Chemical Update

Consumption is projected to rise more than 15 percent/yr, valued at $845 million, according to The Freedonia Group, Inc. Although representing less than one-half of one percent of all thermoplastic resin demand in 2007, escalating crude oil prices have made biodegradable plastics, which are sourced from renewable resources such as corn, more cost competitive with petroleum-based conventional resin. However, continued price declines are necessary for anticipated biodegradables growth, and among the threats to further declines in biodegradable prices are rapidly rising prices for corn. Demand for polyester-based biodegradables will exhibit rapid annual growth of nearly 25 percent through 2012.

Production Values of New Chemical Material Industry Surpasses $80 Billion in China

Production values of China's new chemical material industry has surpassed $80 billion, according to information disclosed by the Chinese government. Chemical materials are widely used in various sectors, such as national defense, electronics, aviation and spaceflight, automobile, computers and petrochemicals.

In the past 10 years, the Chinese government has invested over $440 million to finance projects including the construction of state laboratories, national research centers and important scientific projects. The government has also organized hundreds of high-tech industrial projects for advanced materials, increasing investment in the chemicals sector tenfold and allowing breakthroughs in many areas of research and development.

DuPont Targets Emerging Market Countries for Growth

At the recent Credit Suisse Chemical Conference in New York, New York, DuPont's Executive Vice President Ellen Kullman, who will become president of the company on October 1 and CEO on January 1, 2009, spoke about DuPont's planned strategic growth into the world's developing economies. Last year, 62 percent of DuPont's revenues were from outside of the U.S., and 25 percent of revenues came from emerging markets, accounting for just under $8 billion of sales. DuPont would like to increase these sales to $12 billion by 2010, focusing on the emerging markets of Asia, Latin America, Europe, the Middle East and Africa. The economies of these emerging regions are growing at a significantly faster rate than those of the developed world, and DuPont's low market penetration in these regions presents the opportunity for significant rapid growth for the company.

Kullman went into greater detail regarding four specific countries: Brazil, Russia, India and China, which represented almost half of the $7.8 billion of revenue brought in by emerging markets in 2007. Brazil brought in $1.5 billion in sales in 2007, half of which came from DuPont's agricultural and nutrition products. In particular, DuPont's genetically modified Pioneer brand corn has gained 23 market points in the country in the past decade.

Russia represented $300 million of sales last year. The single largest sector in the country was the performance coatings market because of strong growth in the Russian automotive sector, in which sales of new cars grew 67 percent in 2007. While India provided $400 million in Dupont's 2007 sales, DuPont also recognizes the unique talent pool available in the country and has opened the DuPont Knowledge Center in Hyderabad. The biotech lab of the facility opened in April, and the entire facility should be opened by the end of the year, employing 300 scientists to perform research and development across all of DuPont's platforms.

Despite this intense focus on overseas markets, DuPont still continues investing in projects in the U.S. Construction on the largest of these, the Vonore Cellulosic Ethanol plant in Vonore, Tennessee, is scheduled to begin in November of this year, taking about 12 months to complete.

PROJECTS/ EXPANSIONS/ACQUISITIONS

North America

Oxea to Produce Butyric Acid in North America

In an effort to increase its operational flexibility the global chemical company Oxea has decided to produce Butyric acid at its North American production site in Bay City, Texas. The existing Carboxylic acids production plant will receive significant upgrading in order to produce the same reliable quality as currently delivered from Marl, Germany. The changes to the unit are expected to be completed in Q3/2009. The expansion in Bay City and process improvements in Marl and Oberhausen will result in an increase of Oxea’s global production output of Carboxylic acids by 25-30 percent. Butyric acids find use in the production of flavors and fragrances, lubricants, siccatives (drying agents) and polymer stabilizers.

PolyOne and ADM Announce Alliance to Develop Bio-based Plasticizer Technologies

Archer Daniels Midland Company (ADM) [NYSE:ADM] and PolyOne Corporation [NYSE:POL] recently announced that they have agreed to collaborate on the development of bio-based plasticizers for use in polymer formulations.

Plasticizers are used primarily to make plastics softer and more flexible. The global plasticizer market is an $11 billion industry and is comprised mostly of petroleum-based products. The goal of this alliance is to develop and commercialize bio-based plasticizers from corns and oilseeds.

LyondellBasell Starts up New PP Compounding Plant in Mexico

LyondellBasell Industries has announced the start-up of a new polypropylene (PP) compounding facility in Altamira, Mexico, with a nominal capacity of 30 KT per year.

