Chemical Update

According to the American Chemistry Council (ACC), as measured by a three-month moving average, US chemical production grew by 0.3 percent in May, following a revised 0.1 percent decline in April. Chemical production rose in all regions. To smooth month-to-month fluctuations, the chemical production regional index (CPRI) is measured using a three-month moving average.

Compared to May 2007, total US chemical production was flat. Regionally, year-over-year chemical production rose in all regions except the Gulf Coast, Ohio Valley which declined. On a year-to-date basis, chemical production was up by 0.5 percent, and was up in all regions, except the Ohio Valley which declined on a year-to-date basis.

Gulf Coast
Following a 0.3 percent decline in April, chemical production in the Gulf Coast region gained 0.6 percent in May. The Gulf Coast region is dominated by the production of energy-intensive petrochemicals, inorganics, and synthetic materials. The manufacture of these products depends on Gulf Coast energy supplies as raw materials, as well as for fuel and power. On a year-over-year basis, Gulf Coast chemical production was off 1.2 percent, but was up 0.5 percent on a year-to-date basis.

Midwest
In the Midwest region, which is influenced by production of agricultural chemicals, plastics, paints, and other chemical products, chemical production was up 0.3 percent in May, following a 0.1 percent decline in April. Compared to May 2007, Midwest chemical production in the region was up 0.2 percent year-over-year, but was flat on a year-to-date basis.

Ohio Valley
In the Ohio Valley region which is largely influenced by production of basic chemicals, plastics and synthetic rubber, coatings, and consumer products, chemical production rose 0.5 percent in May, following a 0.2 percent decline in April. Compared to May 2007, production in the region was off by 1.0 percent, and was down 0.2 percent on a year-to-date basis.

Mid-Atlantic
In the Mid-Atlantic region, which is dominated by pharmaceutical manufacturing, chemical production was up 0.1 percent in May, following a 0.1 percent gain in April. Mid-Atlantic chemical production was up 0.8 percent compared to May 2007 and was up 0.5 percent on a year-to-date basis.

Southeast
In the Southeast region, which is influenced heavily by production of basic chemicals, fibers, agricultural and other chemical products, chemical production was up 0.3 percent in May, following 0.1 percent decline in April. Southeast region chemical production was flat on a year-over-year, but was up 0.2 percent on a year-to-date basis.

Northeast
In the Northeast region, also influenced by pharmaceutical manufacturing and other specialty chemical manufacturing, chemical production was up 0.1 percent May, following flat growth during April. Compared to May 2007, Northeast region chemical production gained 1.5 percent, and was up 0.4 percent on a year-to-date basis.

West Coast
In the West Coast region, chemical production rose 0.1 percent in May, following flat growth during April. Chemical production in the West Coast region rose 0.6 percent compared to a year ago, and was up 0.2 percent on a year-to-date basis.

World Chemical Industry 2007

Most world regions saw production grow in 2007, according to Chemical & Engineering News. The global chemical industry enjoyed continued strong demand in 2007, despite rising prices for petrochemical feedstocks. Producers raised prices, but not dramatically; therefore, increased sales did not lead to higher profits in the U.S. or Europe.

The strongest chemical sectors were those whose products are used or produced on farms. Prices in the U.S. for inedible fats and oils rose 28.1% during 2007, and agricultural chemical prices increased by 14.5%.

The solid financial performances of chemical companies around the world led to increased investment in capacity and R&D. The report states that spending on new plants and equipment by 22 major U.S. chemical firms rose 10.6% in 2007 to $9.21 billion; still this growth was less than half that seen in 2006, when capital spending soared 22.6%.

U.S. spending is lower than in Europe and Japan. Nineteen European chemical companies C&EN tracks spent a combined $16.0 billion on capital, a 10.3% increase over 2006, and 12 Japanese firms spent $10.1 billion, a 7.7% increase.

Two U.S. firms, Dow Chemical and DuPont, spent more than $1 billion on R&D in 2007. Four European firms—Bayer, BASF, Lonza, and Solvay—spent more than $1 billion, with Bayer leading all chemical companies worldwide with $3.5 billion in R&D spending.

U.S. pharmaceutical firms' R&D spending dwarfed that of U.S. chemical firms, with eight companies spending a combined $36.1 billion. Pfizer, at $8.1 billion, and Johnson & Johnson, at $7.7 billion, outspent the 22 chemical companies combined.

Demand remained strong, with chemical shipments increasing 9% in the U.S. and 6.5% in Europe.

In Asia, Chinese imports of chemicals went up 22% to more than $68 billion, while exports surged 35% to $51 billion, significantly shrinking that country's chemical trade deficit.

CEFIC Chemicals Trends Report, June 2008

The European Chemical Industry Council’s (CEFIC) Chemicals Trends Report was released in June, 2008. A copy of the report is available HERE.

