CHEMICAL UPDATE
JULY 2010
McIlvaine Company
The 'Country Analyses' chapter of the Chemical Industry and Analysis report has been updated.
TABLE OF CONTENTS
Dow and Mitsui Form Joint Venture for Chlor-Alkali Production
DSM Claims Biofuel Breakthrough
Chemicals Co Univar Files Plans For $862.5M IPO
Westlake Sells Bonds for Possible Expansion
Renosol Expanding in Bay City, Mich.
Nova Chemicals Upgrading Ontario Plants
The Dow Chemical Company (NYSE: DOW) and Mitsui & Co., Ltd., of Tokyo, Japan
(NASDAQ: MITSY) announced recently that the two companies have signed a definitive agreement to form a 50:50 manufacturing joint venture to construct, own and operate a new membrane chlor-alkali facility located at Dow’s Freeport, Texas, integrated manufacturing complex.
This landmark joint venture combines the strengths of two global companies to build a world-scale chlor-alkali plant on the US Gulf Coast.
The facility will be built using Dow's modern and efficient chlor-alkali technology, and takes the place of the previously announced Chlorine 7 project, which was a Dow-only venture.
"This joint venture with Mitsui is another meaningful example of our strategy in action - enabling us to continue to supply building blocks to our downstream performance businesses at lower cost and with less capital," said Andrew Liveris, Dow chairman and chief executive officer. "Dow’s Basic Chemicals business is a world-class manufacturing franchise that delivers unique product and technology integration advantage to our downstream performance and market-driven businesses. This strategic joint venture bolsters our integration strength, while also liberating capital for investment in businesses that are technology- and customer-driven with higher, more consistent earnings."
The new chlor-alkali facility is expected to begin operations in mid-2013, and will have a capacity of approximately 800 kilotons per annum. Dow will operate and maintain the chlor-alkali facility under contract to the joint venture. Construction will begin in the fourth quarter of 2010. The venture will create approximately 50 long-term jobs at the Freeport, Texas, location, as well as approximately 500 construction jobs during the build.
The joint venture’s new chlor-alkali production facility will fuel the growing feedstock needs of Dow’s performance businesses with cost-advantaged chlorine supply.
More than 70 percent of Dow’s chlor-alkali production is used to serve its growing performance and market-driven businesses.
Close of the transaction is expected in the third quarter of 2010, depending upon regulatory approvals and customary closing conditions.
DSM, the Dutch life sciences and chemicals company, is moving into the embryonic, but potentially huge, market for second-generation biofuels.
DSM recently announced “a breakthrough in bioconversion.” This will improve the efficiency with which fuels can be made from “secondgeneration” sources – agricultural waste such as corn stalks and wheat straw, wood chips and energy crops grown on land that is unsuited to food production.
First-generation biofuels – made from crops such as maize, cane sugar and oilseed rape – have proved controversial because they compete directly with food production and have not been effective at reducing greenhouse gas emissions.
DSM’s second-generation technology has two components. The first is an enzyme, derived from a fungus discovered originally in a Swiss compost heap, which breaks down the cellulose in wood, plant stalks and other agricultural waste.
This produces a range of sugars which are then converted by DSM’s “advanced yeast” strain into ethanol, the standard biofuel.
A report released this month by UBS Global Equity Research concluded that second-generation bioethanol would become the main renewable fuel for transport over the next decade, with a market valued at an estimated $80bn a year by 2022.
Although DSM believes it will generate substantial revenues from selling the enzymes and yeast required to make second-generation biofuels, the company is also considering playing a more central role in biofuel production.
“We have not yet decided exactly how we will do it,” says Feike Sijbesma, chief executive. “We have several non-announced collaborations [in biofuels] and we will most likely do it in partnership.”
The first stage in second generation biofuels production involves mashing up biomass into a hot stew, in which the enzyme converts the cellulose fibres into a mixture of sugars.
DSM’s new enzyme comes from a fungus that evolved to do this in the steamy environment of rotting compost; it works at temperatures as high as 65°C, adding to the efficiency of the conversion process.
The second stage uses DSM’s “all you can eat” strain of yeast. It can make ethanol from sugars produced from second-generation biomass, such as xylose and arabinose, as well as the familiar glucose that is characteristic of first-generation feedstocks.
DSM aims to break the dominant market position that two Danish-owned companies, Novozymes and Danisco, hold in enzymes for first generation biofuels.
Marcel Wubbolts, director of DSM’s industrial biotechnology programme, says the market for second-generation biofuel enzymes could be worth several billion dollars a year.
Specialty chemicals manufacturer Solutia Inc. reported recently a substantial increase in profit for the second quarter, as revenues grew 26%. Quarterly earnings as well as revenues surpassed Street expectations. The company also provided financial outlook for the full year 2010.
Solutia's net income attributable to the company surged to $41 million or $0.34 per share, from $10 million or $0.10 per share in the same quarter last year. Net income from continuing operations remained flat at $24 million.
For the quarter, income from discontinued operations was $17 million, compared with a loss of $14 million last year.
Excluding the charges associated with the closure of the Primary Accelerators operation of $38 million, adjusted income from continuing operations was $53 million or $0.44 per share, up 66% from $32 million or $0.33 per share in the prior year's second quarter.
