The news: As usual, most if not all of the news comes to us courtesy of ICIS and so again, I encourage to check out their many data and information services.

European ethylene oxide (EO) contracts dropped for the third month in a row, on the back of upstream ethylene losses for May. The European ethylene contract reference price for May has been set at €620/tonne, down by €100/tonne from April. Ethylene contract reference prices have fallen by €350/tonne in the last three months, on the back of the coronavirus pandemic impacts on upstream costs and downstream demand.

European EO prices dropped by €82/tonne at both ends of the range bringing prices to €898-1,066/tonne free delivered (FD) northwest Europe (NWE). A couple of turnarounds which took place in March and April have finished, and other maintenance  due to take place at the end of the quarter has been postponed. Due to the postponed turnarounds, supply is expected to remain healthy in northern Europe.

European producer BASF previously conducted a planned maintenance on EO in Ludwigshafen, Germany according to sources. The turnaround was said to have ended last week but this was not officially confirmed. Shell's EO and ethylene glycol (EG) planned turnaround at its plant in Moerdijk in the Netherlands, which was originally due to take place in the second quarter, has been postponed to autumn 2020. This is expected to exert more pressure on the ample MEG supply situation in Europe during May. Another planned turnaround which took place in Belgium also ended around Easter, according to sources, exacerbating the long downstream MEG supply situation.

First-quarter formula EO contracts were stable to soft, and a drastic drop was seen in April and May due to crashing ethylene feedstock costs. Demand is varied in the downstream markets. MEG demand and prices are heavily reduced in the spot market, with anti-freeze demand drying up on automotive industry struggles during the coronavirus pandemic. Other derivative markets more connected to the personal care and surfactants market are experiencing healthier demand.

Meanwhile US Ethylene Oxide contracts settled at a decrease, in line with April feedstock ethylene. ICIS assesses April EO at 45.4-54.9 cents/lb ($1,001-$1,210/tonne) FOB (free on board) US Gulf, lower by 1 cent/lb from the previous month.

This is the lowest level for EO contracts since June 2002, according to ICIS data. US April ethylene contracts settled at 20.5 cents/lb, down by 1.25 cents/lb from March.

Chinese EO, however, is heading in the other direction, according to ICIS’s Yuanlin Koh. In less than two weeks, China’s domestic ethylene oxide (EO) prices rose by another yuan (CNY) 200/tonne, according to market sources. This rise succeeded a previous rise of CNY300/tonne on 30 April. One of the largest EO producers in China - China Petroleum & Chemical Corp, or Sinopec, announced revision of its list price to CNY6,500/tonne ex-tank. The rise was generally attributed to recent strong upstream ethylene values and tightened EO supply on domestic plant turnarounds, especially in the east.

In other EO news: The IQOXE plant EO/EG production restarts after the 13 – 14th January explosion in Tarragona, Spain. The Industrias Quimicas de Oxido de Etileno (IQOXE) has roughly, capacity for 140,000 MT/yr (EO); 106,000 MT/yr (EG) . In January, an explosion at IQOXE’s Tarragona chemicals plant in Spain occurred in a reactor, which then ignited a nearby storage tank. Since 13th May, EO and EG production is running again, according to a company source.

Earnings Season: Oxiteno reported a Q1 net income of reais (R) 108.5m ($18.3m), compared with a net loss of R13.7m from the same quarter of last year because of higher sales, lower costs and a one-time R71m tax credit. [God bless tax credits really. I’ve been saved by them occasionally myself over the years]. /Oxiteno also benefited from the depreciation of the real against the dollar.

The following table summarises the company's financial performance. Figures are in millions of reais.

Domestic sales rose because of demand in the crop solutions and home and personal care segments, as well as greater US sales volume with the ramp-up of the Pasadena surfactants plant in Texas. Cost of sales fell because of a reduction in raw material costs, particularly for ethylene and palm kernel oil (PKO).

