ADI Chemical Market Resources Newsletter
July 7, 2008

 

Chemical Market Resources completes its conference on Specialty Polyolefins

June 25 – 27 marked the 14th annual FlexPO 2008 conference hosted by Chemical Market Resources, Inc. FlexPO 2008 was held in Galveston at the San Luis Resort. The conference covered the global trends that are pushing all major polyolefin players to move towards specialty manufacturing and how each region/company would require its strategy to define the specialties and strategies to participate in. The push for the development of specialty polyolefins is driven by high fuel and raw material prices. These have pushed the focus toward alternative feedstocks and business migration toward feedstock-advantaged nations. The conference focused on four areas: (1) global developments that will impact the future of specialty polyolefins, (2) the future direction of the specialties and bioplastics industry, (3) new product offerings in the specialty polyolefins and future market strategies, and (4) latest advancements in the catalyst process developments.

The conference was inaugurated by a welcome speech by Dr. Balaji Singh, President of Chemical Market Resources, Inc., followed by an overview of the markets and trends of specialty polyolefins. The conference began with a plenary session that highlighted the global opportunities and developments that will impact the future of specialty polyolefins. The keynote presentations assessed the future direction of the specialties and bioplastics industry. Dr. Tim Diephouse, Global Director of R&D Specialty Chemicals of Dow Chemical Company, presented the developments of specialty polymers in a transition to a global organization. While Dr. Diephouse reviewed the developments of polyolefins over the past few decades, Dr. Hans VanBrackle, Global Manager of Specialty Elastomers of ExxonMobil Chemicals Company, provided insight into the opportunities and challenges of specialty polymers.

An introduction to the development of bioplastics and their future was presented by Dr. Shriram Bagrodia, Senior Vice President of Cereplast Inc. Other topics including, the impact of bioplastics on existing polyolefins applications and the potential substitution of bioplastics, were also covered.

Several industry leaders shared valuable insight into their newest product offerings in specialty polyolefins and future market strategies. The session began with an overview of global SPO markets and trends, and the competitiveness of each region to participate in the SPO markets. Innovations in metallocene PE, high melt strength-PP, styrene-based PO elastomers, and new ethylene/styrene IPN-based products and their applications were discussed by representatives from ExxonMobil Chemical Company, Mitsui Chemicals, Cousin Tessier & Autoliv, and Nova Chemicals. Dr. Nadeem Bokari of Autoliv provided insight into flexible polyolefins performance and TPO behavior in automotive airbags.

An overview of the global polyolefin catalyst markets was presented, followed by the latest developments in the catalyst process developments. Dr. Neil O’Reilly, Senior Manager of Polymerization Catalysis Research of BASF Catalysts LLC, provided insight on how the correct catalyst can improve polyolefins and their margins. Dr. Bill Beaulieu, Polyolefin Catalyst and Product Development Manager of Chevron Phillips, introduced new polyethylene resins from advanced catalysts; and Dr. Raghu Menon, Regional Industry Group Manager of Polyolefins of Süd-Chemie, spoke of the value-addition of PP-based C-Max Catalysts. The conference concluded with a presentation by Mr. Roger Carroll, Technology Transfer Manager of Borealis Polymers NV, on the connection between innovation and reality in polyolefin developments.

Topics including markets, challenges, participation options, and future directions of specialty polyolefins, were summarized and expanded on by Chemical Market Resources, Inc. during a comprehensive panel discussion, moderated by Dr. Deepak Parikh, a recent Visiting Executive at Chemical Market Resources, Inc.

Chemical Market Resources, Inc. extends its sincere gratitude to all those who made this year’s FlexPO such a success.

Dow to increase prices, add freight surcharges, and idling plants to restore margins

Dow Chemical announced that it will raise the price of its products by as much as an additional 25 percent in July in an effort to offset the continuing relentless rise in the cost of energy and hydrocarbon feedstocks.

The Company also will implement a freight surcharge of $300 per shipment by truck and $600 per shipment by rail, effective August 1. The surcharge applies to North American customers buying chemicals, hydrocarbons, and plastics where Dow absorbs the freight currently (“seller absorbs freight”). Later this year a freight surcharge will be implemented in other geographic regions as appropriate.

Furthermore, the Company is moving ahead with plans to temporarily idle or reduce production at a number of manufacturing plants. Dow has reduced its ethylene oxide production worldwide by 25 percent and idled 30 percent of its North American acrylic acid production. The Company also will idle 40 percent of its European styrene production capacity and has reduced its European polystyrene production rate by 15 percent. These actions are due to the slowdown in the U.S. and European economies, and the recent surge in hydrocarbon feedstock costs.

