CHEMICAL UPDATE
MAY 2010
McIlvaine Company
TABLE OF CONTENTS
BASF Reports First-Quarter Profit
BASF Targets 90 Billion Euros in Revenue by 2020
Eastman Chemical Raises Q2, FY10 Forecast
Cognis Has First-Quarter Profit as Sales Rise, Sees Better 2010
Cereplast Makes Progress on Algae-Based Plastic
Dow Expands East China Presence, Builds New $17 Million Emulsion Plant
Dupont Builds Film Plant for Laminated Glass
Celanese Acquisition of Global LCP and PCT Product Lines from DuPont
WhiteRidge Invests $1.2 million in NC Plant
Specialty Chemical Manufacturer Sensient Plans $16 Million Expansion at US Facility
BASF SE reported first-quarter profit that beat analyst estimates, driven by recovering demand for petrochemicals, plastics and ingredients for cosmetics.
Net profit increased to 1.03 billion euros ($1.4 billion) from 375 million euros, the Ludwigshafen, Germany-based company said in a statement.
Carmakers and other chemical users are rebuilding inventories depleted during the financial crisis and BASF reiterated a forecast for higher sales and a significant increase in earnings in 2010. The economic rebound could temper over the remainder of the year and the risks of volatile raw- material prices and excess capacities remain, the company said.
Sales at BASF totaled 15.5 billion euros, beating the 14.37 billion euros predicted by analysts. Demand in Asia and South America helped revenue increase across all divisions bar the agrochemical and oil and gas units. Earnings before interest and tax before special items was 1.95 billion euros.
Hambrecht plans to cut at least 1 billion euros in costs by 2012. The worst chemical-industry slump for 35 years prompted the 63-year-old to place more than 4,000 employees in Germany on shorter hours to trim expenses. In addition, the merger of Ciba Specialty Chemicals into BASF, completed in April, should generate annual savings of 450 million euros by 2012 through the elimination of as many as 3,800 jobs.
With the Ciba merger out of the way, Hambrecht may now be preparing his next major purchase. BASF is preparing a bid for Germany’s Cognis GmbH that may value the closely held chemical maker at about 3 billion euros, two people with knowledge of the situation said in early April. Hambrecht today declined to say whether BASF may buy the company. Cognis, owned by Goldman Sachs Group Inc. and Permira Advisers Ltd., is drawing bidders with its ingredients for body lotions, cleaning products and shampoos, products that are more resistant to economic cycles than those directly derived from oil and gas.
BASF Targets 90 Billion Euros in Revenue by 2020
BASF SE, the world’s biggest chemical maker, plans to increase revenue to more than 90 billion euros ($110 billion) by 2020, led by growth in Asia and South America.
Revenue is expected to swell to 20 billion euros in the Asia-Pacific region by the end of the decade, the German chemical maker said in a presentation today. That compares with targeted sales of 49 billion euros in Europe, Africa and the Middle East and 17 billion euros in North America. BASF’s sales totaled 50.7 billion euros last year.
BASF reiterated a pledge to outpace growth in the industry this year and to “significantly” improve operating profit. The company aims to earn a premium on its cost of capital this year. Last year’s failure to at least earn its cost of capital, Chief Executive Officer Juergen Hambrecht’s prerequisite for maintaining dividends, led to BASF’s first cut to payouts in 16 years.
In a presentation posted on its website, BASF confirmed a goal for an operating margin of 18 percent by 2012.
Eastman Chemical Co. (EMN) recently raised its earnings outlook for the second quarter and full year from the previously announced levels, anticipating continued strength in consumer demand, and less volatile raw material and energy costs.
Eastman said it now expects earnings forecast for the second-quarter 2010 earnings to be above $1.60 per share, while the full-year earnings is now anticipated to be in the range of $5.25 - $5.50 per share.
The forecast excludes any charges related to restructuring actions. Eastman also expects the current strength evident in demand level to continue into the second half of the year, along with less volatile raw material and energy costs.
