My Turn –the Quiet Growth in South East Asia – Dr. Balaji B. Singh
Most of the current Global focus is on China, India, and the Middle East – as the potential saviors, and harbingers of future petrochemicals and plastics growth for the next 5 to seven years – growing at “rabbit’s speed” both literally and figuratively. In all the excitement, if you are looking for steady growth with a relaxed atmosphere – don’t overlook South East Asia – especially Thailand.
The Southeast Asian countries provide steady growth for the future and an opportunity to work with more experience and peaceful communities with traditional approaches.
Plan on attending the FlexPO2007 Polyolefins and Elastomers Conference October 17-19, 2007 where we are bringing together for the first time, the whole Polyolefins world to Bangkok to meet, exchange and plan for Global growth. For more information visit www.CMRHouTex.com
Borealis to invest in a new LDPE plant mainly for wire & cable applications
Borealis announced that it will invest EUR 370 million in a new 350 KT per year high-pressure, low-density polyethylene (LDPE) plant in Stenungsund, Sweden, enhancing its capability to provide advanced materials for wire and cable applications. This complements the additional cross-linkable polyethylene (XLPE) capacity coming on stream during the second half of the year. 230,000 t/y of old, high-cost polyethylene capacity will be shut down.
The company is currently investing more than EUR 100 million in capital projects across Europe, strengthening its ability to innovate and provide value-creating plastics solutions throughout the value chain. These projects include the expansion of the International Innovation Centre and the new Borstar PP pilot plant in Austria.
At Borouge, Borealis’ joint venture with the Abu Dhabi National Oil Company in the United Arab Emirates, a significant milestone was achieved with the signing of a USD 1.3 billion contract for a 1.5 million t/y ethane cracker, considered to be the largest gas cracker in the world. This substantial investment follows the successful performance of Borouge during its five years of operation and lays the groundwork for further expansion in the Asian and Middle Eastern markets.
Comments: Capacity expansions for LDPE have been strictly controlled in developed countries. LDPE faced inter-material competition from LLDPE and this led to doomsday prophecies for LDPE. Such forecasts have helped improve the margins and operating rates for LDPE. LDPE has remained one of the most attractive markets in terms of margins but has low growth potential.
LDPE is also the oldest of the polyethylenes and therefore has a lot of 40-50-year-old assets. Borealis is using retiring some of its older assets and replacing them with newer efficient assets while increasing capacity. Both North America and Western Europe have many such older plants that could be replaced with newer plants. We will see more such announcements in the future.
Borealis has always been at the forefront of wire and cable applications in Europe.
Nova Chemicals expand its joint venture with INEOS to North America
Nova Chemicals Corporation announced it has signed a letter of intent with INEOS to expand the two companies’ existing European joint venture to include North American assets. Under the terms of the proposed agreement, the newly expanded 50:50 joint venture will include NOVA Chemicals’ STYRENIX unit and other styrenic polymer assets. The STYRENIX unit includes NOVA Chemicals’ North American styrene and solid polystyrene assets, as well as the company’s interest in the existing European joint venture with INEOS, called NOVA Innovene. INEOS will contribute its North American styrene and polystyrene assets, as well as its interest in the existing NOVA Innovene European joint venture.
The expanded joint venture will also include solid polystyrene-based NAS®, ZYLAR®, and DYLARK® polymers from NOVA Chemicals and the AVANTRA® specialty products of INEOS.
The transaction to form the expanded joint venture is expected to close in the third quarter of 2007, subject to approvals and the completion of definitive agreements. The expanded venture is expected to have revenues of approximately U.S. $3.5 billion per year. Upon completion, the newly expanded joint venture is expected to have the following capacity rankings:
NOVA Chemicals will retain full ownership of its olefins/polyolefins unit, industry-leading North American expandable polystyrene business, ARCEL® advanced foam resin, and new expandable polystyrene-based business ventures.