In an earnings webcast, Frederico Curado,Ultrapar (Oxiteno’s parent) CEO provided further color. Sales volume of Oxiteno’s specialty chemicals were stable compared to Q1 2019. Curado attributed this to the increase in sales in the crop solutions and home and personal care segments, offset by a reduction of 6% in exports. Curado said these were more resilient segments, unlike the coatings, oil and gas segments which had been negatively impacted by the pandemic.

“We had a slight increase of 2% in sales volume of commodities driven by exports,” he said. “Oxiteno’s results in the quarter benefited from improved contribution margins in US dollars per tonne, reduction in the cost of key raw materials and the devaluation of the real.” Oxiteno’s surfactants plant in Pasadena reported a 31% increase in sales volumes in the quarter. “Results were also boosted by a non-recurring tax credit of R71m booked in the first quarter of 2020,” Curado said. “As a result Oxitano’s EBITDA was a R193m in the quarter.”

Ultrapar said it adopted emergency measures to combat the economic fallout of the coronavirus pandemic, such as a 30% reduction in its investment plan for 2020, an increase in cash position through further credit facilities worth a total of R1.5bn and the withdrawal of its 2020 guidance.

“We are not going to have to buy US dollars to settle all the bonds,” Curado said. “We are not taking money from our cash to settle the bonds, the settlement will be coming from exports that are being performed by Oxiteno over the years.”

Curado was reluctant to make predictions during the “current crisis” when questioned. “There’s a lot of volatility," he said. “It will be a few months before we have any idea where this whole thing will end… We are tuning down the capex for this year based on what we see for the next several weeks. All our businesses are quite resilient.”

Lucas Hall, the new ICIS Fatty Alcohols maven reports that the supply of both mid-cut and C16-18 alcohols remains tight amid delayed shipments of Q2 alcohols stemming from transport logistic and other coronavirus-related constraints in southeast Asia and Europe during the quarter.

Although production in those regions is improving as more countries exit lockdowns related to the virus, many Q2 volumes are not expected to arrive until summer or early fall, increasing demand for incremental volumes in the spot market to cover strong demand in the personal care sector during and after the coronavirus.

Mid-cut alcohols are particularly tight, with summer turnarounds expected to keep the market snug into the third quarter. An increase in feedstock costs across the oil palm complex in recent days has, however, prompted some buyers to pull back their bids amid expectations feedstock costs will drop over the summer during the peak palm harvest season, helping counterbalance the market. In addition to natural alcohols, petrochemical alcohol supply is also tight, as the market awaits the startup of Sasol's Ziegler and Guerbet alcohols units - now expected at the end of the quarter - adding to the upward pressure.

Despite tight supply, most large volume buyers are largely satisfied with their Q2 volumes, limiting significant upward pressure on the market. However, spot prices have been heard within and above Q2, depending on the buyer's Q2 contract settlement, at a 3-5 cent/lb increase from the previous quarter.

A while back in prior blogs (November ‘19 and January ‘20) we wrote about EO emissions in the US. Here's the update as reported by ICIS: The US Environmental Protection Agency (EPA) has finalised a rule to regulate ethylene oxide (EO) emissions.

"The EPA evaluated the risks remaining and determined cancer risks from the miscellaneous organic chemical manufacturing source category to be unacceptable," according to a statement on the EPA website. To reduce risks to an acceptable level, the agency said, the EPA is finalising additional requirements for process vents, storage tanks and equipment used with EO. These requirements will bring risk to an acceptable level, the EPA said.
In May the Texas Commission on Environmental Quality (TCEQ) increased its EO safe exposure limit. TCEQ set a long-term effects screening level of 2.4 parts per billion (ppb), which is the health-protective air concentration used to determine limits for proposed air permits in Texas. TCEQ’s previous, preliminary EO limit was 1 ppb.

According to TCEQ, its EO cancer dose-response assessment shows that this chemical, used to sterilise half of the approximately 40bn medical devices used in the US each year, poses less risk than was previously thought.