The new plant is immediately adjacent to a PP manufacturing facility operated by Indelpro, a joint venture company of LyondellBasell Industries. The Altamira compounding plant will use PP feedstocks from Indelpro to supply compounds to the region's automotive and appliance manufacturing base.

Europe

Repsol Invests One billion euro in Petrochemical Complex

The Spanish company Repsol recently announced an investment of more than one billion euros in a new petrochemical complex which is due to be built in Sines, north of the Algarve. This project is one of the Spanish company's main worldwide growth projects to be carried out in the Iberian Peninsula and represents one of the biggest investments ever to be realized in the history of Portugal. With this move, around 500 jobs will be created and, during the building process, more than 1,500 specialists will be employed. The production of the new complex will be mainly destined for export and will exceed more than 1.2 billion euros per year, which will have a positive impact on the export market in petrochemical products from Portugal.

The project is scheduled to be finalized in 2011 and, by then, the Sines complex will have become one of Europe's most advanced technological centers.

OMV and Borealis Expansions Boost Step Change in Petrochemical Industry

OMV Aktiengesellschaft (WBAG:OMV) (Vienna, Austria) and Borealis AG (Vienna, Austria) have agreed to invest $1.3 billion (899 million euro) to expand their neighboring plastics production facilities and petrochemical production capacities in Burghausen, Germany. OMV has boosted its annual ethylene production by 110,000 metric tons to 450,000 metric tons, propylene by 315,000 metric tons to 560,000 metric tons and polypropylene by 330,000 metric tons to 570,000 metric tons, addressing growing demand for advanced packaging products and medical applications. The polypropylene expansion has increased Borealis' annual polyolefin capacity by 80 percent to 745,000 metric tons.

New plants, such as the Burghausen refinery in Germany, have been opened recently and are coming on stream and being highly integrated under the implementation of innovative and metathesis technologies. Today, the Burghausen plant is the ninth largest polyolefin refinery and the third largest polypropylene site in Europe. Recent Borealis investments include the Burghausen polypropylene plant, which incorporates Borealis' pioneering Borstar PP2G technology, the new Borstar pilot Austrian plant (Schwechat, Austria), the recent groundbreaking for the $68 million (50 million euro) expansion of Borealis' Innovation Headquarters (Linz, Austria). Also included is a massive investment program at the Borouge 2 project of Borouge Company (Abu Dhabi, United Arab Emirates), a joint venture between Borealis and the Abu Dhabi National Oil Company (ADNOC) in Ruwais (Abu Dhabi, United Arab Emirates), where Borouge is developing a fully integrated petrochemicals complex. Borstar PP2G, Borstar's second generation polyolefin technology (2GPE and 2GPP), represents a leap forward in polymer design from a bimodal polyethylene to multimodal polyethylene, facilitating the development of an ever widening range of new plastics.

Innovations in process design and the implementation of Borealis-owned catalyst technology allow for energy savings of 16,000 megawatt-hours per year and an increase in overall energy efficiency of 20 percent. Borouge has already initiated the feasibility study for Borouge 3, a further expansion of polyolefin operations in Abu Dhabi to add approximately 2.5 annual million metric tons of capacity by 2014. Because of forecasts predicting higher production capacities, the Burghausen site would benefit from strengthening the Bavarian Chemical Triangle and the Southern German plastics industry. After the kickoff of the 360-kilometer Ethylene Pipeline South between the German cities of Munchsmunster and Ludwigshafen expected for 2009, OMV will be linked to the Western European ethylene network.

OMV is also planning an 800-megawatt combined cycle power station for electricity generation and steam for the Burghausen refinery to increase the refinery's efficiency by 5 percent on average and to reduce energy consumption. The decision regarding the investment could be made by the end of 2008, and 2012 could be the earliest start-up date. By 2010, OMV could establish Petrom S.A. (Bucharest, Romania) in Romania, as the southeastern base of its central and eastern European market leadership, ensure the long-term competitiveness of its petrochemical sites through capacity expansions and raise the throughput of the filling stations from 2.8 million liters per site in 2006 to 3 million liters per site. Together with the Petrobrazi and Arpechim plants and a 45 percent stake in Bayernoil (Germany), OMV has a total capacity of 26.4 million metric tons equal to 540,000 barrels of oil equivalent (BOE) per day.

