CHEMICAL UPDATE
DECEMBER 2013
McIlvaine Company
TABLE OF CONTENTS
U.S. Chemicals Exports to Increase from Shale Gas Advantage
Shale Gas Makes U.S. Among Cheapest Places for Plastics Manufacturing
Brazil Ramps Up Fertilizer Production Amid Growing Agricultural Demand
Honeywell to Invest $300 Million to Build New Refrigerant Plant
Formosa Plastics Group Plans $2 Billion Expansion of Texas Operations
Norway’s Yara and BASF Plan Investment in U.S. Ammonia Plant
Solvay Divests PVC and Compounding Businesses
Kumho Petro Produces Carbon Nanotubes
The American Chemistry Council predicts that U.S. chemicals exports will rise 45 per cent over the next five years, as a result of a wave of investment in new capacity aimed at overseas markets. The sharp increase in exports is a result of the cost advantage created by the shale gas boom, putting pressure on competitors in Europe and Asia.
The U.S. has already shifted from being a net importer of chemicals in 2011 to forecast net exports of about $2.7bn this year, and the ACC expects that to rise to almost $30bn by 2018.
The shale revolution has caused a boom in U.S. production of natural gas liquids used as chemical feedstocks such as ethane, and sent their prices tumbling. Ethane has fallen from 91 cents per gallon in 2011 to about 26 cents per gallon today.
U.S. groups such as ExxonMobil, Dow Chemical, Chevron and Phillips 66 are among the leaders in investing in new capacity, but even producers from Asia and the Middle East such as Formosa Plastics of Taiwan, and Sabic of Saudi Arabia, have been looking at projects in the U.S.
Thanks to the surge in shale gas, the U.S. is now one of the cheapest places to manufacture plastic, prompting chemical companies to expand plants and build new facilities.
The boom is taking shape at places like BASF’s massive ethane cracker in Port Arthur, Texas, where oil and natural gas are heated to 2,000 degrees Fahrenheit and turned into ethylene, an ingredient in most plastics. From here, the ethylene will go elsewhere to be turned into a variety of consumer goods, like food packaging, antifreeze, even diapers.
Until recently, this plant used only oil to make ethylene. But last year, BASF started using natural gas as well due to its lower cost. Natural gas was once over $12 per thousand cubic feet, as recently as 2008. With the spread of fracking into gas-rich states like Texas and Pennsylvania, it’s now between $3 and $4.
Because of this, the U.S. is now one of the cheapest places on earth to make plastic. Chemical companies are expanding plants that make ethylene and fertilizer, or building new ones.
Brazil is one of the world's leading exporters of agricultural production but as much as 70 percent of the fertilizer it uses is imported. In a bid to reduce dependency on imported products, Brazil is set to invest billions of dollars in projects that will increase its domestic output of fertilizers, according to a new report by Brazilian industry association Fiesp.
Investments in the sector are expected to pick up significantly, following the announcement that the Brazilian government is preparing an incentive package for firms that pump capital into this segment of the industry. Thanks to these measures, new nitrogen, phosphorus and potassium (NPK) fertilizer plants are projected to reduce the share of imported products to 59 percent by 2018, the report says.
This is unlikely to set a long-term trend, however, because both domestic and global demand for agricultural products is expected to continue going up, thus forcing Brazil to make up the difference with growing fertilizer imports once again. Fiesp has projected that the share of imported NPK fertilizers will reach 63 percent by 2023.
The industry association has estimated that domestic production of phosphorus will double by 2023, reaching 4.1Mt per year, cutting imports from 57.4 percent to just 22.2 percent. Meanwhile, nitrogen fertilizers will retain their position as most imported product over the forecast period. Currently, 93 percent of nitrogen fertilizer demand is met by imports, AgWeb reported.
Honeywell International Inc. (HON) said it will spend about $300 million to build a new, environmentally friendly automobile refrigerant manufacturing plant in response to increasing demand overseas.
The industrial conglomerate is working with key suppliers to increase production capacity for HFO-1234yf, a new refrigerant for automobiles with a global-warming potential of less than 1. The global-warming potential is 99.9% lower of the current refrigerant in use and even lower than that of carbon dioxide, Honeywell said.
The plant, to be built in Geismar, La., is expected to be fully operational by 2016.
"Demand for (the refrigerant) is increasing around the world in response to concerns about greenhouse gas emissions and the need to comply with the Mobile Air Conditioning (MAC) Directive in Europe and Corporate Average Fuel Economy (CAFE) regulations in the U.S.," said Chief Executive Andreas Kramvis.
The U.S. supplies a major portion of European demand for the current refrigerant in use, Mr. Kramvis added. Honeywell said it is considering building a plant in Europe, depending on demand and market requirements.
The new regulations in Europe require all refrigerants in vehicles sold after Jan. 1 of this year to have a global- warming potential below 150. All cars must meet this metric by 2017.
In the U.S., auto makers are also adopting the new refrigerant to help comply with improved greenhouse gas standards in cars and light trucks.
Earlier this year, Honeywell also said it would launch packaging operations for the new refrigerant in Japan to serve the Asian market.
Formosa Plastics Group, Asia’s largest chemical producer, has applied for permits for a $2 billion expansion of its Texas operations, including an ethane cracker and downstream derivatives.