In November 2019, a bipartisan congressional task force assembled to address the safety of EO emissions. And in January 2020, the American Chemistry Council created a new project to study air quality information for EO emissions in the US state of Georgia.

So – some positives and negatives right? The increasing recognition of EO’s role in medical device sterilization has to be putting some wind in its sails though.

On a related note, as reported by HAPPI, BASF has launched a new 1,4-Dioxane Online Calculator which enables personal care formulators to determine the 1,4-Dioxane content in their formulas. The tool is accessible from both desktop and mobile devices and recommends alternative BASF ingredients to bring the total 1,4-Dioxane value of the formulation to less than 1ppm.

S4389B, a New York state law signed in December 2019, prohibits the sale of personal care products and household cleaning products containing more than 2ppm 1,4-Dioxane, as well as cosmetics products containing more than 10ppm 1,4-Dioxane by the end of 2022. For personal care and household cleaning products the limit will be further reduced to 1ppm at the end of 2023. The state of California is also assessing 1,4-Dioxane in home and personal care products through the Safer Consumer Products program and research is estimated to be completed in three years.

To allow for full formulation flexibility, in addition to the BASF product offering and recommendations, the 1,4-Dioxane Online Calculator allows inclusion of non-BASF ingredients if the 1,4-Dioxane level in them is identified. Formulators are also able to place sample requests for BASF ingredients directly from the calculator. [Pretty Clever]

Finally some cool news, that I found in Global Cosmetics Industry Magazine: For the first time, ‘Safer Choice’ has approved a Safer Chemical Ingredients List (SCIL) submission by a non-manufacturer: The American Cleaning Institute (ACI), which submitted eight cleansing ingredients.

The SCIL is a list of chemical ingredients, arranged by functional use class that the Safer Choice Program has evaluated and determined to be safer than traditional chemical ingredients. This list is designed to help manufacturers find safer chemical alternatives that meet the criteria of the Safer Choice Program.

The ACI has worked with environmental and risk sciences consulting firm Gradient in compiling the necessary data for review by the Environmental Protection Agency (EPA).

“Adding chemicals to the SCIL encourages innovation and growth in safer products, increases markets for manufacturers and helps protect people and the environment,” said Kathleen Stanton, ACI associate vice president of Technical and International Affairs, who led ACI’s work on the submissions. “The SCIL has a rigorous review process undertaken by both EPA and third parties to ensure the chemicals meet the Safer Choice Surfactant Criteria.”

The list is not intended to be exclusive. Chemicals may be submitted as part of a formulation that the program has yet to review or a chemical manufacturer may develop a chemical to meet the Safer Choice criteria. If the chemicals meet the criteria, they may be approved for use in Safer Choice-labeled products and added to the SCIL. Chemicals may be removed from the list or have its status changed based on new data or innovations.

The following surfactants were added to the SCIL on May 13, 2020:

• Octadecanoic acid, 2-ethylhexyl ester (CASRN 22047-49-0)

• Alcohols, C12-15 (CASRN 63393-82-8)

• Octadecanoic acid, 12-hydroxy- (CASRN 106-14-9)

• Fatty acids, C8-18 and C18-unsatd., sodium salts (CASRN 67701-10-4)

• Fatty acids, C14-18 and C16-18-unsatd., sodium salts (CASRN 67701-11-5)

• Potassium oleate (CASRN 143-18-0)

• Fatty acids, palm-oil (CASRN 68440-15-3)

• Sulfuric acid, mono-C14-18-alkyl esters, sodium salts (CASRN 68081-98-1)

Good on you, ACI!

Wrapping up this month:  I have a story. I came to the US in 1984 the day after labor day. Shortly after, I met the girl who is now my wife. I got a cold or flu or something and we went to the drugstore to get something for it. Bethe picked up a box of Alka-Seltzer Plus and thrust it toward me triumphantly saying “here this’ll cure it”. In my best sort of Hugh Grant voice, I replied that “you know, that doesn't actually cure anything, it merely treats the symptoms”. Facing me among the cold medicine, halloween candy and 17 brands of scented candle, 70’s muzak wafting through the chilled and dehumidified CVS air , she grabbed hold of my upper arms, looked earnestly and deeply into my eyes and slowly, with great patience explained.. “Neil. This is America. We treat the symptom”. I’ve thought about that many times since then.