By 2010, OMV's profits could grow by leveraging its market leadership in the 13 central European countries already served, and appraise opportunities for acquisitions also outside its core region, in the European "growth belt," aiming to have oil and gas production amounting to at least 50 percent of its refining capacity. OMV is expected to increase oil and gas production to 500,000 BOE per day, raise refining capacity up to 50 million metric tons by taking opportunities for acquisitions, capitalize on its position in marketing with a market share of 20 percent in Central Europe, reach gas sales of 20 billion cubic meters per year, achieve a return on average capital employed of 13 percent, given mid-cycle market conditions, and stand out from regional peer group in terms of market capitalization. Borealis is expected to increase businesses in infrastructure, automotive and advanced packaging, expand the Abu Dhabi complex to supply growth in the Middle East and Asia, strengthen European base, ensure cost competitiveness from feedstocks to customers and develop its base chemicals business.

OMV, founded in 1956, had consolidated sales of 20.04 billion euro in the 2007 fiscal year, 33,665 employees and a market capitalization of about 13 billion euro. OMV is Austria's largest listed industrial company and a leading integrated oil and gas group in Central Europe. OMV is active in refining and marketing; exploration and production; and gas and power. In June 2006, OMV established the OMV Future Energy Fund, a wholly owned subsidiary to support projects in renewable energy, with more than 100 million euro to initiate the change from a pure oil and gas group to an energy group with renewable energy in its portfolio.

Borealis is owned 64 percent by the International Petroleum Investment Company of Abu Dhabi and 36 percent by OMV. Borealis' core businesses focus on polypropylene development, especially for the automotive sector, appliances, advanced packaging and molding applications. Borealis has two polypropylene plants, one Borstar polyethylene plant, three low-density polyethylene plants and one compounding unit.

Abu Dhabi's IPIC Buys 70 percent of German-Based MAN Ferrostaal

Abu Dhabi-based International Petrochemical Investment Company (IPIC) has acquired a 70 percent stake in Germany major MAN Ferrostaal, a subsidiary of MAN AG (Munich, Germany). A letter of intent to this effect was signed recently. MAN announced that details of the deal will be divulged once the formal agreement is signed. The MAN group will continue to hold 30 percent in Ferrostaal. Ferrostaal will continue to function as an independent company with the existing structure, operations and management.

State-owned IPIC has been focusing on long-term investments in the petrochemical sector for a few years now. The company, established in 1984, has been making key investments in Europe, North Africa, Asia and the Middle East. Other commercial interests of IPIC include oil, power and renewable energy, including solar and biofuels.

MAN Ferrostaal is a globally recognized large-scale contractor in plant construction, project development and operations. The company has built a strong reputation in executing turnkey projects in petrochemicals and energy. The company, with sales of $1.89 billion in 2007, has 4,200 employees across 60 countries. Both IPIC and MAN Ferrostaal have business interests in the petrochemicals and energy sectors. This synergy will help both companies explore new markets and opportunities. The deal will give IPIC access to MAN Ferrostaal's technological expertise and world class project management techniques. MAN Ferrostaal hopes to tap new business avenues in the Middle East through IPIC. IPIC will execute large projects in the Middle East through MAN Ferrostaal, which has been active in the Middle East market commissioning projects in the petrochemical sector. MAN House, located in Dubai, has been the regional headquarters for the group. Located in the Dubai Airport free zone, MAN House acts as a nerve center for all operations in the Middle East.

The MAN group employs 55,000 people globally and had a turnover of $21.6 billion in 2007. The group been strategically letting go of subsidiaries and focusing on its core competency of hi-tech transportation engineering. The group plans to work closely with auto majors Volkswagen and Scandia. Volkswagen is the largest shareholder in the MAN group. Established in 1758, the MAN group is among the top 30 publicly listed companies in Germany.

Asia

Sinopec to Launch SH Refinery, Petrochemical Complex Projects

China Petroleum and Chemical Corp (Sinopec Group), parent of Sinopec, will launch an integrated refinery and petrochemical project in Shanghai, sources reported.

According to a strategic cooperation framework agreement between Sinopec Group and the Shanghai municipal government, Sinopec Group will increase its investment in the city, including setting up an integrated refinery and petrochemical project in the Shanghai Chemical Industry Park as well as the expansion and innovation of the ethylene facilities in its unit Sinopec Shanghai Petrochemical Co.

The municipal government will provide relevant support for these projects in a bid to establish a petrochemical base at the north bank of Hangzhou Bay.

No financial details of the projects were provided so far.

Sinopec Shanghai Petrochemcial has won regulatory approval to boost its ethylene output to 600,000 tons per year in July.

