CHEMICAL UPDATE
DECEMBER 2009
McIlvaine Company
TABLE OF CONTENTS
Bioplastic Demand to Reach 900,000 tonnes in 2013
Light Olefins Demand Will Recover - Chemical Market Associates
BASF, Dow Compete to Offload Unwanted $10 Billion Styrene Units
Reliance Industries Makes Cash Offer for LyondellBasell
Mitsubishi Chemical Deal for Rayon Forms Big Rival for New Players
Schulman to Buy ICO for $191 M in Cash, Stock
Exxonmobil Starts Rotterdam Aromatics Unit
BASF Adds Biodegradable Plastic to Ecovio Line
Enviro Tech Chemical Finds Niche with Bacteria-fighting Products
The World Bioplastics study by the Freedonia Group cites a number of reasons why demand for bioplastics should rise to 900,000 metric tons in 2013—most important being an expected continuation of high prices for crude oil and natural gas. Demand for non-biodegradable bioplastics will be the primary driver.
Other factors driving the growth include increasing restrictions on nondegradable plastic products, particularly bags; development of bio-based feedstocks for commodity resins; and consumer demand for more sustainable products, according to the report. Also, high-priced oil and gas will let biomaterials become more competitive with traditionally-sourced polymers.
On the supply side, the report notes that Braskem and Dow are planning to make polyethylene from sugar cane-sourced ethanol in Brazil, and Solvay is expected to open a PVC facility.
Geographically, the report says that global bioplastics demand grew 15.3 percent annually from 2003 to 2008, but is expected to grow by 35.1 percent annually from 2009 to 2013. The fastest growth is expected in the Asia/Pacific region, making it the demand leader by 2013, followed by Western Europe, and North America. Global demand in 2008 was 200,000 metric tons, says the study.
Chemical Market Associates, Inc. (CMAI) 2010 World Light Olefins Analysis states that after a severe contraction in light olefins demand growth in 2008, global demand growth for 2009 will remain significantly below trend-line growth, adding pressure to a severely over-supplied market.
The margin forecast suggests that 2009 will mark the beginning of a sustained period of poor earnings for light olefins and petrochemical producers in general; even though the first-half of 2009 showed positive earnings for a number of petrochemical producers in Asia and light-feedstock based producers in the United States. However, this was not the case for heavy-feedstock based producers in the U.S. and Europe.
Ethylene demand growth is forecast to respond with a modest recovery in 2009 followed by muted growth in 2010. Strong and steady ethylene demand growth averaging between four and five percent per year is not forecast to resume until the 2011 – 2014 period. As a result, the total ethylene consumption volume will remain below historical trend-line growth over the next five years.
Capital investments will continue to shift toward areas that offer either advantaged feedstock costs, such as many Middle Eastern countries, or rapid demand growth as exemplified by China. In the more mature regions, such as Europe, Japan and North America, slow ethylene demand growth and a more competitive international marketplace are expected to limit investments in new capacity. Instead a greater focus on cost efficiencies should result in improvements of energy usage, greater feedstock flexibility and plant modernizations.
Propylene production from traditional sources, such as steam crackers and FCC units associated with refineries, is forecast to decrease, encouraging investment in “other” propylene sources. Output from steam crackers will be limited by mainly ethane-based capacity additions in the Middle East that yield less propylene, and the persistence of cost advantages for NGLs that will encourage flexible units to preferentially crack lighter feedstocks. In addition, future FCC production of propylene is expected to slow significantly mainly in response to changing motor gasoline regulations/specifications in the U.S., which accounts for approximately one-third of global FCC propylene production.
The global chemicals industry is expected to see an increase in mergers and acquisitions transactions in 2010, led by BASF, Bayer and Royal DSM, according to Deutsche Bank, Bloomberg reports. Energy companies in the Middle East, Asia and Russia, meanwhile, will be looking to acquire European assets.