Comments: This is another step by Nova Chemicals to improve the profitability of its styrene business. The announcement of the North American Styrenix joint venture was expected by the industry. The expanded JV will remain a 50:50 split comprised of (1) NOVA’s STYRENIX unit; (2) various NOVA Styrenics Performance Products brands; (3) INEOS’ North American styrene and polystyrene assets; and, (4) the existing European facilities that each company has contributed.
NOVA will contribute about 1,200 KT per year of styrene capacity and 495 KT per year of polystyrene capacity from its STYRENIX unit. INEOS will contribute its 485 KT per year styrene plant located in Texas and a 400 KT polystyrene plant located in Joliet, Illinois. Additionally, INEOS adds its specialty products brand AVANTRA®. It is estimated that the total synergies for the newly contributed North American assets will be $40 million/year, or $20 million/year net to NOVA.
The general strategy evaluated by most of the styrene players worldwide is to form JVs.
ExxonMobil, Sinopec, and Saudi Aramco formalize their joint venture agreement
Sinopec, Fujian Province, ExxonMobil, and Saudi Aramco announced the formal government approval of Joint Venture Contracts and granting of business licenses for their two joint ventures in Fujian Province – Fujian Refining & Petrochemical Company Limited and Sinopec SenMei (Fujian) Petroleum Company Limited.
The two joint ventures, with a total investment of about US$5 billion, are the first fully integrated refining, petrochemicals, and fuels marketing projects with foreign participation in China.
The Fujian Refining and Ethylene Joint Venture Project, located in Quanzhou, Fujian Province, will expand the existing refinery from 80,000 barrels per day (4 million tons per year) to 240,000 barrels per day (12 million tons per year). The upgraded refinery will primarily refine and process sour Arabian crude. In addition, the project will construct an 800,000-tons-per-year ethylene steam cracker, an 800,000-tons-per-year polyethylene unit, a 400,000-tons-per-year polypropylene unit, and an aromatics complex to produce 700,000 tons-per-year of paraxylene. Support facilities including a 300,000-ton crude berth and power cogeneration will also be built. The joint venture company, formally registered as “Fujian Refining & Petrochemical Company Limited”, will be owned by Fujian Petrochemical Company Limited (FPCL) (50%), ExxonMobil China Petroleum and Petrochemical Company Limited (25%), and Saudi Aramco Sino Company Limited (25%). The project is expected to start in early 2009.
The Fujian Fuels Marketing Joint Venture, formally registered as “Sinopec SenMei (Fujian) Petroleum Company Limited”, will manage and operate approximately 750 service stations and a network of terminals in Fujian Province. It will be owned by Sinopec (55%), ExxonMobil China Petroleum and Petrochemical Company Limited (22.5%), and Saudi Aramco Sino Company Limited (22.5%).
Together, the Fujian Refining and Ethylene Joint Venture Project and the Fujian Fuels Marketing Joint Venture will serve to meet China’s rapidly growing demand for petroleum products and petrochemicals.
Comments: Saudi Aramco began discussions in 2002 with Sinopec for the construction of a refinery in Qingdao. Sinopec, Saudi Aramco, and ExxonMobil then planned the construction of a refinery and ethylene cracker at Meizhou Bay in Fujian, Eastern China. The 240,000-bpd project is expected to cost US$3.5bn and will be completed in 2008. Sinopec will hold a 50% stake in the refinery and a 55% stake in the associated marketing venture, with the remaining stakes divided equally between Saudi Aramco and ExxonMobil.
This deal combines the low-cost feedstock supplier with the company in a very high-demand growth region. Aramco is the largest supplier of crude oil to China and investment in China will ensure maintaining of the supply.
Private equity firm Blackstone Group files for IPO
The Blackstone Group L.P. announced that it has filed a registration statement with the Securities and Exchange Commission for a proposed initial public offering of common units representing limited partner interests in The Blackstone Group. The firm intends to apply to list its common units on the New York Stock Exchange.
Morgan Stanley & Co. Incorporated and Citigroup Global Markets Inc. will act as the global coordinators of the offering and representatives of the underwriters and, together with Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC, Lehman Brothers Inc., and Deutsche Bank Securities Inc. will act as joint book-running managers of the offering. The Blackstone Group is a leading global alternative asset manager and provider of financial advisory services.
