CHEMICAL UPDATE
OCTOBER 2013
McIlvaine Company
TABLE OF CONTENTS
U.S. Chemical Earnings Up in Third Quarter
Brazil Ramps Up Plastics Resins Imports
DuPont Announces Separation of Performance Chemicals Segment
Dow Sells Polypropylene Licensing Business to W.R. Grace
Three Former Clariant Businesses Now Operating under Archroma Name
Solvay to Open Largest Sodium Bicarbonate Plant in Southeast Asia
Solvay Launches Bio-Based PPA for Smart Phones
Linde to Add Liquefier Component at Texas Facility
BASF to Acquire Specialized Enzyme Biotechnology Company Verenium
BASF Announces $42.6 million Polyurethane Blending Facility in Louisiana
Third-quarter results from U.S. chemical firms show that the industry has found ways to increase profits despite wobbly global demand, Chemical and Engineering News reports.
Executives at diversified companies such as Dow Chemical and DuPont told analysts that they have turned to “self-help” to grow earnings rather than waiting for stable economic growth. For example, they are shifting resources to high-margin product lines.
These strategies have helped companies come back from the precipitous declines seen in last year’s third quarter. Dow raised earnings by 20.5%, to $599 million, this year compared with a 31.8% drop in the year-ago quarter. Overall, the company saw sales edge up by less than 1%, but prices were 3% higher across its businesses.
Demand for Dow’s products was highest in its agriculture, performance plastics, and coatings segments. Geographically, product volumes sold in developing economies grew only 2%—a slower rate than in previous quarters—led by Latin America. Volumes in Europe shrank 6%, partly related to capacity shutdowns.
CEO Andrew N. Liveris provided new details on Dow’s divestment plans; he said the company is targeting businesses worth $3 billion to $4 billion, including chlorine derivatives, epoxies, and low-margin polyurethanes.
DuPont is another company with a big business on the block—its performance chemicals segment. The firm’s quarterly results did not bring new information about the sale process, but they did reveal that lower prices for titanium dioxide crushed the segment’s operating earnings and swamped gains in electronic chemicals, performance materials, industrial biosciences, and safety products. Overall, earnings increased 2.6% to $359 million compared with the year-ago quarter.
With its fast developing economy, Brazil is one of the biggest markets for plastics in the world. Due to its rapidly growing industry, demand for plastics and plastic resins is continually growing, leading to a rising volume and value of imports.
According to data from Brazilian plastics industry association Abiplast, over the first six months of 2013 imports of plastic resins increased by 26% to $1.39 billion, up from $1.10 billion during the same period in 2012.
Imports of polyethylene from the United States recorded a dramatic rise over the period, driven by favorable prices of U.S. products. The U.S. petrochemical industry has been capitalizing on having cheap feedstock from natural gas, which gives it a competitive advantage over production from other countries.
The amount of low-density polyethylene (LDPE) entering the Brazilian market increased by 48% to $109 million, while high-density polyethylene (HDPE) imports went up 35% to $239 million. PET imports hit a total value of $120 million, up 39%, while imports of PVC rose 19% to $306 million.
Meanwhile, exports of Brazilian resins dropped by 15.9% to $914 million over the first half of the year, compared to $1.08 billion during the same period last year.
Abiplast data also showed that the biggest share of imports -- a quarter -- came from Nafta member-states, excluding Mexico, while 18% was imported from the Mercosur trade bloc. Non-Mercosur Latin American countries accounted for 16% and the European Union provided 10% of imports to Brazil.
Intensifies Focus in Agriculture & Nutrition, Bio-Based Industrials and Advanced Materials
DuPont recently advanced its transformation to a higher growth, higher value company as its Board of Directors authorized management to execute a full separation of its Performance Chemicals segment, which includes the Titanium Technologies and Chemicals & Fluoroproducts businesses. DuPont intends to execute the separation through a tax-free spin-off to shareholders, subject to customary closing conditions. Upon completion of the separation in about 18 months, 100 percent of the new public entity will be owned by DuPont shareholders.