Faced with competition from new petrochemical plants in the Middle East, European rivals will continue to exit commodity products, analyst Tim Jones and colleagues said, according to the article.
The global chemical industry, comprised of some 23,500 companies, has conducted $200 billion of deals in the past two years as companies such as BASF enter new markets to support growth and jettison others to cut ties with economic cycles.
Both Dow Chemical Co. and BASF are seeking buyers for operations making styrene. Heerlen-based DSM is selling fertilizer and elastomer units, and the Dutch company has set a 2010 deadline to conduct a deal. Bayer, based in Leverkusen, Germany, is in talks with International Petroleum Investment Co. over a possible venture involving Bayer MaterialScience.
BASF SE and Dow Chemical Co. are competing for buyers of styrene operations generating combined sales of $10 billion as factories in the Middle East squeeze profitability in basic plastics, Bloomberg reports.
BASF is in talks to form a styrene joint venture out of its unit generating 3 billion euros ($4.5 billion) in sales, as a prelude to exiting the market, a company official with knowledge of the plan said recently, according to the article. Dow is taking bids for its similarly sized unit, and is targeting a sale for the first quarter.
Both Dow and BASF are retreating from a market increasingly dominated by Kuwait and the United Arab Emirates, where lower feedstock costs and the growing Chinese market are closer to hand. Europe’s styrene industry will on average operate below the 85 to 90 percent factory run rate needed to make money in 2009, BASF styrenics vice-president Jaroslaw Michniuk said at an aromatics conference organized by chemical media group ICIS.
Global demand for styrene, used in televisions and CD cases, will contract a second year in 2009, leaving record overcapacity in the market, Chemical Market Associates Inc. said in an October report. Competition from ethylene-based plastics, which are easier to recycle, has made styrene less economic and desirable among western consumers.
In a major bid to go global, India's Reliance Industries Ltd., the world's largest polyester fiber maker, has made an all-cash offer for bankrupt chemicals company LyondellBasell Industries, the Wall Street Journal reported recently.
Neither LyondellBasell nor Reliance disclosed the value of the deal, but the Indian company could pay as much as $12 billion, according to analysts, based on valuations prevailing in the U.S. chemicals industry.
If a deal is struck, it would be among the largest international acquisitions by an Indian company and would create a global energy and chemicals powerhouse.
Before filing for bankruptcy in January, LyondellBasell, the world's third-largest chemicals company, posted $50.7 billion in annual sales. Reliance brings in more than $32 billion a year.
Led by Mukesh Ambani, India's richest man, Reliance has traditionally been focused on the Indian market, while other major Indian conglomerates have made major foreign purchases in the past few years. However, at Reliance's 35th annual general meeting Ambani hinted at aggressive plans for expanding its businesses globally.
For Ambani, the deal would mark a signature overseas expansion at a time when cash-rich and buoyant Indian companies are eyeing foreign acquisitions, having survived the recession relatively unscathed.
Reliance runs India's most richest gas find so far—the KG basin off the eastern coast of India, which is expected to double the country's gas output at its peak output of 80 million standard cubic meters a day.
It operates two refineries in Jamnagar in the western state of Gujarat, with a production capacity of 660,000 and 580,000 barrels a day, respectively.
LyondellBasell will help Reliance with distribution networks in two key markets—the U.S. and Europe—and so the purchase is about more than just petrochemicals and refining where there already seems to be excess capacity, a person familiar with the situation said.
Mitsubishi Chemical Holdings Corp. said recently it will acquire Mitsubishi Rayon Co. through a tender offer and stock swap, in a deal that could be worth more than $2 billion, according to an article in the Wall Street Journal.
A combined Mitsubishi Chemical-Rayon would establish the company as one of the world's top ten chemical makers with estimated revenue of about Y3.25 trillion, but it would still be a long way behind industry leaders like Germany's BASF.