Previous earnings expectation provided by Eastman for second quarter was in the range of $1.50 to $1.60 per share, while for the full year 2010, the forecast was in the range of $5.00 to $5.25 per share.
Eastman Chemical in the recent past has also made some valuable moves, which include the acquisition of Chinese cellulose-based specialty polymers maker Tongxiang Xinglong Fine Chemical Co., Ltd. and the purchase of specialty plasticizers maker, Genovique Specialties Corp.
Acquisition of the Chinese facilities also benefited Eastman's effort to reduce costs, which the company was aggressively following with pay cuts and headcount reduction. Last March, Eastman said it would cut up to 300 jobs, which was also the second round of cost trimming the company undertook in the prior year following the economic downturn.
Nevertheless, backed with strong cost saving measures, Eastman was on the track to recovery, reporting a profit in the first quarter wiping out the losses it suffered in the sequential fourth quarter. Fourth quarter results were impacted by higher non-cash asset impairments and restructuring charges and a decline in revenue.
Cognis GmbH, the German specialty chemicals company that is drawing interest from BASF SE, reported a first-quarter profit as sales climbed.
Net income was 47 million euros ($63 million) in the quarter ended March 31, after a loss of 33 million euros a year earlier, as sales rose 11 percent to 728 million euros.
“We have had an excellent start in 2010,” Chief Executive Officer Antonio Trius said in a statement. “We expect to further improve our business performance in 2010 by providing added value to the customer through our innovative portfolio of green products.”
Cognis is drawing bidders with its ingredients for body lotions and shampoos based on natural resources such as palm kernels and coconut oil, as opposed to synthetic materials, tapping demand for environmentally friendly products.
Cognis, owned by Goldman Sachs Group Inc. and Permira Advisers Ltd., would help BASF Chief Executive Officer Juergen Hambrecht reduce his company’s reliance on plastics and chemicals that Middle East competitors produce more cheaply.
The former Henkel AG unit, sold to the buyout firms in 2001, is attracting bidders with its range of ingredients for food and personal care chemicals that are more resistant to economic cycles than those derived from oil and gas.
Cognis’s adjusted earnings before interest, taxes, depreciation and amortization rose 80 percent to 131 million euros in the quarter, for adjusted Ebitda of 422 million euros for the past 12 months.
Bioplastics maker Cereplast Inc. will commercialize its first grade of algae-based material by the end of the year. The El Segundo, Calif.-based firm also will announce a production deal with a major plastics producer by the end of May, a top Cereplast official said.
Cereplast has injection molded a test part made from algae-based biomass and polypropylene, Chairman and CEO Frederic Scheer said recently.
Scheer added that Cereplast has been contacted by several companies — including some that injection mold durable goods and bowls and other food service items — since announcing their research efforts in algae late last year.
“These [algae-based] materials can be used in injection molding, but we don’t have any specific application in mind,” he said. “It’s not a technological issue anymore.”
The algae-based bioplastics will be made at the plant that Cereplast opened last year in Seymour, Ind. Scheer said the Seymour plant “is operating at full speed” and has installed 60 million pounds of annual capacity.
Cereplast currently uses corn, tapioca, wheat and potatoes to make its bioplastics. Using algae would have less potential impact on the food chain and on any food that could be consumed by humans, officials previously had said.
“Commercial algae resins represent a significant breakthrough in the greening of the plastics industry, a transformation that we believe is critical to helping ensure the long-term sustainability of the planet,” Cereplast researcher William Kelly said in an April 27 news release.
“The use of algae as a feedstock for plastics allows us to go full circle,” he added. “The very substance that can absorb and minimize carbon dioxide and polluting gases from the industrial process can also be turned into sustainable, renewable plastic products and biofuels while reducing our use of fossil fuels.”