Dow’s Automotive unit announced a series of cost reduction measures covering facilities, people, and external spending. In addition, the business is in the process of divesting its paint shop sealer business and is implementing plant consolidations resulting in the closure of three production units.

In addition, Dow Building Solutions temporarily idled 20 percent of its European capacity for producing STYROFOAM™ insulation. Earlier this month, the Company announced plans to idle three Dow Emulsion Polymers plants representing 25 percent of North America capacity and 10 percent of European capacity. These reductions were directly related to declines in the housing and consumer sectors, as well as rising costs.

Over the past five years, Dow’s bill for hydrocarbon feedstocks and energy has surged four-fold, from $8 billion in 2002 to an estimated $32 billion plus this year.

Comments: This second increase in prices across the board is a bold and trendsetting move on the part of Dow. This increase, if it sticks, will open a floodgate of price increases and justification by all of the industry players. Dow is cutting costs and increasing prices to maintain their margins.

The majority of plastics producers have announced price increases in order to account for increasing raw material costs. It appears this trend will continue as long as the raw material prices remain high. The industry seems to have stopped speculating if this is a long-term trend or short-term volatility and instead is focusing on maintaining margins by increasing prices as the cost of feedstock increases.

LyondellBasell Industries subsidiary to stop production of LDPE at its Pasadena, Texas, facility

Equistar Chemicals, LP will stop producing low-density polyethylene (LDPE) at its Pasadena, Texas, tubular process unit by the end of the year, parent company LyondellBasell Industries announced today. Production will shift to other sites.

The Pasadena LDPE unit is operated for Equistar by Sunoco. Equistar owns and operates three other LDPE facilities in North America — in Clinton, Iowa; La Porte, Texas; and Morris, Ill. In addition, LyondellBasell Industries owns a refinery and three other facilities that produce chemicals and polyolefins in Pasadena.

Comments: Many olefins and polyolefins assets in the US are very old and the cost of production can increase significantly on these old assets. LyondellBasell has been optimizing its assets for the last few months. It seems the optimization started with polypropylene and polypropylene compounding assets and has now moved to polyethylene. In polyethylene, LDPE assets are the oldest and smallest and therefore have the most potential for rationalization. The Pasadena LDPE plant is the smallest of Equistar’s 4 LDPE units and has the capacity to make 140 million lbs/year of LDPE. LDPE is also produced at Clinton, Iowa (430 million lbs/year); LaPorte, Texas (395 million lbs/year); Morris, Illinois (540 million lbs/year).

The largest single-line capacity available before 1960 was restricted to 80-100 million pounds per year due to reactor design issues, compressor operation, and extruder size limitations. Incremental enhancements allowed single-line capacity to increase to 130-150 million pounds per year by the 1970s. By the mid-1980s, single-line capacity had reached 330-370 million pounds. The real breakthroughs in high-pressure technology occurred in the early to mid-1960s, thrusting capacity to 550 million pounds or more. Presently it is claimed that single-line capacities of 880 million pounds per year are possible.

Improvements in reactor design and initiator technology have also allowed for an incremental increase in per-pass conversion over the years. Per pass, conversion has steadily increased from 17-20% before the 1970s to 35-40% at present. Both of these factors have contributed to driving down the cost of LDPE production. In light of these developments, it makes sense that some of the older assets may not be cost-competitive.

Sumitomo Chemical to revamp PP unit in Singapore to manufacture block copolymers

Sumitomo Chemical is advancing another step up the value chain at its Singapore-based polyolefins subsidiary The Polyolefin Company (Singapore) Pte. Ltd. It intends to modify TPC’s polypropylene facility to manufacture block copolymers for automotive applications. With an in-line compounding facility already installed, the new polymerization capability will allow TPC to fully respond to the needs of the fast-growing, high-margin automotive sector.

The Osaka-based company will be starting up this fall its integrated refinery and petrochemicals complex at Rabigh in Saudi Arabia and plans to build up a global network of dedicated bases across Japan, Singapore, North America, and the Middle East. Saudi Arabia has been earmarked as the supply base for commodity products, and Singapore for the production of specialty products.

Along with this, it will be accelerating its marketing efforts, promoting, in particular, a shift in focus from commodity to specialty applications in China, as well as in Thailand and Indonesia.

Demand for its ethylene-vinyl acetate, or EVA, is already expanding rapidly, including in the new market of India, and efforts will also be stepped up to develop markets for its ethylene-methyl methacrylate, or EMMA, copolymer.