Under the accord, Japan's top chemical maker will launch a tender offer in the first 10 days of February for Y380 per share, after reviews by antitrust authorities in Japan and overseas. After completion of the offer and the settlement due by the end of March, Mitsubishi Chemical will buy the shares it still doesn't own in Mitsubishi Rayon via a stock swap in case it fails to buy all Mitsubishi Rayon shares through the tender offer.
Chemicals maker A. Schulman Inc will pay $191 million in cash and stock for ICO Inc, a maker of specialty chemicals for textiles, plastic bags and other uses, the two companies said recently.
The deal is comprised of $105 million in cash and 5.1 million shares of A. Schulman common stock, valuing ICO at about $6.79 per share.
After the merger closes in the spring, ICO shareholders will own about 16% of the combined company, the companies said, adding the companies' businesses had little overlap in terms of end markets or geography.
ICO's revenues in the year ended in September totaled $300 million. The deal, if approved by shareholders and regulators, would add to Schulman's earnings in fiscal 2010.
ExxonMobil Chemical has started up an expansion of its
Rotterdam aromatics plant. The project boosted paraxylene capacity by 25% to
700,000 tonnes/year and benezene capacity by 20% to 830,000 tonnes/year.
The plant, owned and operated by ExxonMobil Chemical Holland BV, is now
ExxonMobil’s largest paraxylene production facility. The new unit uses
proprietary ExxonMobil technology called PxMax.
The world's leading chemical company BASF said it has added a new biodegradable plastic to its existing Ecovio product line.
The Ludwigshafen, Germany-based company said the plastic has specific applications in coating paper and for manufacturing so-called shrink films, which are used to wrap packaged goods. The products have been branded as Ecovio FS Paper and Ecovio FS Shrink Film.
“In order to obtain effective paper coatings, a film made of the new Ecovio FS Paper has to be easy to process and exhibit good adhesion to the paper, even when applied in thin layers. Such coatings are used, for example, on paper cups or cardboard boxes,” said BASF’s Gabriel Skupin, in a news release. Skupin heads the company’s technical product development for biodegradable plastics.
The products mark a company effort to be more specialized with its offerings for specific market segments. The plastic—made of biodegradable polyester and polylactic acid extracted from corn starch—also biodegrades more rapidly than its predecessors and has a higher content of renewable raw materials, BASF said.
The product was shown recently for the first time to a technical audience at this year’s conference of the European Bioplastics Association. The company claims initial production testing with customers has gone successfully.
With sample material now available, BASF said the product is expected to be introduced to the market in the first quarter of 2010.
Enviro Tech Chemical Services, based in Modesto, Calif., has found a lucrative chemical market niche: developing and manufacturing chemicals that can preserve and protect food from harmful bacteria such as E. coli and salmonella. The privately owned company's environmentally friendly products have already gained approval from the Food and Drug Administration and the Environmental Protection Agency. Enviro Tech is expanding, hiring employees and building production facilities.
"What we're really good at is innovation. We have an R&D staff that is second to none," said Michael S. Harvey, the company's president, chief executive officer and largest shareholder.
Harvey said his research and development team has invented various chemicals and processes with patents and approvals from the Food and Drug Administration, U.S. Department of Agriculture and Environmental Protection Agency.
Those new products have started hitting the market, and sales are soaring. Harvey said revenue has grown 35 percent annually for the past three years, pushing the company's income "way north of $20 million a year." About 15 percent of that revenue comes from exporting products abroad.
New products are being developed, including a patent-pending bromine biocide named HB-2, which is expected to be approved by the FDA in January. Harvey said it is a certified organic product that will be used to wash beef carcasses because it is effective at killing E. coli bacteria on hides.
"We have a contract with one of the three largest beef producers in this country," said Harvey, noting that the company is expected to start using HB-2 by February.
McIlvaine Company
Northfield, IL 60093-2743
Tel: 847-784-0012; Fax: 847-784-0061
E-mail: editor@mcilvainecompany.com
Website: www.mcilvainecompany.com