CHEMICAL UPDATE
JULY 2012
McIlvaine Company
TABLE OF CONTENTS
Brazil’s Pulp, Chemical and Nonwoven Industries Growing
Report Analyzes India’s Booming Polymers Industry
PPG Commodity Chemicals Business to Merge with Georgia Gulf
BASF to Invest in Batteries to Break Japanese Market Grip
PPG Industries expands JV with Asian Paints
BASF Opens Global R&D Center for Mining in Australia
Solvay Starts Production of Specialty Polymers Compounds in China
Afton Chemical Announces New Manufacturing in Singapore
Cytec Canada to Double Prodouction with $20 Million Government Loan
Sojitz Invests in One of World’s Largest Barite Mines in Mexico
Twenty years of successful Eucalyptus gene splicing in Brazil is paying off in terms of new investments flooding into the pulp and paper industry and into nonwovens for Brazil’s booming middle class in the northeast region, Nonwovens Industry reports.
Among major nonwovens companies in the country, Kimberly-Clark Brazil is building a new distribution center at Camacari, in Bahia state at a cost of R$100 million, or about $49 million, which is expected to open in December. K-C built its first distribution center in the region in Recife, Pernambuco state in 2008.
The new Bahia K-C investment also complements two other distribution centers and four manufacturing facilities the company has in more southern areas of the country, where most economic development has occurred until this decade. The manufacturing locations include: Eldorado do Sul, in Rio Grande do Sul state; Correia Pinto, in Santa Catarina state; and Suzano and Mogi das Cruzes in Sao Paulo state.
“This investment helps define our Bahia-Maranhao axis. The northeast region has great potential; in the last two years, our sales have increased 30% there,” said Kimberly-Clark president in Brazil, Joăo Damato, in December 2011 when the company initially announced the project.
While the northeast region represented only 18% of K-C’s sales in 2011, the region is projected to expand to represent 30% of national sales. Last year, K-C sales were up 14% overall and positioned Brazil as the company’s third-largest national market, following the U.S. and Mexico.
In July 2011, Companhia Providencia also announced plans for a new nonwoven factory in Pouso Alegre, Minas Gerais state, an investment worth $60 million.
Brazil now produces an estimated 14 million metric tons of wood pulp, primarily from Eucalyptus, but new investments are expected to increase this level to 20 million metric tons by 2020. Major players in the pulp market include Eldorado Brasil, which is building a new cellulose plant at Tręs Lagoas, in Minas Gerais state; Suzano; and Veracel, which is building a new plant at Imperatriz, in Maranhao state, in the northeast region.
Part of the inspiration for K-C’s investment in Bahia is a new $660 million investment in acrylics and superabsorbent polymers by BASF at Camacari, for which construction began earlier this year. Similarly, rising pulp and paper feedstock investments by Akzo-Nobel in several areas of the country will supply new pulp plants.
AkzoNobel’s Eka Chemicals is investing $112 million inside the fence of the new Eldorado pulp plant to provide chemical feedstocks and some energy, with a September startup planned. AkzoNobel is also investing $100 million within the fence of the new Veracel pulp plant, in the same type of arrangement, with a third-quarter 2013 startup target. Veracel is a joint venture between Brazil’s Fibria and Swedish-Finnish Stora Enso Oyj.
According to a new report by business analysts GlobalData, India is currently the world’s third largest consumer of polymers, behind China and the U.S., with a share of 5.7% of the 2011 global total — an increase from its 2000 portion size of 3.5%.
Growth in the polymers industry really kicked off in India after the country’s economic liberalization in 1991. The resulting deregulation and privatization sparked a boom in end-use sectors such as packaging, construction and automotive that has seen per capita consumption increase from 1kg in 1980 to 7.4kg in 2010.
This level, however, is still much lower than the world average and with surging industrialization and an increasingly powerful economy, the subcontinent still has massive as-yet largely untapped potential.