Comments: The commodity polyolefins market is expecting large amounts of low-cost material from the Middle East to flood the market in the next few years. To compete effectively companies are trying to focus on differentiated commodities or specialty products. Compounding is one of the best ways to add differentiation and value addition to polypropylene. Sumitomo Chemical seems to be taking the same approach to improve its competitiveness and profitability in this challenging market. LyondellBasell has taken a similar approach and has recently made announcements of its plan to increase compounding capacity to address the needs of the automotive market in Asia.

Hicks Acquisition Company, Inc. to combine with Graham Packaging in partnership with Blackstone-led group in a $3.2 billion transaction

Hicks Acquisition Company I, Inc., a Dallas-based special purpose acquisition company announced that it has reached an agreement in principle subject to execution of a definitive agreement, pursuant to which Graham Packaging Holdings Co. will go public through a transaction with Hicks Acquisition in partnership with The Blackstone Group and the Graham Group (together, the “Current Graham Equity Holders”). The transaction, valued at approximately $3.2 billion, is believed to be the largest ever between a SPAC and an industrial company.

Following the completion of the transaction, the combined enterprise will be renamed Graham Packaging Company and will apply for listing on the New York Stock Exchange. Blackstone has agreed it will maintain the largest ownership stake for at least two years as it continues to play an important role in guiding the Company strategically and operationally.

Details of the Transaction – Graham Packaging will go public through the transaction with Hicks Acquisition. In connection with the transaction, the current stockholders of Graham Packaging will receive $350 million of cash held in trust, 35.0 million common shares, and 2.8 million warrants upon completion of the transaction. The purchase consideration includes a transfer of value to the Current Graham Equity Holders of approximately 2.8 million Founder’s shares and warrants. In exchange, the Hicks-led sponsor will retain, through a series of transactions, Earnout Units, the shares of which have a trigger price of $13.75 and the warrants of which will become exercisable at a strike price of $10.00 and a trigger price of $15.00.

Comments: Graham Packaging is a global technology and innovation leader in value-added blow-molded rigid plastic containers for the branded food and beverage, household, personal care/specialty, and automotive lubricant industries. Approximately 90 percent of the Company’s sales are in product categories in which it holds the number-one market position. Graham Packaging is a market leader in value-added custom plastic containers, producing more than 20 billion container units annually at 83 manufacturing plants in North America, Europe, and South America. It is the leading supplier of plastic containers for hot-fill juice and juice drinks, sports drinks, drinkable yogurt and smoothies, nutritional supplements, wide-mouth food, condiments, beer, liquid laundry detergent, and motor oil.

The Company provides custom valued-added products to many of the world’s leading consumer product companies, including, among others, PepsiCo, Coca-Cola, Danone/Dannon, Ocean Spray, Heinz, Abbott, Arizona Beverages, Nestlé/Gerber, Anheuser-Busch, SAB Miller, Procter & Gamble, Unilever, Church & Dwight, Dial/Henkel, Clorox, and Colgate.

Several companies interested in a stake in ONGC’s announced petrochemical complex in India

Ineos, Mitsubishi Chemical, and Mitsui Chemicals are among several companies that are interested in buying a stake in Oil and Natural Gas Corp.’s (ONGC; New Delhi) previously announced $3-billion petrochemical complex at Dahej, India. Negotiations According to the reports, ONGC has a 26% stake in the Petchem complex, and the company is looking for several partners in the project.

The Dahej complex, plans for which were announced in 2006, will be based on a 1-million-tons-per-year dual-feed cracker, using gas and naphtha, which will feed three polyethylene (PE) units, each with a capacity of 350 KT per year, and a 350 KT per year PP plant. The petrochemical complex is an anchor tenant in the upcoming Dahej Special Economic Zone, and ONGC holds a 24% stake in this special economic zone, reports say.

This news follows ONGC and its subsidiary Mangalore Refinery & Petrochemicals Ltd.’s (MRPL; Mangalore, India) decision last month to exit a previously announced $6-billion refinery and petrochemical joint venture at Kakinada, India, and divest their stake in an associated special economic zone. ONGC decided that the refinery and petchem project is no longer viable, following a decision by the state government of Andhra Pradesh to deny ONGC’s request for tax incentives worth about $4 billion over eight years, reports say.

Comments: India is one of the fastest-growing economies, and there is a strong interest in several companies investing in the country. Companies such as Ineos, Mitsubishi, and Mitsui are located in regions that are highly developed and have slow growth.

SABIC introduces new polyethylene grades for pharmaceutical applications in Europe

Saudi Basic Industries Corporation (Sabic) has introduced in Europe a new family of special polyethylene grades for the European pharmaceutical packaging industry.

According to the company, the new grade family will comprise seven new Sabic Abic® LDPE and 2 Sabic® HDPE grades. The resins offer high purity and consistent quality and are typically used in film, injection, and blow-molded pharmaceutical packaging applications.