“Following a thorough strategic review process over the last year, the spin-off of Performance Chemicals is clearly the best option to deliver enhanced value for our shareholders. This separation will advance the transformation of DuPont and result in two strong, highly competitive companies,” said DuPont Chair and CEO Ellen Kullman. “Our strategy is already delivering strong results. After separation, DuPont will have the optimum portfolio and will benefit from more consistent earnings growth and lower volatility, enhancing our ability to deliver more sustained growth and invest in future opportunities. Performance Chemicals will emerge as a top global industrial chemicals company with industry leading products and strong cash flow.”
The Performance Chemicals spin-off is DuPont’s latest portfolio enhancement guided by its strategic direction. Since 2010, DuPont has executed a number of acquisitions and divestitures – including acquiring Danisco, a leading food and biosciences business, while divesting its Performance Coatings segment earlier this year.
With an even clearer focus on science-driven growth, DuPont will advance its unique integrated capabilities in biology, chemistry and materials science to further strengthen its industry leading positions in agriculture and nutrition, bio-based industrials and advanced materials. Specifically, the company will continue to leverage its exceptional science capabilities across secular growth markets in food, energy, and protection, delivering shareholder value through revenue and earnings growth.
DuPont’s Performance Chemicals segment will operate as an independent, publicly traded company after the separation. The new company will have world leading businesses in Titanium Technologies and Chemicals & Fluoroproducts, solid fundamentals, strong cash flow generation, and well established positions in attractive markets. The Performance Chemicals segment generated about $7 billion in 2012 revenues.
Evercore and Goldman Sachs are strategic advisors on the separation.
U.S. chemical giant Dow Chemical Co. is selling its polypropylene licensing and catalyst operation to W.R. Grace & Co. for $500 million.
The deal, which was announced on Oct. 11, is part of a planned divestment process by Dow Chemical that was first announced on March 14.
"Today's announcement is another clear demonstration of Dow's rigorous focus on selectively shifting our portfolio away from assets that are no longer a strategic fit and optimizing their value," said Andrew Liveris, Dow's chairman and CEO.
"Our accelerated strategy is focused on narrowing our market participation and preferentially funding our select growth businesses with strong competitive positions in attractive markets such as electronics, water, packaging and agricultural sciences.
"We are planning further proactive divestments in the next 12 months in our relentless pursuit of rewarding shareholders."
The move will see some 90 staff transfer to the new owner. The deal includes Dow's PP catalyst manufacturing facility at Norco, La., and customer contracts, licenses, intellectual property and inventory.
W.R. Grace is based in Columbia, Md.
Specialty chemicals company Clariant has sold its textile chemicals, paper specialties and emulsions businesses to SK Capital for approximately CHF 425 million ($470 million). Starting Oct. 1, 2013, the three former Clariant businesses are now operating under the name Archroma. The newly formed global color and specialty chemicals company will operate as a single entity and will continue to deliver specialized performance and color solutions to the textile, paper, adhesives, coatings and construction industries.
SK Capital Partners is a U.S.-based private investment firm with a focus on the specialty materials, chemicals and healthcare sectors.
Archroma will be led by CEO Alexander Wessels. The newly recruited senior leadership team will seek to generate a renewed sense of purpose and vision, and will work closely with the current heads of the three businesses acquired from Clariant, whose unique understanding of their markets and customers has advanced the strategic positioning of Archroma.
“We’re open for business with a new name and a financially strong and knowledgeable parent who believes in our technology, brand and leading market positions,” says Wessels. “I’m proud to join a company with a 120-year long history of providing a portfolio of world-class products and driven by a team of highly talented people who bring fresh thinking and ideas to an industry hungry for innovation.