Shaanxi Begins Construction of Multibillion-Dollar Industrial Park

Huangling Mining Group (Huangling County, Shaanxi province) and Shaanxi Yellow River Mining Company Limited (SYRM) (Hancheng City, Shaanxi) began construction on a 980,000-ton-per-year coke and 100,000-ton-per-year methanol project in Huangling County as part of a multibillion-dollar industrial park. The companies plan to invest $147.1 million in the project, which is expected to be complete in two years. It will also produce 30,000 tons of synthesis ammonia and other products like ammonium sulfate, crude benzol and calcium carbide. The coal chemical industrial park is divided into two sections called Diantou and Adang.

The Diantou section encompasses coal mining and dressing, coking, coal chemicals and gangue power generating. This section will cost $2.6 billion. Huangling County has 2.73 billion tons of coal under a 1,000-square-kilometer area and produced 12 million tons of coal in 2007 worth $317.6 million. Currently, there are 38 coal mines capable of mining 12 million tons and dressing 2 million tons of coal per year. Chemical projects include four 980,000-ton coking projects by Huangling Mining and SYRM; two 300,000-kilowatt (kW) gangue power stations by Shaanxi International Trust Company Limited; two 300,000-kW gangue power stations by Huangling Mining; two 300,000-ton-per-year coal oven gas for methanol projects; a 1.2 million-ton-per-year coal-for-methanol project by Shaanxi Coal and Chemical Industry Group Company Limited (Xi'an City); and a 3 million-ton-per-year metabituminous coal-for-semicoke project.

The Adang section will comprise coal gasification, methanol and oil. Shaanxi Yanchang Petroleum (Group) Company Limited (Yan'an City) is planning a 1.5 million-ton-per-year coal-for-methanol project, which is expected to cost $2.4 billion. The Yanchang project also includes downstream products like high-efficiency gasoline, acetate acid and dimethyl ether.

By the end of 2015, the industrial park will be able to produce 24 million tons of coal, dress 13 million tons of coal and convert 12 million tons of coal annually, according to local media reports.

Vietnam Starts Building Largest Petrochemical Complex

Construction of a southern petrochemical complex at the Long Son Oil and Gas Industrial Zone in southern Ba Ria-Vung Tau province began recently in the presence of Deputy Prime Minister Hoang Trung Hai.

Vietnam News Agency (VNA) reported that the project, with an investment capital of almost US $4 billion (RM13.7 billion), will be capable of manufacturing over 3 million tonnes of products a year and will be the largest of its kind in the country.

It is a joint venture by Vietnam National Oil and Gas Group (PetroVietnam), Vietnam National Chemical Corporation (Vinachem), Vina SCG Chemicals under the Thailand Cement Group, and Thai Plastic and Chemicals.

According to PetroVietnam General Director Tran Ngoc Canh, once the complex is operational in 2013, it will be the country's only manufacturer of petrochemical products including PE, PP and PVC.

It will turn out 1.45 million tonnes of PE and PP granules 730,000 tonnes of materials for the production of PVC and 840,000 tonnes of other chemicals, meeting about 65 percent of the domestic demands for PE and PP granules in 2017 and ensuring the supply of input materials for the petrochemical industry.

The project will create about 10,000 jobs in the construction period and 1,500 jobs when it becomes operational.

India's Rashtriya Chemicals & Fertilizers Plans $1.5 Billion Investment in Mozambique

As the first step towards implementing its planned investment of $1.5 billion in Mozambique, Rashtriya Chemicals & Fertilizers (RCF), Mumbai, has commenced identification of suitable opportunities for setting up a phosphoric acid production and granulation facility in the southern province of Inhambane. RCF is in collaboration with the Industrial Development Corporation (IDC) of South Africa, a self-financing development institution, and Foskor, Midrand, South Africa, a chemical manufacturing company. Gujarat Narmada Valley Fertilizers Company, National Fertilizers Limited, and National Mineral Development Corporation have also indicated interest in implementing the project with RCF.

In March of this year, RCF drew up plans to invest $1.5 billion for production of fertilizers in Mozambique and $300 million towards rock phosphate mining in South Africa. RCF's plans include the development of a facility to produce about 1.2 million tons per year of urea, ammonia and complex fertilizers, and 700,000 tons per year of phosphate fertilizers. The proposed joint venture will ensure a supply of rock procured from the Phalaborwa mines owned by Foskor in South Africa. Rock mining activities would be undertaken jointly by Foskor, NMDC and RCF while the ammonia, urea and complex fertilizer units would be jointly developed by National Fertilizers Limited, RCF, IDC of South Africa and the government of Mozambique.

RCF will hold a 51 percent equity stake in the joint venture, while Foskor and IDC will jointly own more than 40 percent of the firm. An equity representative of the government of Mozambique will also own a stake in the venture. IDC is also on the lookout for prospective sources of funds. Investments will be made in a debt to equity ratio of 2:1.