See you soon..

Surfactants Monthly – April 2020

Surfactants Monthly – April 2020

The news this month, as in other months, comes from ICIS and I continue to encourage you to subscribe, as I do , to their many great services. We’ll get straight into it first and then I’ll follow the news with a brief editorial on COVID, health, wellness and freedom -  accompanied by a couple of American punk rock classics.

As you might expect with what is going on in oil markets, the month started with US March ethylene oxide (EO) contracts being settled at a decrease, to the lowest level since summer 2012, on lower upstream ethylene contracts. Contracts are assessed at 46.4-55.9 cents/lb ($1,023-1,232/tonne) FOB (free on board) US Gulf. March feedstock ethylene contracts settled at a decrease of 2.25 cents/lb to 21.75 cents/lb, their lowest level since 2002.

In other unsurprising news: US-based polyurethanes and chemicals producer Huntsman Corp will hit the pause button on mergers and acquisitions (M&A), its CEO said in an interview with ICIS. “Certainly at this point we’re taking a pause just because cash is king. Our first and foremost responsibility to our shareholders is to make sure we have a strong balance sheet,” said CEO Peter Huntsman in an interview with ICIS. “We have a revolver well in excess of $1bn and we’ve got $1bn of cash on our balance sheet. We have a very strong balance sheet today - among the strongest in the chemical industry - and we want to make sure we maintain that,” he added.

Huntsman on 16 March announced the planned acquisition of epoxy resins and nitrile latex producer CVC Thermoset Specialties for $300m in cash, representing about a 10x multiple on earnings before interest, tax, depreciation and amortisation (EBITDA), in a deal expected to close by mid-2020.

This follows the closing of its $350m acquisition of spray polyurethane foam (SPF) producer Icynene-Lapolla on 20 February. “We’ll be very, very cautious, and again, I don’t think we’ll recover [from the coronavirus crisis] overnight - it’s not that we’re back in 45 days doing deals again,” said Huntsman. “At the same time, we do need to look at the value of our shares, that we’re protecting our dividend, and we need to make sure we’re not only preserving capital but also looking at opportunities as they may come,” he added.

Huntsman gained the financial flexibility for its latest two deals from the sale of its intermediates and surfactants business for around $2bn to Indorama on 5 February. Even prior to the deal, Huntsman has been steadily reducing debt levels through the years. “If you’re today trying to reduce debt, generate cash and get a strong balance sheet in [this] environment, it’s not going to work. You’ve got to have done that before you get into these sort of crises. That’s why we’ve been putting such an emphasis on this over the last couple of years and since the last recession - to make sure we get in shape before the next crisis,” said Huntsman.

The sales of its intermediates and surfactants business gave Huntsman a leaner and less capital spending (capex)-driven portfolio.“It’s a bit smaller, but more nimble with a stronger balance sheet. And we have the levers in place that when we get to another great recession or a 9/11 incident or even today, that we have the ability to move freely,” said Huntsman.

Another unsurprising development: Contracts for natural mid-cut alcohols among large volume buyers negotiated earlier in the quarter largely settled at a decrease amid the downward correction in feedstock palm kernel oil (PKO) costs and healthier inventory levels at the beginning of the year. Mid-cut contracts settled later in the quarter - including contracts for synthetic volumes - toward the higher end of the range, amid tightening supply in southeast Asia, Europe and the US as a result of the coronavirus, made worse by the March plunge in crude oil futures.