The St. Louis, Missouri-based company's net sales for the quarter rose sharply to $518 million from $410 million in the prior-year quarter, driven mainly by increased sales volumes across all reporting segments. Analysts expected revenues of $487.33 million for the quarter.
Segment-wise, Advanced Interlayers' net sales for the quarter was $208 million, up 30% from $160 million last year. Performance Films' net sales grew 35% to $73 million from $54 million a year ago. Technical Specialties' net sales were $233 million, up 23% from $190 million last year.
Looking ahead to 2010, the company now expects full year revenue growth in the range of 10% to 15% over prior year. Adjusted EPS from continuing operations is expected to be in a range of $1.40 to $1.50.
Univar Inc. filed to sell up to an estimated $862.5 million of shares in an initial public offering, with the commodity and specialty chemicals distributor planning to use proceeds to repay debt.
Many companies over the past year have been issuing new shares or debt in order to repay debt coming due soon.
Univar calls itself one of the world's biggest independent chemicals distributors, having distributed about 5.4 million metric tons of chemicals in 2009. The company operates a network of more than 170 distribution facilities in North America, Europe, the Asia-Pacific region and Latin America.
Univar was acquired in 2007 by U.K. private-equity company CVC Capital Partners for EUR1.52 billion ($1.85 billion). A number of private-equity companies have been filing IPO plans for various holdings, looking to generate cash from their investments.
At the time of its purchase, Univar was the largest chemicals distributor in North America, where it generated the lion's share of its revenue.
For the quarter ended March 31, Univar swung to a $3.6 million profit from a year-earlier $10 million loss as sales rose 1% to $1.81 billion.
Paint, glass and chemicals maker PPG Industries Inc said recently its second-quarter profit jumped 86 percent, beating analysts' estimates, as demand increased, especially in emerging markets.
The company supplies a wide range of construction-related industries. Sales at all but one segment increased during the period, a sign the broader American economy continues to right itself after the recession.
On a conference call with investors, executives said they continue to see "solid growth" in the United States and Canada, but that Asia and Latin America are areas were most growth is occurring.
Sales at PPG's industrial coatings segment, which are used to protect steel, wood, ceramic and other materials on bridges, trucks and other applications, spiked 27 percent as costs fell and volumes rose.
The company also saw strong sales in its optical, commodity chemicals and glass segments, all due to improving volumes. The company's optical unit makes the popular Transitions lenses for eyeglasses.
Sales at the company's architectural coatings division for Europe, the Middle East and Africa fell 5 percent, partly due to a strengthening dollar.
PPG said it would continue to use excess cash this year for share repurchases, a strong sign executives are confident in the company's financial health.
The Pittsburgh-based company posted net income of $272 million, or $1.63 per share, compared with $146 million, or 89 cents per share, a year earlier.
PPG also said it was considering several "small to mid-size" acquisitions in the $20 million to $250 million range, and that it had repurchased 1.6 million shares during the quarter.
Westlake Chemical Corp. says it has sold $100 million in bonds and still is considering a major expansion at its Geismar plant.
Houston-based Westlake announced in 2008 that it would build a chlor-alkali plant that could double production of polyvinyl chloride. PVC is used in such products as pipe, windows, fencing a decking.
But the expansion, which could yield up to 100 more full-time jobs with an additional $7 million in annual payroll, has been hold because of the economic downturn.
Westlake senior vice president David Hansen told The Advocate that the $100 million in recently sold Gulf Opportunity Zone bonds still might go to the Geismar expansion. But he also says the money can be used to pay for efficiency upgrades at Geismar and at Westlake's Lake Charles-area plant — with a portion set aside for the expansion.
The company still hasn't make a firm decision on the future of the proposed expansion and continues to monitor customer demand for PVC products, Hansen said.
Westlake also produces ethylene and other petroleum-based chemicals at its Lake Charles-area plant. Those products supply the Geismar operation as well as outside customers. The efficiency projects would not produce additional permanent jobs.
Renosol Corp. has added 15,800 square feet of space to its Bay City, Mich., facility as part of a renovation at the site to improve existing production and add compounding operations.
The Saline, Mich.-based polyurethane foam company was able to take over additional space in Bay City when its neighbor moved out, plant manager Dennis Resseguie said in a June 30 news release. The company refurbished office areas, reconfigured the processing floor and added a break room.
Renosol also brought in compounding previously done in Clare, Mich., a shift the company announced earlier this year.
The improvements allow Renosol to manufacture a wider variety of polyurethane foams, from flexible foams to rigid structural parts, energy absorbers and skin material.
NOVA Chemicals is pumping $78 million in upgrades into its Mooretown, Ontario plant, where it makes low-density polyethylene. The company is also investing in its Corunna, Ontario plant. The growth is part of $600 million in investments in NOVA’s Ontario operations over the last five years. A $10 million equipment loan through Ontario’s Advanced Manufacturing Investment Strategy is supporting the company. The result: NOVA will boost productivity by 50 percent, while Ontario retains 160 manufacturing jobs at a time when many places are watching manufacturing employment dry up.
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