Production levels are soaring in order to keep up with India’s ravenous demand. In 2011, the manufacture of polymer products was 7.377 Million Metric ton per annum (MMtpa), and this will surge at a CAGR of 9.4% to reach 11.575 MMtpa by just 2016.
GlobalData’s research indicates that polymer demand in India is even outstripping the country’s strong GDP growth; in the period 2000 to 2011, India’s GDP climbed at a Compound Annual Growth Rate (CAGR) of 7.6%, whereas polymer consumption across all areas grew at a CAGR of 9.1%.
India’s government has played a key role in boosting the significance of polymers, in terms of both consumer demand and in the production industry. The government has delineated Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIRs) where production facilities can blossom. Four of these PCPIRs have been approved so far and two more are in the pipeline.
The government also approved 100% Foreign Direct Investment (FDI), which allows foreign firms to have 100% ownership of food processing companies. This will in turn create a higher demand for plastic packaging materials.
· PPG plans to separate its commodity chemicals business and merge it with Georgia Gulf in a tax efficient transaction valued at $2.1 billion, creating a leading global chemicals and building products company with a broad portfolio of downstream products and approximately $5 billion in revenues.
· The transaction is highly complementary to strategic objectives of both companies, with significant potential to enhance value for both PPG and Georgia Gulf shareholders.
· Annualized cost synergies of $115 million from the combination are expected to be fully realized in the first two years.
· The greater scale and ability to capitalize on globally advantaged, low-cost North American natural gas provides a solid foundation for future growth of the merged company.
· The merged company will have a strong capital structure and cash flow to support growth and return of capital to shareholders.
· The transaction continues PPG’s strategic transformation into a more focused coatings and specialty products company.
PPG Industries (NYSE: PPG) (“PPG”) and Georgia Gulf Corporation (NYSE: GGC) (“Georgia Gulf”) recently announced that the boards of directors of both companies have approved definitive agreements under which PPG will separate its commodity chemicals business and then merge it with Georgia Gulf. This business combination is expected to deliver enhanced value for the shareholders of both companies.
The terms of the transaction call for PPG to form a new company by separating its commodity chemicals business through a spinoff or split off, and then immediately merging the business with Georgia Gulf or a Georgia Gulf subsidiary in a Reverse Morris Trust transaction. The merger will result in PPG shareholders receiving approximately 50.5 percent of the shares of the merged company (“The Newly Merged Company”), with existing Georgia Gulf shareholders owning approximately 49.5 percent of The Newly Merged Company.
The transaction value of approximately $2.1 billion consists of $900 million of cash to be paid to PPG, approximately $95 million of assumed debt, about $87 million of minority interest, and Georgia Gulf shares to be received by PPG shareholders valued at $1.0 billion based on Georgia Gulf’s closing stock price on July 18, 2012. In the transaction, PPG will transfer related environmental liabilities, pension assets and liabilities and other post-employment benefits (OPEB) obligations to The Newly Merged Company.
Following completion of the transaction, which is expected to occur in late 2012 or early 2013, the combined company is expected to have annual revenues of approximately $5 billion and be the third-largest chlor-alkali producer and second-largest vinyl chloride monomer producer in North America.
“This transaction creates a global industry leader with substantial opportunities for long-term growth and enhanced shareholder value,” said Paul Carrico, president and chief executive officer of Georgia Gulf. “The combined company will be a leading integrated chemicals and building products company that we believe will benefit from significant integration and scale, a broad portfolio of downstream products, as well as the regional advantage of low-cost North American natural gas. This transaction is a natural strategic fit for Georgia Gulf that provides tremendous value for all stakeholders, including shareholders, customers, employees and the communities in which we operate. We are excited to work together with the talented employees of PPG’s commodity chemicals business to combine our strengths and execute on the significant opportunities inherent in this transaction.”
PPG Chairman and CEO Charles E. Bunch said, “We are pleased to have reached this agreement as this transaction is another major step in our strategic transformation into a more focused coatings and specialty products company. This is a unique opportunity to create significant value for PPG shareholders and to share in synergies that would not be available to PPG’s commodity chemicals business on its own.”