"Because of shale gas, the cost of making petrochemical and plastic-related products is becoming very competitive here in the United States," said the Taiwanese company Vice Chairman Susan Wang. "It's probably as cost effective as in the Middle East."
Formosa Plastics’s proposed U.S. investment comes as Taiwan seeks to diversify business and trade ties beyond China, which has become its largest trade partner while also disputing the island’s sovereignty. Taiwan this year resumed trade talks with the U.S. after a five-year halt and the U.S. House Committee on Foreign Affairs this week agreed to introduce a bill to allow the sale of four frigates to Taiwan’s navy.
Formosa Plastics’s Wang said the Taipei-based company expects to receive the environmental permits for an expansion at its Point Comfort facility, about 125 miles (200 kilometers) southwest of Houston, sometime within the next year. Construction can begin immediately thereafter, she said.
Environmental regulations in the U.S. are “quite reasonable,” Wang said. The hurdles in Texas are a shortage of skilled labor due to the number of competing facilities, and the relatively high cost of shipping products by rail in the U.S., she said.
The diversified industrial company is one of the world’s largest chemicals producers, behind BASF SE (BAS) and Saudi Basic Industries Corp., with a combined NT$2.2 trillion ($74 billion) market capitalization of its four listed companies: Formosa Petrochemical Corp., Nan Ya Plastics Corp., Formosa Chemicals & Fibre Corp. and Formosa Plastics Corp.
Norway's Yara, the top global producer of nitrate fertilizers, is planning a big investment in the United States in partnership with German chemicals giant BASF, Reuters reported.
Yara made the announcement during the presentation of its third-quarter financial results. The company said that it was holding talks with BASF over the construction of a "world scale" ammonia plant but did not provide any specific figures. The planned facility will be located on the Gulf of Mexico coast and will help Yara expand its footprint in the United States, Reuters added.
The financial results reported by the Norwegian company showed the impact of Chinese overproduction on the market. According to Yara this led to a supply-driven market, forcing the highest-cost fertilizer makers to reduce output in order to impose a balance. Yara's third-quarter EBITDA (one-off items excluded) came in at 3.22 billion crowns (about $543 million) compared to 4.18 billion in the same period of last year. Despite the 23% decline in core earnings, the company delivered results in line with expectations.
Belgian materials group Solvay has announced the sale of its 70.59% stake in Brazil-based Solvay Indupa, the second largest producer of PVC in South America, to Braskem. In a separate announcement, US private finance firm OpenGate Capital, said it has signed an exclusivity agreement with Solvay to acquire its Benvic PVC compounding business, which has three manufacturing plants in Europe.
Solvay Indupa has 936 employees and two production sites in Argentina and Brazil. Its net sales were €542m in 2012.
Solvay said the transaction is based on a total enterprise value of $290m (€211m), which includes Solvay Indupa’s net financial debt, accounted at year-end 2012 as €178m. The cash proceeds for Solvay’s equity stake are $25m (€18m). Solvay said the divestment is expected to result in a non-cash net loss of about €120m.
“This divestment is part of Solvay’s strategic portfolio management. It will reduce the Group’s exposure to the economic cycle and to energy-intensive businesses, allowing Solvay to achieve higher growth, higher returns and lower capital intensity,” said Jacques Van Rijckevorsel, member of Solvay’s executive committee, in a statement.
OpenGate Capital said its acquisition of Benvic, which is expected to be completed in the first half of 2014, would complement its growing position in the European PVC market. In January 2013, the group acquired PVC profile extruder Profialis from Tessenderlo.
Andrew Nikou, OpenGate Capital’s founder, managing partner and CEO, said in a statement: “Profialis and Benvic would have a total annual production capacity of more than 200,000 tonnes and close to $330m (€240m) in consolidated annual revenues.”
Benvic’s manufacturing facilities are in France, Italy and Spain. The business employs around 200 people and has annual revenues of $220m (€160m).
Korea Kumho Petrochemical (KKPC), the world’s top supplier of synthetic rubber, announced recently that it began producing carbon nanotubes at its local plant.
“We have started the operation of our plant in Asan, South Chungcheong Province, to produce carbon nanotubes. The facility is enabled to manufacture 50 tons per year,” Chang Yun-seok, spokesman at KKPC, said.
Chang said that the company has already shipped samples to current and future clients.
The operation is part of the company’s ambitious plan to have 20 “top global” products by 2020 with a projected annual revenue reaching 20 trillion won, said the spokesman.
Carbon nanotubes have been the focus of the material science field because of their proliferating array of allotropes. It is a tube-shaped material, made of carbon, measuring a diameter on the nanometer scale.
According to KKPC, Carbon nanotubes are being developed to clean up oil spills and the materials can be used as pores in membranes to run reverse osmosis desalination plants.
The advanced technology could also be used in the semiconductor, battery, automotive, home appliances and airplane industries.
KKPC’s spokesman said it will increase its investment to develop synthetic materials using carbon nanotubes.
The company plans to expand the annual output of carbon nanotubes to 300 tons by the end of 2014 depending on market conditions and feedback from clients. The spokesman declined to comment on further financial and client-related details.
McIlvaine Company
Northfield, IL 60093-2743
Tel: 847-784-0012; Fax: 847-784-0061
E-mail: editor@mcilvainecompany.com
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