The Blackstone Group is one of the largest independent alternative asset managers in the world. Its alternative asset management businesses include the management of corporate private equity funds, real estate opportunity funds, funds of hedge funds, mezzanine funds, senior debt funds, proprietary hedge funds, and closed-end mutual funds. The Blackstone Group also provides various financial advisory services, including mergers and acquisitions advisory, restructuring and reorganization advisory, and fund placement services.
Comments: Buyouts by private equity firms have boomed in the past few years, fueled by the availability of cheap debt. Last year, they accounted for one-fifth of the $3.8 trillion in deals worldwide. The size of the acquisitions in dollar terms has also increased over the years and the acquisitions have become global. The growth in the emerging markets has compelled private equity firms to launch funds in China, India, Brazil, and other emerging countries. Due to increased activity, the need for funds has also increased.
Blackstone Group has decided to go the IPO route to obtain a new form of currency for acquisitions. Private equity giants Kohlberg Kravis Roberts and Apollo Management both have publicly listed funds. But the Blackstone deal is believed to include the floating of the firm’s management company, which would make it the first such IPO among buyout firms in the U.S. Such a move by Blackstone would likely lead more firms to go down that road. If Blackstone proves to be successful, other groups will think seriously about it.
Blackstone has been one of the most active firms in the private equity pack. Blackstone recently acquired Equity Office for $39 billion. Private equity firms like Blackstone specialize in buying companies with mostly borrowed funds. They aim to buy firms, fix them or grow them and then sell them. Private equity firms typically get their funding from wealthy investors and institutions. An IPO will widen access to an investment vehicle which until now has only been available to wealthy investors and institutions.
Brazilian companies Petrobras, Grupo Ultra, and Braskem to acquire Grupo Ipiranga
Petrobras, Grupo Ultra, and Braskem have acquired all of Grupo Ipiranga ́s businesses, thus consolidating and expanding the businesses of the petrochemical and fuel distribution industries. The transaction is worth nearly US$ 4 billion.
Grupo Ipiranga, one of Brazil ́s largest and most traditional groups, operates in the industries of oil refinery, petrochemical products, and fuel distribution. In 2006, its net revenue amounted to R$ 30 billion, with an EBITDA of R$ 1 billion and a net profit of R$ 534 million.
The first phase will be the takeover, by Grupo Ultra, of the shares of the families that control Grupo Ipiranga. In the second phase, Grupo Ultra will make a public offering of the common shares held by Grupo Ipiranga ́s minority shareholders. In the third phase, Braskem and Petrobras will propose going private to Copesul ́s shareholders.
In the fourth phase, Grupo Ultra will take over preferred stock held by minority shareholders of Companhia Brasileira de Petróleo Ipiranga (CBPI), Distribuidora de Produtos de Petróleo Ipiranga (DPPI), and Refinaria de Petróleo Ipiranga (RPI), who will receive preferred stock of Ultrapar. In the fifth and last phase, petrochemical assets will be disposed of and delivered to Braskem and Petrobras. The fuel distribution businesses that will be assigned to Petrobras will strengthen the company ́s distribution activities in the Northeast, North, and Center-West.
In the petrochemical business, Braskem will take over 60% of the assets of Grupo Ipiranga and will strengthen its position of control at Copesul. Petrobras will have 40% of the activities of Grupo Ipiranga in the petrochemical industry.
Refinaria Ipiranga, in the Rio Grande, do Sul, will be controlled, in equal parts, by Petrobras, Grupo Ultra, and Braskem, who commit to continuing their activities.
Comments: Braskem had announced its strategic intent to become a top 10 company in terms of market capitalization. To get there, it expects to rely on organic growth and selective acquisitions in South/Latin America. Transactions such as these are also common when the industry approaches the peak of its cycle. The companies buying assets have capital available due to high margins and companies selling assets have more attractive balance sheets to try and sell some of their assets.