Bunch added, “This further strengthens PPG’s already strong cash position and will provide us the opportunity to increase cash deployed for earnings-accretive activities such as acquisitions, organic growth initiatives, debt repayment and PPG share repurchases. Finally, we intend to maintain our dividend, and our long heritage of increasing our annual dividend payout.”
Governance and Management of The Newly Merged Company
The merged company will be led by Georgia Gulf’s President and CEO Paul Carrico and a senior management team comprised of both Georgia Gulf and current PPG commodity chemicals employees. The board of directors will consist of the eight existing Georgia Gulf board members and three new members to be designated by PPG, including Michael H. McGarry, who is currently senior vice president of PPG’s commodity chemicals business and will remain with PPG after the combination. The merged company will have approximately 6,400 employees working at more than 40 facilities, primarily in North America.
Approvals
The transaction is subject to approval by Georgia Gulf shareholders and customary closing conditions, relevant tax authority rulings and regulatory approvals. Debt financing has been committed by Barclays and J.P. Morgan Chase Bank.
Advisors
Barclays and Houlihan Lokey served as Georgia Gulf’s financial advisors, and Jones Day served as its legal advisor. Lazard served as PPG’s financial advisor, and Wachtell, Lipton, Rosen & Katz served as its legal advisor.
About Georgia Gulf
Georgia Gulf is a leading, integrated North American manufacturer of two chemical lines, chlorovinyls and aromatics, and manufactures vinyl-based building and home improvement products. The company’s vinyl-based building and home improvement products, marketed under the Royal Building Products and Exterior Portfolio brands, include window and door profiles, mouldings, siding, pipe and pipe fittings, and deck products. Georgia Gulf, headquartered in Atlanta, Georgia, has manufacturing facilities located throughout North America to provide industry-leading service to customers. For more information, visit www.ggc.com.
About PPG and PPG’s Commodity Chemicals Business
PPG Industries' vision is to continue to be the world’s leading coatings and specialty products company. Through leadership in innovation, sustainability and color, PPG helps customers in industrial, transportation, consumer products, and construction markets and aftermarkets to enhance more surfaces in more ways than does any other company. Founded in 1883, PPG has global headquarters in Pittsburgh and operates in more than 60 countries around the world. Sales in 2011 were $14.9 billion. PPG shares are traded on the New York Stock Exchange (symbol: PPG). For more information, visit www.ppg.com.
PPG’s commodity chemicals business is a global producer of chlorine, caustic soda and related chemicals for use in applications such as chemical manufacturing, pulp and paper production, water treatment, plastics production and agricultural products, with manufacturing facilities in the U.S., Canada and Taiwan.
BASF SE (BAS) aims to invest more than 100 million euros ($122 million) in the development and distribution of battery materials, a market dominated by Asian manufacturers, Bloomberg reports.
The German company aims to be among the top three global providers of materials for producing batteries and cells by 2020, Ralf Meixner, senior vice president for battery materials, told reporters at BASF headquarters in Ludwigshafen on July 10.
The company is staggering the investment over six years through 2016, Meixner said. Japanese companies are at the forefront of battery material production but their market is fragmented, according to Meixner. “In Japan, we expect a consolidation of companies as mid-sized firms will disappear,” he said.
Among battery material manufacturers in Japan, Osaka-based Stella Chemifa Corp. (4109), Asahi Kasei Corp. (3407) in Tokyo and Fukui-based Tanaka Chemical Corp. (4080) are the largest global providers of electrolytes, separators and cathodes respectively, Andy Bae of Pike Research LLC, said on the Pike Research Blog. Japanese companies hold an almost 80 percent market share of the global lithium-ion-battery market, according to Bae.
BASF has set up a new division for its battery activities and acquired Merck KGaA’s battery electrolyte activities, Novolyte Technologies, which makes electrolyte formulations for lithium-ion batteries and specialty chemicals, as well as Ovonic Battery Co. and Sion Power Corp.
