CHEMICAL UPDATE
OCTOBER 2010
McIlvaine Company
TABLE OF CONTENTS
BASF Expects Record Year in 2010
Dupont Eyes Solar Market Expansion
Akzo Nobel's Quarterly Profit Boosted By Chemicals
Chemtura and UP Chemical Form Metal Organic Precursor JV
LyondellBasell Reports Improved Business
BASF Plans New Blending Facility for Antioxidants in Bahrain
BASF to Build Dispersions Plant in Huizhou South China
Mexico's Alfa Buying Three Eastman Chemical Plants
PPG Acquires China's Bairun Chemical
A. Schulman Buys Brazilian Compounder Mash Compostos
Evonik to Expand Production Capacities in China
BASF recently announced first figures for the third quarter of 2010 and raised its outlook for the full year. Compared with the same quarter of the previous year, third-quarter sales increased 23% to €15.8 billion, EBIT before special items rose 77% to €2.2 billion and EBIT increased 122% to €2.15 billion. The figures are at the same high level of the second quarter of 2010.
Sales in the first nine months of 2010 rose 27% to €47.5 billion, EBIT before special item increased 89% to €6.4 billion and EBIT by 127% to €6.1 billion.
For the fourth quarter, the company expects the good business development to continue and has raised its outlook for the current year. For 2010, BASF expects sales of around €63 billion and EBIT before special items of over €8 billion. This exceeds the peak levels of the years 2007 and 2008.
Dr. Jürgen Hambrecht, Chairman of the Board of Executive Directors of BASF SE said, “The record figures reflect the dynamics in our businesses, our improved portfolio and operational excellence, which have been able to show their full impact in the current favorable economic environment. This is the result of our efforts over the past years to implement our strategy for profitable growth. Our strength is also reflected in the very high level of our nine-month operating cash flow of €5.3 billion.”
In spite of the current good results, Hambrecht sees a number of uncertainties in the long-term economic outlook. He said, “The positive economic development of the past months will not necessarily continue at the same pace in 2011. Risks also remain which could jeopardize a sustainable recovery. The high debt level of many countries threatens the stability of the financial and banking systems. The necessary reduction in government spending and the winding down of national stimulus programs could dampen overall demand.” Risks are also associated with volatile raw material and foreign currency markets, overcapacities, growing geopolitical tensions and protectionism through new trade barriers.
DuPont DD.N plans to integrate more solar technologies into building materials, a step that would heighten its rivalry with Dow Chemical and bolster its alternative energy products, which also include biofuels.
The company supplies secondary materials to build solar panels, such as pastes and films, a business growing about 30 percent a year.
Recently DuPont hinted that it may move into "integrated photovoltaics," in which solar technology is built directly into windows or roofing materials.
"We are interested in moving beyond our current business," Tom Connelly, DuPont's chief innovation officer, said at the Reuters Global Climate and Alternative Energy Summit in New York.
"You'll see us doing more in the area of building-integrated photovoltaics as we move forward."
A move into consumer-focused solar products would represent a major shift for the Wilmington, Delaware-based company and bring with it an entirely new market to tap.
Last month DuPont said it expects $1 billion in solar market sales in 2010, a number that dwarfs revenue seen by Dow and most other players in the industry.
"I would view this as an exploratory effort and our first venture into a new technology," Connelly, a key adviser to DuPont Chief Executive Ellen Kullman, said at the Reuters Summit.
Connelly said DuPont, which spends 15 percent of its research budget, or about $1.4 billion, on alternative energy development, would also continue to focus on thin-film materials, such as amorphous silicon, commonly used in solar-powered calculators, and CIGS, a technology forming the backbone for solar shingle development.
The price of silicon, a key material to make solar panels, has dropped sharply in the last two years, eroding margins for many of DuPont's customers. That has put some thin-film solar development on the back burner, as the cost for polysilicon-based solar cells has sharply declined.