The government of Mozambique has consented to RCF's setting up the fertilizers plant subject to exploration and discovery of natural gas to power the project. Mozambique currently has gas reserves of 3.5 trillion cubic feet with potential exploration opportunities in Inhambane and central Mozambique. The joint venture is looking to procure gas at a cost of $2 to $2.5 per million British thermal units (Btu) of gas. Fertilizer units in India rely on naphtha or imports of liquefied natural gas (LNG) to power their plants. Oil firms supply naphtha at more than $14 per million Btu, while LNG costs $9 to $10 per million Btu.

Domestic production of fertilizers is being promoted by the Mozambique government to improve crop yields and reduce the nation's dependence on imports. RCF will purchase and import nearly 90 percent of the finished products to address requirements in the Indian market and for exports. The phosphoric acid that is produced will cater to the raw material requirements of RCF's facilities in India. The country is grappling with high costs of raw material and low capacity utilization of domestic fertilizer units. India imported nearly 10 million tons of fertilizer in

2007-08, with urea accounting for more than 50 percent of the imports. RCF, a public sector undertaking, produces basic chemicals like ammonium bicarbonate, dimethyl acetamide, dimethyl formamide, methanol, methylamines, and sodium nitrate. Its main fertilizer products include Biola, a bio-fertilizer; Microla; Sujala, a water-soluble fertilizer; Suphala, a homogenous mixture of nitrogen, phosphorous and potash; and Ujwala, a chemical fertilizer.

In 2007, global production of phosphoric acid was estimated at 36 million tons, a 5.6 percent increase over the previous year, with China accounting for most of the growth. In the same year, worldwide production of phosphate rock was 176.1 million tons, an increase of 4.6 percent over the previous year, with China accounting for 75 percent of the net increase. Phosphate rock capacity is expected to increase to 242 million tons in 2012, registering a 28 percent growth as compared to 2007. West Asia, East Asia, China, Brazil, Venezuela and Peru are expected to supply phosphate rock, with China accounting for 20 percent of the increase in supply till 2012. Production capacity of phosphoric acid is expected to increase to 53.1 million tons by 2012, with China, India and Saudi Arabia contributing to most of the addition. During this period, global supply is expected to surge to 46.4 million tons, while demand is likely to rise to 43.4 million tons.

Ashland Joins with India's Natural Petrochemicals to Manufacture Resins and Gel Coats

Natural Petrochemicals Private Limited (NPPL), Mumbai, a part of the Divine Group of companies, recently entered into a memorandum of understanding with Ashland India Private Limited, a subsidiary of Ashland Incorporated, Kentucky, USA, to manufacture polyester resins and gel coats for Ashland in India. The mutually beneficial alliance will bring together NPPL's local manufacturing capabilities and Ashland's global outreach, sales and marketing capabilities, technological prowess and quality-control expertise. While this will support Ashland's growth in the Indian market, it is also expected to enhance NPPL's existing local presence.

NPPL, formerly Divine Petrochemical Private Limited, is India's largest single location manufacturer of bisphenols, flame retardant resins, gel coats, isophthalates, orthophthalates, terephthalates, vinyl ester laminating resins, and unsaturated polyester resins. The Dipol polyester resins manufactured by NPPL are known to be compatible with all major fabrication processes of fiber-reinforced polymer composites. These include centrifugal casting, compression molding, filament winding, open molding, pultrusion, resin infusion, and resin transfer molding. Additionally, NPPL's manufacturing unit is strategically located in close proximity to the Kandla chemical port in the Kutch district of Gujarat, which enables its products to be exported at competitive rates. The plant is also well connected with composite fabrication units located in the central, northern, southern and western regions of the country.

The Divine Group is setting up a plant to process polyethylene terephthalate through its subsidiary, Divine Polymer Products Limited. The plant, which will be in Bhuj, Gujarat, will have a capacity of 100 billion tons per year. The company will be exempt from excise taxes for a period of five years, as granted by the central government for new industrial units. It also enjoys a sales tax holiday for a period of seven years, as granted by the state government of Gujarat.

Ashland's operations in India focus on its performance-materials business segment. It supplies specialty chemicals and custom services to the infrastructure, packaging, transportation and marine industries.

The Indian composite industry is expected to grow at a rate of 25 percent during the next four to five years, primarily driven by the burgeoning sectors of automotive, chemical equipment, infrastructure, oil and gas, transportation and wind energy among others. In 2005-06, the total production of composites in the country was 110,000 tons. This is expected to rise to 188,370 tons by 2010.

McIlvaine Company

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