German Chemical Industry Predicts 3% Annual Growth in Production Through 2020

Innovative products remain the most important factor for lasting success, said Dr. Ulrich Lehner, President of the German Chemical Industry Association, at a conference in Frankfurt. Because of this emphasis on innovation, German companies have strongly increased their research budgets. Over the past ten years the research spending of the chemical-pharmaceutical industry in Germany has risen over $3.9 billion to $9.5 billion annually. Research spending has been especially strong in the pharmaceutical sector, he said.

Since the start of the economic upswing in 2003, annual growth in the German chemical industry has averaged over 4% each year, which is more dynamic than the growth rate for the chemical industries of the U.S., Japan and other EU member states, where annual growth averaged only 2.6% in the period from 2003 to 2007.

Exports, comprising 75% of revenues, are a strong feature of the chemical sector. The growing economies of central and Eastern Europe have gained importance in Germany because of their increasing demand for chemical products. Exports to central and Eastern Europe totaled $25 billion in 2007, representing 12% of the chemical exports from Germany.

Dr. Lehner sees the plans of the EU commission for an emission trading system as a major threat to this long-term growth and stated that the chemical industry would face immense costs. As early as 2013 the financial burden for German companies alone would be over $1.6 billion per year and would rise to $3.2 billion per year by 2020.

UNITED STATES

Dow To Acquire Rohm & Haas

Dow Chemical will acquire all outstanding shares of Rohm and Haas common stock for $78 per share in cash, creating the world’s leading specialty chemicals and advanced materials company and combining the two organizations’ best-in-class technologies, broad geographic reach and strong industry channels.

The transaction marks a decisive move in Dow’s transformation into an earnings growth company with reduced cyclicality, according to reports. Last December, Dow announced a joint venture with Petrochemical Industries Company of the State of Kuwait (PIC). With the collective impact of these two deals, performance products and advanced materials will represent 69 percent of Dow’s total sales, on a 2007 pro forma basis, compared with 51 percent prior to these transactions.

Financing for the acquisition includes an equity investment by Berkshire Hathaway and the Kuwait Investment Authority in the form of convertible preferred securities for $3 billion and $1 billion respectively. Debt financing has been committed by Citi, Merrill Lynch and Morgan Stanley who acted as financial advisors on the transaction.

Rohm and Haas provides Dow with an excellent position in a number of industry segments that are poised for significant growth given long-term market megatrends, most notably in the electronic materials and coatings segments. In addition to its leading platforms in these two important segments, Rohm and Haas has a strong presence in a number of other attractive areas such as water solutions, adhesives, personal care, biocides, and building and packaging materials. The acquisition will unlock value from Dow’s existing portfolio by delivering a range of innovative new products and technologies to these high growth downstream sectors, while at the same time expanding the product offering for sale through Dow’s own existing market channels.

Dow will establish an advanced materials business unit at Rohm and Haas’ current headquarters in Philadelphia and intends to contribute complementary Dow businesses to Rohm and Haas’ existing portfolio, such as coatings, biocides and personal care. The total revenue of this new unit will approach $13 billion. Dow will retain Rohm and Haas’ corporate name for this advanced materials business unit in order to capitalize on the company’s well-established brand value. Two Rohm and Haas directors will join the Dow Board of Directors, to allow for the continued stewardship of Rohm and Haas’ corporate culture and assets, bringing the total size of Dow’s board to 14.

BASF Outlook for 2008

BASF has confirmed its outlook for 2008 despite signs of weakening growth in the chemical industry. For the current year, the company has revised its expectations for growth in global chemical production from 2.8 percent to 2.4 percent. For 2008, BASF is now assuming an average oil price (Brent) of $120 per barrel and an average exchange rate of $1.55 per euro.

For the next five years, the BASF Group aims to achieve an EBITDA margin of 18 percent. The EBITDA margin is a measure of the profitability of a company. It is calculated as income from operations before depreciation and amortization as a percentage of sales. This goal is based on the following long-term assumptions: an unchanged portfolio, an oil price (Brent) of $100 per barrel and an exchange rate of $1.40 to $1.50 per euro. In the same period, BASF aims to post average volume growth two percentage points above the chemical market.

Against the background of an increasingly difficult global economic environment, Dr. Jürgen Hambrecht, chairman of BASF, pointed out the advantages of having a portfolio that has been focused on profitable growth markets over the past years. For example, specialty products, which are faster growing than commodities, now account for 63 percent of sales (excluding Oil & Gas and precious metals trading) compared with 54 percent in 2003. As a result, BASF is now in a better position to deal with economic fluctuations than in the past. BASF’s acquisitions of Engelhard, Degussa Construction Chemicals and Johnson Polymer in 2006 have contributed substantially to this development.