C1618 contracts were mixed amid similar fundamentals, with prices for mixed C1618 and C18 single-cut alcohols settling toward the lower end of the range and prices for C16 single-cut alcohols toward the higher end of the range amid more protracted supply tightness in the global market. Contracts for premium material settled at a 3-5 cent/lb premium over non-premium volumes. Despite the settlements, supply is tight amid weaker production and sustained shipping and logistics constraints in south and southeast Asia and Europe stemming from coronavirus-related lockdowns and other disruptions.

Many Asian oleochemical producers have reduced operating rates and/or declared force majeure as a result of the lockdowns and other coronavirus-related disruptions. Disruptions in Asia are causing a knock-on effect across Europe and the US, which are also facing their own constraints as a result of the virus. As a result, many Q2 shipments are delayed until later in the quarter or Q3, prompting increased demand for spot volumes at higher prices within and above the posted ranges. Ongoing supply tightness is expected to continue to put upward pressure on the market until these constraints ease and the virus subsides.

US Q2 mid-cut alcohols were assessed 3 cents/lb lower on the low end and 3 cents/lb higher on the high end at 63-78 cents/lb delivered (DEL) in the US Gulf. US Q2 C1618 alcohols were assessed 2 cents/lb lower on the low end and 3 cents/lb higher on the high end at 88 cents/lb DEL in the US Gulf.

Meanwhile in Europe, European fatty alcohols second-quarter contract prices dropped amid falling upstream palm kernel oil (PKO) values throughout the first quarter. Prices decreased €100/tonne on the low end and €110/tonne on the high end to €1,100-1,300/tonne FD (free delivered) NWE (northwest Europe). Although palm kernel oil (PKO) values increased at the end of March and beginning of April, a number of contracts were settled at lower prices before this took place. PKO prices dropped back down this week. At the beginning of April, the market was tight with limited volumes available for spot purchases.

Earlier delays to vessels from southeast Asia have now been resolved. However, the lockdown in Malaysia has seen some producers close plants or reduce production, which will limit exports to Europe during the second quarter. There are no production issues domestically in Europe currently. The shortages seen in the region have been prompted in the main by strong demand for surfactants.

Buying interest has surged amid preventative measures put in place to curb the spread of coronavirus. Demand for detergents and soaps has jumped. Some downstream alcohol ethoxylates producers are said to have limited material available.

In a fascinating interview with the CEO of MFG, ICIS’s Joe Chang teased out some encouraging nuggets. I won’t give you the whole thing here, but here’s some highlights:

US-based MFG Chemical is proceeding with upgrades and expansions at its three Dalton, Georgia, plants which would boost capacity by 20-25%, its new CEO said. “Covid won’t slow down our focus on capital improvements… “Post-Covid, we’ll have even more entrepreneurial swing capacity where we can meet customers’ new product needs and opportunities with speed and agility. Innovation starts with our customers - we don’t go direct to end-use markets but work collaboratively with our key customers that do,” said Turgeon.

One of MFG’s core products is dioctyl sulfosuccinate (DOSS), which is used in oilfield chemicals among many other applications such as clear coats for inks, mining surfactants, dispersants for agricultural formulations, stool softeners and scale control and corrosion inhibition in water treatment processes. Its key feedstock is MA. MFG’s other specialty chemicals include amides, esters, imidazolines, water soluble polymers, rheology modifiers, specialty anhydrides and DOSS formulations. Along with MA, MFG is a buyer of 2-ethylhexanol (2-EH) for DOSS and glacial acrylic acid (GAA) for water treatment formulations. The company is not seeing any major availability issues, as it sources most raw materials locally, said the CEO.

An excellent analysis by ICIS reporters on the relationship between EO and Crude was published around mid-month.

According to this ICIS analysis: The correlation between US ethylene oxide (EO) and crude oil prices has returned in 2020, after a sustained period of disconnect brought on by the shale gas boom. That correlation is likely to continue, as oil prices strongly influence the pace of drilling activity, and much of US natural gas liquids - including ethane - currently comes from shale oil wells. Crude production cuts are expected to reduce ethane co-production, helping to ease oversupply and possibly supporting ethane prices.