PPG Industries has received the necessary approvals from Indian authorities to expand its coatings joint venture by creating a second joint venture with Asian Paints, India's largest coatings company.
While financial terms were not disclosed PPG and Asian Paints will expand their current 50-50 joint venture to serve India's industrial liquid, marine, consumer packaging and transportation coatings customers.
"The expansion of PPG's more than 15-year successful relationship with Asian Paints will position both companies for accelerated growth in nondecorative coatings to take advantage of the long-term growth of the Indian economy," said Mike Horton, president, PPG Asia Pacific, and vice president, automotive refinish and architectural coatings, Asia Pacific.
Both joint ventures leverage PPG's global scale, technology and customer relationships with APL's Indian customer base, manufacturing footprint, distribution channels and local relationships, according to Horton.
"PPG will have effective management control of Asian PPG Industries, and APL will have effective management control of Asian Paints PPG Limited to best utilize the companies' respective strengths for capturing the growth in Indian markets, including infrastructure development", Horton said.
PPG and APL also will form a second 50-50 joint venture, Asian Paints PPG Limited, to serve protective, industrial powder, industrial container and light industrial coatings customers.
BASF recently opened its global mining research and development center at the Australian Minerals Research Centre (AMRC) in Perth, WA. At the new facility, BASF scientists will study specific innovation needs for mineral processing and metal production, to help reduce energy and reuse water at mines in Australia and around the world.
Speaking at the official opening, Australian Minister for Resources and Energy, Martin Ferguson, said that Australian mining relies on technological innovation to drive improved productivity. BASF’s research will thus contribute to the global competitiveness of the Australian mining industry, helping to maximize returns to the community and shareholders.
“Chemistry is a key enabler to making tomorrow’s mining industry more sustainable,” said Dr. Martin Brudermueller, Vice Chairman of the Board of Executive Directors of BASF SE. “With the latest advances in mining solutions research, BASF aims to help mining operations to minimize water consumption, maximize recovery, reduce land areas consumed by tailings disposal and minimize the cost and time required to rehabilitate sites.”
The AMRC site is part of the Commonwealth Scientific and Industrial Research Organisation (CSIRO), Australia’s national science agency and one of the largest and most diverse research agencies in the world. With a team of six advanced material researchers at the BASF center by the end of 2012 and about 20 researchers over the next five years, focus topics will include advanced rheology modifiers for the improvement of the thickening process for valuables and tailings, as well as modification of the crystallization process in alumina production.
“High quality ores are becoming depleted and new mines are often in hostile locations while environmental, health and safety regulations are becoming more stringent. BASF aims to help the industry face these challenges with solutions across our customers’ value chain. This new research and development center will further develop our expertise in areas, which are crucial to meeting future needs,” said Dr. Steffen Kudis, Head of BASF’s Global Oilfield and Mining Solutions businesses.
BASF Mining Solutions offers an extensive range of reagents and technologies for mineral processing with current strengths in solid/liquid separation and extraction processes, and also offers reagents for flotation, dispersing, agglomerating and others.
Solvay announced recently that its specialty polymers compounding plant located in Changshu, province of Jiangsu in China, has started to serve the local growing demand for specialty polymers compounds. The plant is mainly serving China's customers in the electronics, automotive, consumer and industrial applications markets with compounds of Amodelpolyphthalamide (PPA)® , Ixefpolyarylamide (PARA)® and Kalix® (modified PARA).
This plant required an investment of EUR 21 million and is fully adaptable for future expansion of overall capacity as well as production of compounds made out of other high performance polymers. It is adjacent to another specialty polymers plant which is currently under construction for the production of SOLEF Polyvinylidene Fluoride (PVDF)®, TECNOFLON Fluoroelastomers (FKM)® and their essential monomer VF2.