New products and the use of innovative processes are expected to contribute significantly to growth in the coming years. In terms of patents, BASF is a global leader with a portfolio of almost 130,000 patents and patent applications.

Aquatech Awarded Two Watertrak™ Contracts In Texas

Aquatech International Corporation, a leader in the field of water and waste water treatment, desalination, water reuse, and zero liquid discharge, has recently received two separate contracts from Navasota Energy based in Magnolia, Texas.

The two projects are identical in design using Aquatech's WATERTRAK range of products. The treatment scheme consists of 500 GPM Media Filters, 500 GPM First Pass Reverse Osmosis, 220 GPM Second Pass Reverse Osmosis GPM, and 200 GPM Electro De-Ionization processes. The entire equipment will be shipped pre-assembled inside modular housing units for quick hook up and start up at site.

The two 550 MW combined cycle power plants receiving this equipment are the Colorado Bend Energy Center in Wharton and the Quail Run Energy Center in Odessa.

WATERTRAK is Aquatech's collection of pre-engineered products.

INTERNATIONAL

Honeywell UOP Technology Selected by China's PetroChina for New Complex

UOP LLC, a Honeywell company, announced recently that PetroChina Sichuan Petrochemical Co., Ltd., a subsidiary of the PetroChina Company Limited, has selected UOP to supply technology, basic engineering services and equipment for a new integrated refining and petrochemicals complex to be installed at its facility near Chengdu, Sichuan Province. Engineering design is currently in progress.

The new plant is a grass roots installation that will produce both fuels and petrochemicals, including 600 thousand metric tons per annum of para-xylene using the UOP Parex(TM) process. Para-xylene is a key ingredient in the production of PTA (purified terephthalic acid), which is used to make polyester for fabric and PET (polyethylene terephthalate) chips for carbonated soft drink and water bottles. The new plant will also produce more than 350 thousand metric tons per annum of benzene, also a building block in plastics production. The demand for para-xylene in China is expected to grow at an annual rate of 11 percent over the next 10 years driven largely by the downstream market.

Feedstock to the aromatics complex will in part be provided by a new UOP Unicracking(TM) process unit that will process 2.2 million tons per year of heavy gas oil from crude oil and convert it to more usable products such as diesel, kerosene, and naphtha. The para-xylene complex will also include a UOP CCR Platforming(TM) process unit to convert naphtha to aromatics and hydrogen, a UOP Isomar(TM) process unit to convert other xylenes to para-xylene, and a UOP Tatoray(TM) process unit to increase the yield of para-xylene and benzene.

Icentives Sought for $2.3 Billion Petrochemical Complex in Pakistan

Incentives Sought for $2.3 Billion Petrochemical Complex in Pakistan

The Economic Coordination Committee (ECC) of the government of Pakistan is expected to agree to an incentives package for the proposed $2.3 billion petrochemical facility to be developed at Port Qasim, Karachi, Industrial Info Resources reports. The proposal for incentives has been forwarded by the Ministry of Industries and Production to the ECC, which began discussions regarding the proposal at its July 1 meeting.

Trans Polymers Limited (TPL), a subsidiary of U.K.-based Trans Polymers Holding Limited, is in discussion with foreign investors and has asked for incentives and tariff protection for the proposed petrochemical facility at Karachi. TPL, a private investment firm, represents various stakeholders including engineering, procurement and construction contractors, material suppliers, operations and maintenance contractors, technology providers, financial institutions, risk insurance companies, and project management consultants.

The company plans to invest nearly $750 million, with a debt-to-equity ratio of 60:40, during Phase I of the project, which will involve setting up units for the production of polyethylene (PE) and polypropylene (PP). This will cover various project costs including the cost of cryogenic facilities, a desalination plant, machinery, power generation, pre-production costs and working capital. The PE plant has a proposed capacity of 310,000 tons per year, which can be increased to 400,000 tons per year with additional investment. The plant is expected to be commissioned within the next three to four years. The PP plant will have a capacity of 300,000 tons per year. TPL will invest an additional $1.6 billion during Phase II of the project to undertake production of naphtha crocks and other products by setting up Pakistan's first naphtha cracking unit.

Almost all monomers and co-polymers are produced from naphtha through an expensive and technology-intensive cracking process. The process is also used to produce benzene, toluene and xylene, known as the BTX polymers, which are used in the manufacture of dyes, paints, textiles and other chemical products. Due to the absence of cracking facilities in the country, 800,000 tons of naphtha produced by Pakistan's oil refineries is currently exported each year at a nominal value without any domestic utilization. Pakistan's annual requirement of 270,000 tons of PE is currently met through imports, which are subject to a customs duty of 5%. Pakistan spent nearly $1 billion on polymer imports during the last fiscal year.