But interest is strong for so-called CIGS panels, which are made from copper, indium, gallium and selenide and don't rely on silicon to absorb light and produce electricity.
Dutch coatings and chemicals company Akzo Nobel NV (AKZA.AE) recently said housing and construction markets remain soft, as it reported a forecast-beating net profit for the third quarter supported by strong demand at its chemicals business that offset lower profitability at its paints and coatings businesses.
The maker of Dulux and Hammerite paints posted a 21% rise in third-quarter net profit to EUR238 million, from EUR197 million last year. A Factset survey of 14 analysts had predicted a net profit of EUR215.3 million. The figure was helped by lower pension expenses and interest charges.
Sales were up 13% to EUR3.87 billion in the third quarter due to growth in emerging markets and a stronger dollar and Asian currencies, but profitability at its paint and coatings units was pressured by higher raw material costs and lower volumes in Europe, as housing and construction markets in the U.S. and Europe showed no signs of a recovery.
"Although there is reason for caution in mature markets, we are confident that we are in good shape to benefit from our geographic spread and leading positions," said Akzo Nobel's chief Executive Hans Wijers.
The group's closely-watched earnings before interest, taxes, depreciation and amortization, or Ebitda, rose 9% to EUR574 million, with cost savings and favorable currency exchange being offset by higher raw material costs. Analysts had expected Ebitda to come in at EUR598.6 million.
The Ebitda margin for the third quarter was 14.8% compared to 15.4% a year ago. At its strategy update at the end of September, Akzo Nobel reiterated its medium-term target of an Ebitda margin of 13% to 15% while aiming for a revenue of EUR20 billion in the coming five years.
Akzo Nobel consists of three units, which all generate about a third of the company's revenue. Margins were lower at its Decorative Paints and Performance Coatings units but higher at its Specialty Chemicals unit. Ebitda at the chemicals unit grew by 29% to EUR254 million, making up about 44% of the total.
"Akzo Nobel's third quarter results look somewhat mixed, says Michel Veul, an analyst at SNS Securities. "Sales and operating profits are stronger than expected at Specialty Chemicals, but margin pressure at Decorative Paints and Performance Coatings exceeded expectations," he added. Veul rates Akzo at Buy.
The strong performance by Akzo's chemicals operations echo news from BASF SE (BAS.XE), the world's biggest player in the sector, which Wednesday reported a 23% rise in third quarter revenue. Analysts say demand for chemicals has outpaced supply, in part because some producers had shut plants temporarily during the economic crisis and were off-line when demand snapped back and thus couldn't respond quickly enough to the rapid rebound in orders.
At its paint business revenue was up 8%, with 7% of growth coming from exchange rates and 1% from higher prices.
Higher sales in emerging markets was offset by a decline in mature markets, particularly in Europe where volumes declined by 3%. However, Ebitda margins were down to 14.4% compared to 15.6% a year ago due to higher raw material costs and investments in advertising and promotion.
Revenue at Akzo's Performance Coatings division, which makes coatings for products ranging from furniture to cell phones, was up 18%, due to acquisitions, currency effects and 5% higher volumes.
Chemtura Corporation and UP Chemical Co., Ltd. recently announced the signing of a Memorandum of Understanding (MOU) defining the terms of a joint venture company to be formed which will manufacture and sell high-purity metal organic precursors for the rapidly growing market for metal organic precursors for High Brightness LED applications, with particular focus on the South Korean market and the broader Asia-Pacific region.
The joint venture will leverage Chemtura's capability and technology related to metal organic precursors for polymerization and other specialty applications, together with its backward integration for trimethylaluminum (TMA), a key material used in the manufacture of high-purity metal organic precursors for use in the production process for High Brightness LED chips.
The joint venture will combine Chemtura's expertise with UP Chemical's capability and experience in supplying high-purity metal organic precursors for chemical vapor deposition tools installed at semiconductor device manufacturers in South Korea and the Asia Pacific region.