“The start-up of our compounding plant in Changshu is an important step in the development plan of Solvay's growing industrial base in China where the Group is committed to increase its customer base. Sales of Specialty Polymers in Asia have already increased to over 30% of total sales and we see this trend continuing,” comments Augusto di Donfrancesco, General Manager of the Global Business Unit Specialty Polymers.
SOLVAY is an international chemical Group committed to sustainable development with a clear focus on innovation and operational excellence. It is realizing over 90% of its sales in markets where it is among the top 3 global leaders. Solvay offers a broad range of products that contribute to improving the quality of life and the performance of its customers in markets such as consumer goods, construction, automotive, energy, water and environment, and electronics. The Group is headquartered in Brussels, employs about 31,000 people in 55 countries and generated EUR 12.7 billion in net sales in 2011 (pro forma).
Afton Chemical Announces New Manufacturing in Singapore
Afton Chemical Corporation announces the construction of a new chemical additive manufacturing facility on Jurong Island, Singapore. The multi-year investment, approved by the NewMarket Board on July 17th, will be fully owned and operated by Afton, emphasizing the company’s strong commitment to the expanding Asia-Pacific market. Singapore was selected after an extensive analysis which focused on facility readiness and flexibility, market access, economics, safety, and logistics.
“This represents an investment that is likely to exceed in excess of 100 million USD for Afton Chemical, and another strong commitment by our Board to this key market,” said Dr. Warren Huang, Afton President. “We have established a significant presence through acquisitions and investments, and with the new facility on Jurong Island, we will continue to bring our company’s ‘Passion for Solutions’ to the Asia-Pacific region,” he said.
“In recent years, we’ve intensified our focus on this important region,” said Damian Barnes, Vice President, Supply. “The new Jurong Island facility will enhance our ability to provide quick and effective service to our Asia-Pacific customers as well as those in India and the Middle East,” he said.
Groundbreaking for the plant is scheduled for the third quarter, 2013, and it’s expected to be operational by mid-2015. The initial capacity will represent a modest increase in our overall global production. The plant will be scalable to allow Afton to grow as demand warrants.
Dr. Huang added, “This strong combination of R&D and manufacturing in the region, will not only improve security of supply and reduce lead-times, but also help us to develop cost-effective, customized solutions for the region. And in turn, that will help our customers improve the profitability of their businesses.”
This presence is in addition to Afton’s regional manufacturing in Suzhou, China and Jurong Island, Singapore (operated by Chemical Specialties Singapore (Pte) Ltd.). Afton has technical centers in Tsukuba, Japan and Suzhou, China and sales offices in Tokyo, Japan; Beijing, China; Guangzhou, China; Seoul, South Korea; Sydney, Australia; and Bangkok, Thailand. Afton maintains its regional headquarters in Singapore.
Afton Chemical Corporation - part of the NewMarket Corp. (NYSE: NEU) family of companies, develops and manufactures petroleum additives that help fuels burn cleaner and more efficiently, engines run smoother, and machines last longer. We offer performance fuels and refinery chemicals, such as gasoline performance additives, diesel fuel additives, lubricity improvers, and cold flow improvers; driveline products, such as automotive gear oil and automatic transmission fluid; engine oil additives, such as passenger car engine, heavy duty diesel engine, and railroad and marine diesel engine oils; industrial products, such as antiwear and R&O hydraulic oils, industrial specialty chemicals, industrial gear oils, and grease. The company supports global operations through regional headquarters located in Asia Pacific, EMEAI, Latin America and North America. Afton Chemical Corporation is headquartered in Richmond, Virginia. For more information, visit AftonChemical.com
Cytec Canada to Double Prodouction with $20 Million Government Loan
A $20 million investment by the provincial and federal governments will help Cytec Canada double its production in the next two years.
The announcement was made recently at Cytec's Garner Rd. plant, which is the largest producer of phosphine products in the world. The company currently employs 105 people, but plans to hire 30 more by the time its new $150 million factory is up and running in the spring of 2014.
The federal government is kicking in $10 million toward the project through its FedDev Ontario program. The money is a loan, which will have to be paid back over a number of years.