Although in the rest of the world most feedstock ethylene is produced using crude-source naphtha, most US ethylene is made using ethane, extracted from shale gas plays. As illustrated in the following chart, US EO contracts rise and fall with upstream ethylene contracts.

The majority of EO contracts are formula-based, and price movement comprises 80% of the change in the ethylene price and an additional conversion fee, or adder. Like ethylene, EO contracts are settled at the beginning of the month for the previous month’s price.

As seen in the following chart, ethylene movements closely correlated with crude prices until the early 2010s. That was when the shale boom began in the US, making ethane the preferred feedstock over crude oil, because of the significant cost advantage.

At the same time, ethylene derivative production became more integrated, causing EO prices to be based on ethylene contracts, which are settled by taking into consideration the month's ethylene spot prices and production costs. From that time, ethylene prices, and subsequently those of EO, much more loosely followed crude oil movements.

 Starting in January 2020, crude prices began a steep decline, due to lower demand amid the rapidly spreading coronavirus, and ample supply with dwindling storage space. In March, crude oil prices plummeted when Saudi Arabia and Russia announced they would not adhere to previous production cuts  - effectively declaring an oil price war.

The following chart shows the recent correlation between ethane-based EO and crude oil prices.

To bolster oil markets, this week the members of OPEC and its allies (OPEC+) agreed to lower production by 9.7m bbl/day in May and June before tapering off the cuts through April 2022. But the historic production-cut agreement has so far failed to halt the decline in crude prices, threatening margins for petrochemical producers.

Stepan Company reported lower Q1 surfactants earnings because of higher supply chain expenses and lost sales associated with an unexpected shutdown at the company's Millsdale, Illinois, plant in February as well as lower demand in agricultural and oilfield end markets, it said in its quarterly earnings presentation.

Earnings were also down amid lower selling prices due to the passthrough of lower raw materials costs.

These factors fully offset strong volumes in global consumer product end markets driven by increased demand for cleaning and disinfection products as a result of the coronavirus pandemic and a $4.2m operating income improvement in Mexico.

Surfactants operating income was $36.2m, down $1m or 3% year on year. Net sales were down 6% year on year at $327m.

Despite weaker demand from the agricultural and oilfield sectors, Stepan expects surfactant demand to remain relatively strong in the short term. "With empty store shelves around the world due to high demand for disinfection and cleaning products, our surfactant volume in the consumer products market should remain relatively strong short-term," said CEO Quinn Stepan. Falling raw material costs may also provide an opportunity for margin improvement. "With dramatically lower oil prices, demand for surfactants within the oilfield market will be down. We anticipate our agricultural business should approximate last year's results. Overall, we believe our surfactant business should remain relatively recession resistant," said Stepan. [ my comment – as with the financial crisis in 2008 / 2009, we expect Stepan to weather this storm in much better shape than many other industrial companies. Surfactant businesses are recession resistant and Stepan is nothing if not a surfactant business. Attendees at our 2013 surfactant conference may remember my antifragile assessment of Stepan’s business model. It applies today perhaps even moreso. By the way, this is not a commnent on the stock price - just the business model]

Somewhat shocking news appeared late April in Bloomberg - Sasol Ltd. is looking to sell a large stake in its $13 billion chemical complex in the U.S., as the South African energy producer moves to shore up finances amid an historic rout in the oil market, according to people with knowledge of the matter.

The company has hired Bank of America Corp. to help find a buyer for a minority stake in the Lake Charles chemical project, said the people, who asked not to be identified because the matter is private. Sasol previously indicated it was considering a partial sale of its U.S. base-chemicals business to avoid a last-resort rights issue. Sasol would prefer finding an industrial partner for the stake and may structure any deal as a joint venture, one of the people said. The goal is to reach a deal by June, the person said.