“The transaction closing comes after a thorough preparation to ensure a seamless transition of the businesses from Clariant to new ownership," says Wessels. "In addition, we believe that realigning the three businesses into a single integrated, market-focused and dynamic company will benefit both our employees and our customers.”
Archroma will be headquartered in Switzerland along with the management team of Archroma’s paper solutions business. The textile specialties business will be managed from Singapore and the emulsion products business from Brazil.
From fiber to finish, Archroma's textile specialties business plays a key role throughout the entire textile supply chain, with special chemicals for pretreatment, dyeing, printing and finishing of textiles. Product packages enhance the properties of apparel and other textiles in applications as diverse as high fashion, home textiles and special technical textiles.
Solvay, a Belgian manufacturer of soda ash and bicarbonate, has announced plans to build the largest sodium bicarbonate plant in Southeast Asia. The facility will be located in Thailand and will have a capacity of 100,000 tons per year.
The plant will cost Solvay about EUR20 million ($27 million) and is expected to be operational in 2015. Construction will take place at Solvay's existing site in Map Ta Phut Industrial Estate, in the province of Rayong. Solvay expects that the output will meet the growing demand for sodium bicarbonate in the region, mostly from the Asian food market and healthcare sector.
According to the company's announcement, the facility will manufacture a new generation of the company's BICAR product range. The technology used for the production will reduce waste and optimize energy recovery, Solvay said.
Pascal Juery, president of Solvay Essential Chemicals, commented that the plant shows further proof of Solvay's commitment to sustainable growth in Asia. Thanks to the new facility, the company will continue to provide fast and reliable supply of its BICAR products to industries in the region, he stated.
The project is supported by Thailand's Board of Investment.
Solvay also recently invested in its sites in Dombasle in France and Torrelavega in Spain. Thanks to these upgrades, both facilities were given GMP Pharma and CEP certifications, as required by the latest changes in EU legislation.
Solvay Specialty Polymers is introducing an all-new bioplastic for consumer electronics applications based on castor oil and its proprietary high-end amorphous polyphthalamide (PPA) chemistry.
"We are introducing this product because of requests from customers in Asia," Solvay product manager Vincent Meunier recently said in an interview. Producers of consumer electronics asked for a plastic that has better mechanical properties and stain resistance than the plastics currently used, typically alloys of polycarbonate and ABS. They also wanted a plastic that is made from renewable resources.
The new plastic, called the Kalix HPPA 3000 series, has already moved into production on a consumer electronic component. Details were not disclosed.
The new bioplastic is not cheap: prices are around $10-$11/lb. The material, which was synthesized in India, will be produced in Augusta, GA. The compounded grades consist of 16% renewable content.
Solvay also announced the launch of the Kalix 2000 series of semi-crystalline plastics based on polyamide 6/10. The two compounded grades consist of 27% renewable content. They are targeting applications such as injection molded housings, chassis, and covers. Prices are $5-$7/lb.
Linde North America, an industrial gas producer, revealed plans for a new liquefier in La Porte, Texas, as part of its $200 million expansion project in the area. The liquefier will allow the company to produce liquid oxygen, argon and nitrogen. Linde is part of The Linde Group, a German industrial gases and engineering company.
Before the expansion project began this year, Linde had a gasifier that produced synthetic gas from natural gas and oxygen. Previously, Linde bought its oxygen from outside suppliers. Now, with its own air-separation unit, Linde can produce its own oxygen, which can go into the gasifier, as well as nitrogen and argon, which it can sell separately. And with the newly announced liquefier, Linde can also produce liquid oxygen, nitrogen and argon.
Liquid oxygen, nitrogen and argon are used in the food processing, metal fabricating and health care industries.
Linde plans to open its expanded facilities by the first quarter of 2015, and the new site will employ more than 50 people. In total, Linde employs more than 250 people in Texas and has eight Houston-area facilities.