In addition, the province is giving Cytec a $2 million grant, and an $8 million interest-free loan through its Strategic Jobs and Investment Fund.
Cytec Canada is owned by New Jersey-based Cytec Industries and has been operating in Niagara Falls for more than a century.
The company says there are only three manufacturing plants of phosphine and phosphine derivatives in the world, the largest of which is in the Falls.
The chemical phosphine is used in the production of LED lights and for fumigation, as well as in the mining industry. Martin Court, the vice-president in process separation for Cytec Industries, said the chemicals are cleaner and more environmentally-friendly that options available in the past.
“If you take phosphine chemistry as a whole, it's a very clean chemistry, yet you have to be careful when you operate it, especially when you have high pressure because they're it's very flammable,” Court said. “We have to operate in a way that we don't put the environment or ourselves at risk.”
Rene Lemay, the site manager for Cytec's Niagara Falls facility, said construction is already under way and the building that will house the new factory should be complete in the next “three to four months.” However, because of the complex nature of phosphine production, he said it will take until the second quarter of 2014 to get all of the manufacturing systems in place and the employees trained.
The new plant will be largely automated, so the 30 jobs will be mostly well-paid chemical engineers and scientists, he said.
Sojitz Corporation will invest in CPC Mineria, S. De R.L. De C.V.(CPC Mineria), a holder of barite interests in Mexico, acquiring a 49% stake from Chemical Products Corporation (CPC) in the U.S., and plans to manufacture and sell high-purity barite. Operation is scheduled to begin in the summer of 2013, with integrated ore extraction and refining to take place on site. In addition to the exportation of Chinese barite, Sojitz will be able to alternatively provide supply to North America from this stable source in Mexico. This project will also contribute to the diversification of the sources of supply.
Barite is a mineral composed of crystalline barium sulphate. Because of barite’s extremely high specific gravity, it is used as a weighting agent for drilling fluid in oil and gas excavation.
Drilling fluid is used to prevent blowouts of oil and natural gas caused by collapse of the drilling well wall and to carry drill cuttings from the well bottom to the surface. In addition to conventional oil and gas drilling, drilling fluid is also being used for shale gas and shale oil excavation, which has been increasing worldwide in recent years. As drilling technologies have advanced, oil and gas excavation wells have become longer and deeper, and demand for drilling fluid and the barite used in drilling fluid is increasing accordingly. Consumption is expected to increase from approximately 6.9 million tons in 2010 to 9.3 million tons in 2016 (according to a British private research company).
China accounts for a majority of global barite supply, and concerns are rising because of restriction on mining and depletion of mines. Even the United States, which is the largest consumer of barite, using approximately 2.8 million tons annually, imports more than 70% of annual consumption. The majority comes from a single country-China-so diversifying sources is an urgent issue.
Sojitz is responding to the dramatic increase in demand for barite caused by new applications including shale gas and shale oil extraction by developing diverse sources outside China, contributing to the use of new energy sources and expanding its business for rare resources.
CPC is a privately held company founded in 1933 and is headquartered in Cartersville, Georgia, USA. CPC will continue to be the majority stakeholder in CPC Mineria. CPC produces Barium Salts and Sulfur products from its basic position on raw material barite.
CPC’s ownership has had a basic position in barite from locally mined barite ore in Cartersville, Georgia, since 1905. The investment from Sojitz and the beneficiation project of the Sonoran barite will ensure the continuation of CPC’s strong basic position on barite raw material for its Barium Carbonate, Barium Chloride, and other Barium derivatives business.
CPC also has a significant participation in Mexico in the largest first quality celestite reserves in the world.
Other applications for barite include high-performance electronic material in multilayer ceramic capacitors, glass material, paints, X-ray contrast agent, and automobile brake pads. Sojitz will provide stable supplies to users in Japan and the United States through acquisition of barite, a source for these materials, and production of secondary materials.
McIlvaine Company
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