The move to find a buyer highlights Sasol’s need for cash as it struggles with debt taken on to develop the Lake Charles complex in Louisiana, originally seen as a way to become a global operator and diversify away from oil. Its cost has more than doubled since early estimates to almost $13 billion, while the current crash in oil prices has choked off revenue and taken the company to the brink. Sasol shares have been in freefall since investors saw pressure building on the balance sheet, sliding 82% this year. They rose as much as 2.1% on Tuesday after news of the planned Lake Charles stake sale, before trading 1.1% lower at the close in Johannesburg.

Sasol said last month it plans to raise $6 billion by the end of its 2021 financial year, mainly through asset sales, as it seeks to reduce net debt of about $10 billion. The company left open the possibility of selling as much as $2 billion of shares, and is also in negotiations with lenders to arrange greater flexibility over its repayments.

According to additional reporting from ICIS, theplanned sale is drawing interest from both corporate and private equity buyers, but a transaction will be challenging, investment bankers said. “There might be opportunistic buyers observing the situation, but the valuation will not be high since Sasol apparently needs a quick deal,” said one banker.

The banker said he has been approached by a number of investors on a potential Sasol deal but noted they would only do it at a “significant discount”.

In its last earnings report on 24 February, Sasol said its Lake Charles Chemicals Project (LCCP) is 99% complete, with costs tracking at $12.8bn and around 80% of production capacity in use. The 1.5m tonne/year ethane cracker was producing to plan within pipeline specifications, the ethoxylates unit achieved beneficial operation at the end of January, the linear low density polyethylene (LLDPE) and the ethylene oxide/ethylene glycol (EO/EG) units were producing at targeted levels. The last piece - the low density PE (LDPE) unit was expected to reach beneficial operation in the second half of 2020.

Sasol is under severe financial stress from the debt taken on for the LCCP and the collapse in crude oil prices. On 30 March, Moody’s Investors Service downgraded Sasol’s credit rating further into speculative grade (junk) territory to Ba2 from Ba1 with ratings on review for downgrade. This followed a downgrade weeks earlier on 5 March from Baa3 (investment grade) to Ba1. “Sasol has been caught at the intersection of a series of credit negative developments, including a significant deterioration in the operating environment from a combination of the collapse in oil prices, widening impact of the coronavirus outbreak and weakening of South Africa’s sovereign credit quality at a time when its balance sheet has reached peak gearing because of Lake Charles Chemicals Project (LCCP) related capital spending,” said Moody’s. Sasol’s stock price on the New York stock exchange has declined over 90% in a year.

Another banker calls any potential deal a “tough” one. “It will be hard to finance minority stakes except using equity - this favours a large strategic buyer. The question is: Who has the appetite? The market will be oversupplied,” he said. [First, I have no specific knowledge beyond what is in the news. I will speculate however. I think there are a few good strategic fits here. The only issue is the price at which Sasol does the deal. The obvious fits involved a degree of vertical integration. Others involve a US presence for a company large based in, say the Middle East or Asia. An additional fit could be found around some play that seeks to take advantage of the aforementioned recession resistant surfactant business. None of these options will be friendly to current Sasol shareholders, but neither is the alternative additional equity issue. I think a deal that helps Sasol emerge fro this global recession (or whatever it is) in a stronger strategic position, should beat the pure equity financing of the current business model. Let’s see.]

In other COVID impact news: Dow on reported Q1 sales down 11% year on year, with the operating earnings margin falling to 8.6%, from 10.4%, amid declining demand and prices. The company announced that it is cutting capital expenditure (capex) and idling certain capacities to cope with the downturn caused by the coronavirus (Covid-19) pandemic. Sales declined primarily driven by lower local prices in all operating segments due to a decline in global energy. Volumes fell 2%. Demand grew in food, health and hygiene packaging; surfactants and solvents for cleaning; and coatings end-markets. These gains were more than offset by declines in polyurethanes (PU) and silicone applications, including automotive and durable goods.

So what to make of all this? I mean this COVID business and the lockdown and the recovery and such.