Brazil is among the emerging countries showing a lot of growth potential for the next few decades. Such acquisitions will help Braskem position itself better in the growing Brazilian economy. This acquisition will further strengthen Braskem’s position in the industry. Braskem’s PE capacity will increase from 870 KT to 1,390 KT PP capacity will increase from 580 KT to 730 KT.
Braskem is the largest petrochemical company in South America in terms of installed capacity (5.7 million tons of primary, secondary, and intermediate chemical products), with integrated first- and second-generation petrochemical production facilities.
SABIC to have rumored to bid for GE Plastics
In a report published earlier, the UK business publication reported that Saudi Basic Industries Corporation (SABIC) is preparing an offer before mid-April when the first round of the auction is set to take place.
Comments: SABIC gained its market share in the global commodity polyolefins market through the acquisition of DSM. The company’s acquisition of GE Plastics would help it gain a leading market share in the engineering plastics business.
BASF expands production of Neopor® foams in Germany and South Korea
BASF announced its plans to expand its production capacities for Neopor® foam in Ludwigshafen and will start producing the foam for the first time in South Korea. According to the company, Neopor® needs less material to achieve the same insulation quality as Styropor®, thus making a key contribution to energy efficiency and climate protection.
The Neopor® capacities in Ludwigshafen will gradually increase from 60,000 to 190,000 metric tons per year. A part of these capacities will come from switching existing Styropor® production to Neopor®. The first expansion of up to 100,000 metric tons per year will already be completed at the start of 2008. A new plant will be built for the additional 90,000 metric tons, which will most likely be operational at the end of 2008. Ulsan, South Korea, will soon become the second global production site for Neopor® and will serve the regional market. In the past, the material for this market was imported from Germany.
Neopor® made by BASF represents the basis for a new generation of thermal insulation materials. The silver-grey foamed granules are used to manufacture insulation panels for walls and roofs. Neopor® is chemically a further development of the well-known Styropor® (EPS: expandable polystyrene), and provides a significantly improved insulation quality. The granules contain special, small graphite bits, which reflect the heat waves like a mirror, thus reducing heat loss in the house.
Comments: BASF has been selling Neopor® throughout Europe for about six years and has seen the demand for this product grow as energy saving has been a top priority with consumers in recent years. Neopor® saves foam manufacturers up to 50% in raw materials while keeping the same insulation value and consumers can work with panels that are 50% lighter in weight and up to 20% thinner. The main application for Neopor panels includes external wall insulation, internal insulation of exterior walls, insulation in double wall brick, intermediate rafter insulation, the lay-on system for pitched roofs, and impact-sound combined with heat insulation.
BASF’s move to expand the production capacity of Neopor® shows the company is taking advantage of the current theme of saving energy and Neopor properties of less material with higher insulation properties.
Reliance Industries Limited to acquire Indian Petrochemicals Corp.
Reliance Industries has acquired the remaining stake in Indian Petrochemicals Corporation Limited (IPCL). The merger was approved by the board.
RIL is India’s largest private sector company with a leadership position in the petrochemicals industry while IPCL is India’s second largest company in that sector. As part of the divestment program of the Government of India, RIL acquired 26% equity in IPCL in the year 2002 and thereafter increased its holding to 46% through an open offer. Over the last five years of IPCL’s operations, with the support of Reliance management, several initiatives were introduced to increase capacity utilization, reduce operating costs and improve financial management. This has resulted in ongoing improvement in financial and operating performance at IPCL.
Comments: IPCL was established in March 1969 as a Government of India Undertaking, to establish a petrochemicals company and develop the petrochemicals market in India. IPCL is India’s second largest petrochemicals company with a turnover of Rs 12,362 crore (US$ 2,771 million), cash profit of Rs 1,727 crore (US$ 387 million), net profit of Rs 1,164 crore (US$ 261 million), a net worth of Rs 4,970 crore (US$ 1,114 million) and total assets of Rs 10,547 crore (US$ 2,364 million).IPCL operates three integrated petrochemicals complexes in India – a naphtha-based cracker complex at Vadodara; a gas-based cracker complex each at Gandhar and Nagothane. IPCL produces PP, PE, and PVC.