Scheer added in the release that Cereplast officials believe that, in the not-so-distant future, algae “will become one of the most important 'green' feedstocks in bioplastics as well as biofuels.”
“Our view is that developing alternative feedstock unrelated to fossil fuels and to the food chain is the next 'frontier' for bioplastics,” he said. “Cereplast is moving ahead very aggressively on this front.”
Cereplast is not alone in doing research in algae-based plastics. Oil conglomerates ExxonMobil Corp. and BP plc each announced algae research projects last year. ExxonMobil, based in Irving, Texas, recently partnered with algae producer Synthetic Genomics Inc. of La Jolla, Calif. London-based BP plc, meanwhile, invested $10 million in algae supplier Martek Biosciences Corp. of Columbia, Md.
Cereplast’s production deal will allow the company to expand production not only beyond Seymour, but to locations outside of North America as well, Scheer explained. He declined to identify the partner before the formal announcement is made.
“This will give us the flexibility we need,” he said. The 80 million pound maximum capacity of the Seymour plant “is a big number for us, but is small in terms of the resin industry.”
Cereplast also has been widening its distribution network this year. In March, the firm inked a deal with ATSA Chile SA of Santiago, Chile, to distribute Cereplast product in Chile and Peru. In January, Cereplast expanded its distribution deal with Fairlawn, Ohio-based A. Schulman Inc. to include the European market. Schulman already had been representing Cereplast material in North America.
In 2009, Cereplast posted sales of $2.75 million, a drop of 40 percent vs. 2008. But the firm’s profit increased from $80,000 to almost $340,000 in the same comparison.
Dow Expands East China Presence, Builds New $17 Million Emulsion Plant
Dow Coating Materials, a global business unit of The Dow Chemical Company, announced a major investment in its Chinese manufacturing footprint — a new $17 million dollar emulsion plant located at the company’s Zhangjiagang site in the eastern Chinese province of Jiangsu. The new plant comes on the heels of significant market growth in the greater Shanghai region, as Dow Coating Materials continues its practice of inventing, manufacturing and launching products specifically for the needs of the Chinese coatings market. The facility will also supply products for Dow’s Adhesives and Functional Polymers business as well as the Building and Construction Business Unit.
Bruce Hoechner, Vice President, Regional Director, Dow Advanced Materials, Asia Pacific, sees the new emulsions site as just one of many long-term investments in the greater China market. “East China remains one of the most dynamic and fastest growing regions in the already expanding Chinese coatings market. This emulsions plant reinforces our commitment to stay close to our customers and developing products that meet their needs and the changing needs of the Chinese consumer.”
Construction of the new plant, one of two Dow emulsions plants in the greater Shanghai area, is expected to begin in the fourth quarter of 2010, with an expected start-up date sometime in late 2011. The area, also home to one of Dow’s largest research and development facilities, has long held strategic importance for the Dow Coating Materials business. According to Hoechner, the expansion is just one piece of Dow Coating Materials’ broader long-term strategy for greater China.
“More than one-quarter of the emulsion products sold by Dow Coating Materials in China were invented in China in the last three years,” noted Hoechner. “Our strategic investment in R&D and manufacturing, coupled with the rapid growth in China’s middle class and its subsequent impact on paint sales in region, means we are well-positioned to meet the unique needs of the Chinese people, not just today, but for years to come.”
As the leading emulsions binder and additives producer in the coatings industry, Dow Coating Materials brings a long history of innovation to the region, which has seen a return to double digit growth following 2009’s economic slowdown. Recently, several products developed in China including ground-breaking innovations such RHOPLEX/PRIMAL™ EZ CLEAN series and INVIZIPRO™, have been exported to other regions of the world, as markets outside China begin to influenced by that country’s unique preferences.
DuPont group is constructing a new plant for the production of films for laminated glass in the Moravian town of Holesoy in the Czech Republic.
The global chemicals and plastics group, through its local subsidiary Retrim-CZ, is investing around €9.2m in the new facility which initially will employ 15. It is scheduled to be launched in October this year.