I like the idea that countries are taking different approaches to the problem and that different states and cities within countries also are going their divergent ways. This will enable an objective observer to learn what works well and not so well, given certain metrics. Some countries and states will do better than others – by some metric such as deaths, infections, recoveries, economic impact etc. and then those that do any worse than the best (in any given category) of course will be pilloried by the armchair quarterbacks (inevitably the still-salaried, working from home, metropolitan dwelling, higher educated, hands-not-dirty, zipcode lottery winner types). That’s OK, I suppose; the old normal for sure.

One thing I wonder about. Do totalitarian states fare better in the face of pandemics than others? And does it matter? Well, yes, I think it matters. The totalitarian, authoritarian, conformist, collectivist (whatever you want to call it) model is very much in the spotlight today and this pandemic may well sway popular opinion both toward and away from such a philosophy. If, in 6 months time, it was objectively proven that Communist China dealt much better (again on some metric) with COVID that democratic Europe or North America, does that mean, the authoritarian route is the way to go – to manage a country in today’s world? That is the whole thing, not just pandemic response, but healthcare, business, culture. Has modern society just got too complex and interconnected for the enlightened self interest of educated and virtuous people to be a good guiding principle of governance. Far better today the leviathan to take care of keeping us safe? It’s a compelling thought.

Heroes and villains have emerged from this mess. Likely heroes and for a long time under-recognised are the nurses and others working to comfort and heal the sick. Many countries are recognizing them with nationwide clapping and cheering sessions on specific days. It’s heartwarming to see. Unlikely villains however, include owners of landscaping companies in places like Michigan who want to go back to work mowing lawns (about as socially distanced a profession as you might imagine – and outdoors to boot!). The governor is standing firm against these sociopaths. Let my people mow, indeed. Bad for both, I think.

In certain parts of California, people are being ticketed for merely existing outside. …. A young lady of my close acquaintance was ticketed on Saturday for stopping her motorcycle by the side of the road and admiring the sea.

Check out the lyrics below the video description on youtube. Prescient?

This is probably just my crazy contrarian way of looking at things. I’m reminded of a story told in the book Gulag Archipelago (by Aleksandr Solzhenitsyn). At the end of a political conference in 1937 in Soviet Russia … a tribute to Comrade Stalin was called for. Of course, everyone stood up (just as everyone had leaped to his feet during the conference at every mention of his name). ... For three minutes, four minutes, five minutes, the stormy applause, rising to an ovation, continued. But palms were getting sore and raised arms were already aching. And the older people were panting from exhaustion. It was becoming insufferably silly even to those who really adored Stalin.

.. However, who would dare to be the first to stop? … After all, NKVD men were standing in the hall applauding and watching to see who would quit first!.... Then, after eleven minutes, the director of the paper factory assumed a businesslike expression and sat down in his seat. And, oh, a miracle took place! Where had the universal, uninhibited, indescribable enthusiasm gone? To a man, everyone else stopped dead and sat down. They had been saved! That same night the factory director was arrested. ….. after he had signed Form 206, the final document of the interrogation, his interrogator reminded him: “Don’t ever be the first to stop applauding.”

A popular meme (before memes were a thing) when I was growing up in 70’s England was that - “yeah Communist Russia is supposed to be the enemy but, hey, they get things done over there”. Whereas in England at the time, we had powercuts, the (involuntary) 3 day workweek, strikes, record unemployment etc.. Indeed, in Russia “things” did get “done”. Stalin himself got millions of things done either directly by imprisonment and execution or indirectly via starvation.

The Dead Kennedy’s again captured this sentiment in this 1980 song: Lyrics below the video description on youtube (caution - not G-rated)

Now you can go where they get things done.

Sorry to end on such a dark note. I guess I just don't want to see one of the greatest achievements of Western civilization, human rights, end up as another casualty of the pandemic. Because without that, there’ll be no health, welfare and economic wellbeing to argue over. How do I know that? Because arguing won’t actually be a thing. Just standing. And clapping…