The joint venture expects to begin supply of high-purity metal organic precursors to the High Brightness LED market by December 2010, and expects to have fully integrated manufacturing capability for trimethylgallium and trimethylaluminum established in Korea in late 2011.
Chemtura Corporation and its subsidiaries, with 2009 sales of $2.3 billion, together are a global manufacturer and marketer of specialty chemicals, agrochemicals and pool, spa and home care products, including 50 years of production excellence with Chemtura Organometallics GmbH. Additional information concerning Chemtura is available at www.chemtura.com.
UP Chemical Co., Ltd. is the first developer and successful supplier of atomic layer deposition precursors for DRAM chip manufacturing. It specializes in the research, development, production, high-purity refinement and sale of metal organic precursors, as well as other thin film deposition materials. Additional information concerning UP Chemical is available at www.upchem.co.kr.
LyondellBasell, which only recently emerged from Chapter 11 bankruptcy protection, has posted better-than-expected Q2 figures. The Netherlands-based company, which reported improved business conditions across most segments, had second-quarter income of $203m compared with a loss of $353m for the same period last year.
"We emerged from Chapter 11 as a much stronger company," said Jim Gallogly, CEO of LyondellBasell. "Our significantly improved capital and cost structures, coupled with our industry-defining technologies and new management team, position us as a formidable competitor for the future.
"The second quarter was an excellent start for our new company. Strong US ethylene margins experienced late in the first quarter continued into the second quarter. European olefins and polyolefins results also improved during the quarter due to higher margins across most products.”
BASF has announced plans to build a production facility for customer specific antioxidant blends (CSB) in Bahrain. The new CSB plant will come in addition to the existing tolling agreement for CSB with Astra Polymer in the Kingdom of Saudi-Arabia, which is mainly supplying local customers.
“With the new production facility in Bahrain, we will be able to support the fast growth of our customers in the Middle East region while providing the flexibility in supply and service speed that our customers require”, explains Hans W. Reiners, President Performance Chemicals Division of BASF.
John Frijns, Senior Vice President Plastic Additives Europe/EAWA, adds: “Following the evaluation of several investment options, we have decided that a new antioxidant blending facility in Bahrain will provide the highest value for both, our customers and BASF”.
BASF will invest in a dispersions plant in Daya Bay Petrochemical Industrial Park in Huizhou, China. With an annual capacity of 100,000 tons, the new plant will produce XSB dispersions for the paper industry and acrylic dispersions for industries such as coatings, construction, printing & packaging and adhesives. The facility will benefit from local availability of raw materials and proximity to key customers who serve Asia’s fastest-growing consumer markets. Production is scheduled to begin in the first quarter of 2012, subject to government approval. The investment is part of BASF’s growth strategy for Asia Pacific, which has the goal of doubling sales by 2020.
“This is an important step for BASF in Asia, following the establishment of our Paper Chemicals division in 2009. The investment strengthens BASF’s commitment to the paper and board industry, with South China offering one of the fastest-growing markets in the region. With this facility, we are well positioned to support our customers’ aspirations for growth and success in the South,” said EngSoo Chew, Senior Vice President, Paper Chemicals Asia Pacific.
“With our upstream monomer integration in China, world-scale dispersion plants exceeding half a million tons in capacity and unique process for manufacturing low-VOC dispersions, we are well positioned to support our customers’ strong growth with a reliable supply of water-based acrylic dispersions in the region,” said Gops Pillay, Senior Vice President, Dispersions & Pigments Asia Pacific.
The investment reflects BASF’s focus on participating in the strong growth of markets in emerging Asia. The additional capacity will strengthen and complement its regional production network for XSB and acrylic dispersions, which currently includes plants in East China, Indonesia and India. XSB dispersions are used as coating binders for paper, while acrylic dispersions are used in paints and coatings, printing and packaging, construction materials and adhesives.
BASF established Paper Chemicals as a separate division when it acquired Ciba in April 2009.