Comments: This a much-needed product offering by SABIC-Europe in response to the increasing market need for special grades in pharmaceutical packaging and most importantly to become the preferred supplier of innovative new products targeted at higher added value niche markets. The 7 LDPE grades as produced at LDPE tubular and autoclave reactors in Geleen, Netherlands are additive-free and suitable for a wide range of processing techniques of blown film, blow molding, injection molding, masterbatch, and extrusion. The HDPE grades are produced at a dedicated slurry loop reactor in Geleen, The Netherlands with 2 grades suitable for blow molding and injection molding offering exceptional processing, stability, and unique stiffness/ESCR balance.

Both products SABIC® LDPE & HDPE PCG series, as targeted for pharmaceutical packaging applications, complies with the relevant monographs of the European Pharmacopoeia. As we understand, SABIC does not support the use of its SABIC® PE PCG series in medical applications – medical/healthcare devices or materials intended for temporary or permanent implantation in the human body, cosmetics drugs, and other pharmaceutical applications.

Korea Kumho constructs a petrochemical plant in China

Korea Kumho Petrochemical Co. announced the completion of a petrochemical plant in Nanjing, China, raising overseas output capacity and capitalizing on fast-growing Asian markets.

The company said it would produce 80,000 tons of propylene oxide, 50,000 tons of polypropylene glycol, and 100,000 tons of caustic soda annually at the new factory.

A total of $113 million was jointly invested by Kumho Petrochemical and Jiangsu GPRO Group Co., a Chinese petrochemical maker.

The Nanjing factory is the company’s fifth manufacturing facility in China. Kumho Petrochemical completed the construction of its fourth factory in Chongqing in February, aiming to produce 50,000 tons of insoluble sulfur every year.

The company reaped about 2.1 trillion won ($2 billion) in revenue and 160 billion won in operating income last year.

Comments: Korea Kumho Petrochemical headquartered in Seoul Korea was established in 1970 and is currently a major player in the petrochemical industry in the region. The company caters to synthetic rubber, synthetic resins, and rubber chemical markets. Propylene oxide is used as a fumigant such as in the sterilization of packaged foods. It is also used as a chemical intermediate in the production of propylene glycol and glycol ethers and as a solvent. The other uses of propylene oxide include the preparation of surfactants and oil demulsifiers.

Currently Korea Kumho Petrochemical has a manufacturing factory in Ulsan, southeast of Seoul, with an annual production capacity of 45,000 tons of polypropylene glycol.

Korea Kumho Petrochemical’s move to establish a manufacturing unit is in line with the current situation in China. China in recent years has seen an increase in demand for the consumption of end-use products such as shoes, furniture, auto parts, and refrigerators. This increase would increase the demand for propylene glycol and other raw materials used to manufacture these products.

Chemtura reviews strategic alternatives and decides to continue as a stand-alone firm

Chemtura Corporation announced that a special committee of its board of directors and the company’s financial advisor, Merrill Lynch & Co., would explore a variety of strategic alternatives. Chemtura’s board of directors announced today that, after thoroughly exploring a potential sale, merger, or other business combination involving the entire company, it has concluded that shareholders’ interests will be best served by continuing to operate as a stand-alone company and focusing on its own growth and efficiency initiatives. The board has terminated discussions on a potential sale, merger, or other business combination after determining that such discussions are unlikely at this time to result in an offer at a sufficiently attractive price.

The board of directors has instructed management, the special committee, and Merrill Lynch to continue active consideration of the company’s other strategic options, including (among other options) select business divestitures, value-creating acquisitions, joint ventures, and changes in the company’s capital structure, which could include a stock repurchase program.

While the company’s evaluation of strategic alternatives continues, there can be no assurance that this process will result in any specific transaction. The company does not expect to disclose any further developments regarding the exploration of strategic alternatives unless and until its board of directors has approved a transaction or a strategic alternative.

Chemtura Corporation, with 2007 sales of $3.7 billion, is a global manufacturer and marketer of specialty chemicals, crop protection, and pool, spa, and home care products.

Comments: Earlier in 2008, Chemtura had announced that it was reviewing different options for the company but now they have decided to continue as a stand-alone firm. The company was formed on July 1, 2005, from the merger of Great Lakes Chemical and Crompton Corp.

The company participates in several niche markets and is a leader in some of the products – which could help fuel the company’s growth and profitability. The company can turn around its operations by reducing costs and streamlining the portfolio – including the divestiture of non-core assets, an organizational realignment, and the closure of multiple manufacturing facilities.

Contact us at ADI Chemical Market Resources to learn how we can help.