BASF [Frankfurt: BAS, LSE: BFA, SWX: AN] recently announced that its U.S. affiliate, BASF Corporation, has entered into an agreement to commence a cash tender offer for all of the outstanding shares of common stock of the biotechnology company Verenium Corporation [Nasdaq: VRNM] for US $4.00 per share. Based on all outstanding shares and including all net financial liabilities, the enterprise value would be approximately US $62 million (approximately €48 million). Verenium is based in San Diego, California, and generated sales of US $57 million in 2012.
The offer corresponds to a premium of 56 percent above the volume-weighted average share price for Verenium’s shares in the six months prior to announcement of the transaction. The tender offer is subject to customary closing conditions, including the acquisition of a majority of Verenium’s shares outstanding as of the closing of the tender offer. The acquisition is expected to close in the fourth quarter of 2013. BASF will finance the transaction out of operating cash.
The transaction has been unanimously approved by the Boards of Directors of both companies. Each of the directors and certain officers of Verenium have entered into support agreements and will tender all their shares.
Enzymes are proteins that act as catalysts, enabling or accelerating biological and chemical processes. They are used in the development of sustainable solutions in a variety of applications, e.g. detergents, human and animal nutrition. Combining Verenium’s scientific and technological excellence with BASF’s enzyme activities and its global access into all relevant markets will strengthen BASF’s footprint in the strategic enzyme growth market.
Analysts state the acquisition will close the gap on market leaders DuPont Co. and Novozymes A/S (NZYMB) in the $3 billion industrial enzyme industry.
‘We believe this deal should enhance the growth profile of BASF’s enzymes franchise, and herald a significant longer-term shift in the competitive landscape in industrial enzymes and agricultural enzymes for Novozymes and DuPont,’’ Laurence Alexander, an analyst at Jefferies, said in a note.
While small in size, BASF’s acquisition is a sign that Chief Executive Officer Kurt Bock is committed to breaking the strangehold of the two leading rivals. Chemical companies use enzyme technology to produce ingredients and enhance the performance of products such as animal feeds and detergents. Verenium, which has collected microbes from diverse environments including volcanoes and rainforests, brings 10 industrial enzymes derived from bacteria and fungi.
“BASF, by buying Verenium is gaining market share, and more importantly access to a large and diverse enzyme library that we anticipate will expand and accelerate BASF’s product offerings,” said Mark Emalfarb, CEO of Dyadic International Inc. The enzyme platform provider received a $6 million upfront payment from the German company as part of cooperation accord. Dyadic’s so-called C1 enzyme technology platform and Verenium’s gene library “are highly complementary.”
German chemical manufacturer BASF will spend $42.6 million to build a new polyurethane blending facility at its Geismar operation in Ascension Parish, creating 22 new direct and 145 indirect jobs, state and company officials said recently.
Construction is expected to start in June. The facility is expected to open in the second quarter of 2015, creating greater efficiency and shortening BASF’s supply chain to customers, company officials said.
The expansion is the fourth announced at the BASF complex on La. 30 since 2009, boosting the company’s capital investments in Louisiana to more than $350 million over the past four years and bringing the number of expected direct and indirect jobs to more than 600.
The company completed a methylamine plant in 2011 and will open a surfactant plant and a formic acid plant in 2014.
The general manager of BASF’s Geismar site, Senior Vice President Tom Yura, said that the new facility will be at the end of a manufacturing chain at the Geismar complex, which uses natural gas both as energy and a feed stock.
BASF will benefit from low natural gas prices several times over through that chain, he said.
Gov. Bobby Jindal said that the Department of Economic Development offered BASF a discretionary incentive of a $1.2 million modernization tax credit over five years if BASF meets payroll and investment targets.
Blended polyurethanes are used to make flexible foams for furniture backing and mattresses and for the automotive and housing industries.
BASF employs about 1,500 employees and contractors at the Geismar operations and 2,000 overall in Louisiana, company officials said.
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