Mexico's Alfa Buying Three Eastman Chemical Plants
Reuters reports Mexican conglomerate Alfa is buying three plants from Eastman Chemical Co. for $600 million, boosting its presence in the U.S. plastics market. One of the Eastman plants being acquired by Alfa produces PTA, a chemical used in the production of plastics. The other two make PET, a polymer used in beverage, food and other liquid containers. The plants are located in South Carolina and have an annual production capacity of 1.275 million tons. Alfa estimated the facilities had sales of close to $405 million during the first half of the year. Alfa's DAK Americas unit is expected to close on the transaction before year-end.
PPG Industries Inc., which makes paint and industrial coatings, said recently it has agreed to acquire Chinese packaging coatings producer Bairun Chemical Co. The deal is expected to close sometime this quarter. Financial terms of the deal were not disclosed.
Privately-held Bairun is located in southern China. Some 70 of the company's employees will remain with the company, PPG said.
The acquisition is part of PPG's strategy to expand its coatings and specialty products offerings around the globes, particularly in Asia.
"This acquisition will bolster PPG's leadership positions in the Chinese and Asian packaging coatings industry," said Viktor Sekmakas, PPG's senior vice president of industrial coatings and president of PPG Asia-Pacific.
PPG's packaging coatings are used for containers for the beverage, food, cosmetic, pharmaceutical, paint and chemical industries.
Materials firm A. Schulman Inc. has purchased Brazilian compounder and concentrate maker Mash Compostos Plasticos for almost $17 million.
In an Oct. 18 news release, Schulman Chairman, President and CEO Joseph Gingo described Brazil as “a highly attractive market,” adding that the country is “a large, diversified market with strong macroeconomic fundamentals.”
São Paulo-based Mash was founded in 2004 and produces color compounds and concentrates based on a variety of resins. No sales total for Mash was available. The firm employs about 50.
The acquisition is the third of the year for Fairlawn, Ohio-based Schulman. In April, the firm paid almost $200 million for compounder ICO Inc., a Houston-based firm that specialized in products for the rotomolding sector. The ICO deal included two Brazilian plants.
Schulman Americas general manager and chief operating officer Gustavo Perez added that the Mash deal adds masterbatch concentrates and engineering resins to the firm’s Brazilian lineup. The former ICO facilities produce rotomolding compounds.
In addition to the ICO deal, Schulman earlier this year bought color concentrates maker McCann Color Inc. of North Canton, Ohio, for less than $10 million in cash. McCann makes high-end color concentrates and other specialty materials. As a result of the McCann move, Schulman closed its 140,000 square-foot color concentrate plant and technology center in nearby Sharon Center, Ohio.
For the first nine months of Schulman’s 2010 fiscal year ended May 31, the firm posted sales of more than $1.1 billion, an increase of 14 percent from the same period in fiscal 2009.
Profit for that nine-month period was $36.2 million — almost seven times profit posted in the 2009 period.
Demand for triacetonamine derivatives (TAA derivatives) has kept rising for several years. Evonik Industries is taking advantage of the economic opportunities afforded by this situation and is considerably expanding its production capacities for these special derivatives in China. The foundations for a new plant will be laid as early as this year.
Currently, Evonik produces the derivatives in a joint venture Evonik Tianda (Liaoyang) Chemical Additive Co., Ltd. at the Liaoyang site in northeaster China. The existing production capacities are to be moved within the Liaoyang region to the Aromatic Site (LAS), one of the country's largest petrochemical sites, and will also be significantly increased. Full production is scheduled to commence in the fourth quarter of 2011.
Apart from the plant in Liaoyang, Evonik has further production capacities at Marl Chemical Park in Germany.
The company is already one of the world's leading suppliers of TAA derivatives. These are essential intermediates for the production of hindered amine light stabilizers H.A.L.S. The stabilizers improve the properties of plastics that are subject to intensive light radiation. The main applications are in the automotive and construction industries as well as agricultural films.
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