DuPont, with a national base in the Czech capital Prague, acquired the Czech safety glass interlayer company Retrim, a specialist in recycling PVB (polyvinyl butyral resin) materials, based in Zlin in 2004. Its technology allows the re-use of the material in the manufacture of automotive and architectural laminated glass.
DuPont was already producing safety glass interlayer materials at other plants in South Korea, the US and Germany. The Czech acquisition was also designed to boost DuPont’s presence in central and eastern Europe.
In 2009, the US group, which employs a total of 111 people in the Czech Republic, opened a structural demonstration centre in Prague.
Celanese Corporation (NYSE:CE) recently announced that its Advanced Engineered Materials business has completed a transaction to acquire two product lines, DuPont™ Zenite® liquid crystal polymer (LCP) and Thermx® polycyclohexylene-dimethylene terephthalate (PCT), from DuPont Performance Polymers.
“This acquisition will continue to build upon Celanese’s position as a global supplier of high performance materials and technology-driven applications as we continue to expand our innovative offerings in growth-oriented segments to support our customers,” said David Weidman, chairman and CEO, Celanese. “These two products broaden the company’s Ticona Engineering Polymers offerings, enabling Celanese to respond to a globalizing customer base, especially in the high growth electrical and electronics application segments."
“As the leading supplier of high performance engineering resins, DuPont Performance Polymers is fully committed to growing and strengthening its broad product portfolio,” said Diane Gulyas, president, DuPont Performance Polymers. “DuPont Performance Polymers has concluded that this opportunity to divest Zenite® LCP and Thermx® PCT is in the best long-term interests of our portfolio and customers. We will work closely with Celanese to make the transition period as effective as possible for our customers.”
Revenues of Zenite® LCP and Thermx® PCT were approximately US$40 million in 2009 during a period of global economic recessionary conditions. The acquisition price is not being disclosed at this time.
Industrial blow molder WhiteRidge Plastics LLC is investing $1.2 million to expand in Reidsville, N.C., for new production lines.
WhiteRidge, a subsidiary of Myers Industries Inc. of Akron, Ohio, expects to add 55 jobs during the next three years to the 100 already in Reidsville, according to a May 26 news release from the state of North Carolina. The company will receive a $45,000 grant through the One North Carolina Fund to help finance the construction.
The company molds a variety of cases, nursery containers and dock floats along with other custom parts. The additional production capacity will allow it to make parts for Honda Motor Co. Ltd. trucks and all terrain vehicles. The location is a good spot to reach customers in the southeastern United States, said Max Barton, Myers Industries’ director of corporate communications and investor relations.
Specialty Chemical Manufacturer Sensient Plans $16 Million Expansion at US Facility
Sensient Technologies Corp., a Milwaukee-based manufacturer of colors, flavors and fragrances for food and beverage, cosmetic and pharmaceutical and other products, recently announced plans for a $16 million expansion at its Color Group headquarters in St. Louis. Sensient will build an additional 25,000-square-foot facility dedicated to natural colors production, and it will include “major new equipment for natural color emulsions, dispersions and liquid colors,” according to the company. The expansion is the latest in a series of investments to expand Sensient’s natural color global capabilities. Previous investments include an increase in emulsion capability in Hamburg, Germany; a new facility in Guangzhou, China; and expanded capacity in anthocyanins in Reggio Emilia, Italy. The investments in Sensient’s natural color operations will total more than $50 million, according to the company. “This major new investment emphasizes the growing importance of natural colors for food and beverages,” said Kenneth Manning, chairman and CEO of Sensient Technologies. “The trend toward natural colors is accelerating, and this new manufacturing plant will further promote the conversion to natural colors by large food and beverage manufacturers. Our natural color investments ensure that we will remain in the forefront of the industry with state-of-the-art facilities and cutting-edge technologies.”
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