Mittal, Total, HPCL JV to Decide on $6 billion Refinery

Steel magnate LN Mittal, France's Total, Hindustan Petroleum Corporation (HPCL), Oil India and GAIL will decide by December 2008 on the feasibility of spending $6 billion to set up a 14 million tonne per annum refinery and petrochemical plant at Visakhapatnam in Andhra Pradesh.

The five companies had signed an agreement in October last year to setting up a 15 million tonne refinery and 1 million tonne petrochemical complex. The capacity of the refinery has now been reduced to 14 million tonne "to make it more feasible".

The project is expected to be completed 4-5 years from the start of construction.

HPCL already operates a 7.5 million tonne refinery in Visakhapatnam. The company is also planning to expand this refinery to 15 million tonne. The company is also setting up a 9 million tonne refinery at Bathinda in Punjab along with LN Mittal's Mittal Investments, which owns 49 per cent in the refinery.

The proposed refinery and petrochemical plant will export most of the oil products it produces. "There is a good market for petroleum products in the South East Asia. This makes an export-oriented refinery in India's east coast feasible," said a Mumbai-based analyst.

Oil and Natural Gas Corporation (ONGC), last month sold its stake in the proposed 15 million tonne Kakinada refinery to the Bangalore-based GMR group. At the time of exiting ONGC had said that the project was not economically feasible, and the refinery was not their core business. Kakinada is located around 150 kms away from Visakhapatnam along Andhra Pradesh's coastline.

India Looks at Qatar to Set up $ 1.3 billion Petrochemical Plant

A high-level Indian industry delegation is reaching Doha shortly to look at the possibility to set up a 1.3 billion dollars petrochemical project in the gas rich Gulf state.

Qatar, which has the third largest gas reserve in the world, is among the countries shortlisted by Indian gas giant GAIL and Reliance Industries for the project, the Peninsula daily reported.

The GAIL-Reliance delegation will be meeting senior officials from Qatar Petroleum (QP) while on their visit there.

Other countries shortlisted for the project are Iran, Algeria, Nigeria and Russia-- all rich in natural gas, which serves as the main feedstock for any petrochemical facility. The largest Indian investment in the Gulf is a 1 billion dollars fertilizer joint venture plant in Oman near the Sur gas fields.

Qatar, whose gas reserves are the third-largest after Russia and Iran, would serve as an ideal destination for a petrochemical project. The country itself is investing heavily in petrochemicals as a corollary to its fast-expanding natural gas sector.

Indian oil and gas companies are also casting their nets overseas, particularly in Africa, as the country seeks option for its domestic needs.

China's NDRC Approves Sinopec Shanghai's Ethylene Plant Expansion

The National Development and Reform Commission (NDRC) said it has approved Sinopec Shanghai PetroChemical's plan to expand its ethylene plant.

Shanghai PetroChemical will expand the annual capacity of the ethylene facility to 600,000 tons from 150,000 tons, NDRC said.

Sinopec Shanghai will also build a 300,000-ton-capacity polypropylene and a 380,000-ton-capacity glycol facility near the ethylene plant, it said.

The NDRC did not disclose the investment amount or the timetable for operations.

China's Rising Demand for Petrochemicals Attracting Investments

PetroChina said recently it signed a letter of intent with Qatar Petroleum International (QPI) and Shell (China) Ltd. to assess the feasibility of setting up a refinery and petrochemical complex in China.

PetroChina is to control 51 percent of the venture, while QPI and Shell would each take a 24.5 percent stake in the new complex, which is expected to be a world-class producer of refined fuels and petrochemicals.

No further details were available about the deal, although there have previously been media reports that the complex might be located in the southern Hainan Province.

China's rising demand for petrochemicals is attracting investments from major oil producers from the Middle East. Saudi Basic Industries Corp. signed a deal with China Petrochemical Corp., the country's largest oil refinery, to expand the scope of their partnership with a petrochemical complex under construction in north China's Tianjin municipality. The Tianjin complex, a 50-50 joint venture, would cost more than 2.5 billion U.S. dollars.

Dow Chemical Raising Prices

Dow Chemical Co. announced its second wide-ranging price hikes in less than a month as it attempts to offset sustained record costs for energy and the soaring price of raw materials.

The chemical company said it will raise prices by as much as 25 percent, less than three weeks after announcing price increases of up to 20 percent. The first round of price hikes took effect in June.

Dow said it's also adding a freight surcharge for North American customers of $300 per shipment by truck and $600 per shipment by rail effective Aug. 1. Those surcharges will spread to other regions later this year.

Dow would not say if more price hikes are imminent.

Midland-based Dow makes everything from the propylene glycols used in antifreeze, coolants, solvents, cosmetics and pharmaceuticals, to acrylic acid-based products used in detergents, wastewater-treatment and disposable diapers.

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