After the merger, the new capacity for Reliance will be PE: 1,016 KT/year, PP: 1,620 KT/year, and PVC: 585 KT/year.
DSM to build engineering plastics plant in India
Royal DSM N.V. (DSM) announced its plans to invest in a new plant for producing engineering plastics compounds in India, in the Ranjangaon MIDC industrial zone about 60 km from Pune. The new plant will triple the capacity for the production of Akulon® PA6, Arnite® PBT, and PET and Stanyl® PA46 in India. These materials are used in manufacturing molded components for the automotive, electrical and electronics, consumer, and industrial segments. Being one of the world’s fastest-growing economies, India has an important place in DSM’s Vision 2010 strategy, as one of the three pillars of this strategy is growth in emerging economies. DSM has been directly marketing and manufacturing engineering plastics in India since 1998 and has consistently realized growth well above the market rate. DSM is a market leader in Akulon® PA6, Arnite® PBT and PET, Stanyl® and Arnitel® products in India. The new plant demonstrates DSM’s long-term commitment to the Indian market. It will further improve customer service levels and will give Indian customers enhanced access to DSM’s global technology base.
In the new plant, DSM will apply the same high technology and environmental standards as used in its other manufacturing operations around the world. The plant will be fully equipped with best-in-class safety, health, and environment compliance systems and will use state-of-the-art compounding technology. The new facility will enable DSM to meet the growing demand from the Indian market during the next few years while its design will also allow for additional capacity expansions in the future.
Comments: It seems that India is also attracting foreign manufacturing operations besides China, the most preferred country for foreign manufacturing investment. Unlike the “manufacturing rush” to China, this investment by DSM in India is merely to support market-driven growth and innovation, which too in line with its Vision 2010 strategy. This new investment in India is an important step forward in the context of DSM strategy – increasing its presence in emerging economies like India. As impressed with the growth of its Indian operations, this new facility will further strengthen DSM’s service level to the rapidly expanding Indian automotive sector where the company has offered innovative solutions to help conserve precious energy, besides meeting the growing demand from all key user segments. We hope other companies will follow suit, setting up their manufacturing operations in India besides establishing the R/D facilities for which India offers many advantages.
Goodyear Tire & Rubber sells its engineered products business to the Carlyle Group
The Goodyear Tire & Rubber Company announced that it has agreed to sell its Engineered Products business to EPD, Inc., an entity sponsored by Carlyle Partners IV, L.P., for $1.475 billion, subject to certain post-closing adjustments.
The transaction is subject to customary closing conditions, including the receipt of regulatory approvals as well as EPD’s completion of a labor agreement with the United Steelworkers Union. As part of the transaction, Goodyear has agreed to a trademark licensing agreement with EPD to use the Goodyear brand and certain other trademarks in connection with the Engineered Products business.
Goodyear Engineered Products operates 32 facilities in 12 countries and has approximately 6,500 associates. It manufactures and markets engineered rubber products for industrial, military, consumer, and transportation original equipment end-users. The product portfolio of the business includes hoses, conveyor belts, power transmission products, rubber tracks, molded products, and air springs. In 2006, Engineered Products had sales of approximately $1.5 billion. The Carlyle Group is one of the world’s largest private equity firms with $54.5 billion under management, investments in more than 185 companies, and 750 employees in 16 countries.
Comments: This decision to sell engineered products business is primarily to focus on Goodyear’s core business – tires. The company will use funds generated from the sale to reduce debt, address legacy obligations, and support growth in tire businesses. Engineered products account for less than 10% of the company’s total revenues with 90% of sales from tires. Goodyear had been considering the sale of its engineered products division since 2005.
Canadian company Cascades introduces containers produced from oxo-degradable PS foam
Canadian firm Cascades launched BioxoTM, the first product line of containers made from totally oxo-degradable polystyrene foam. Manufactured by Cascades, BioxoTM containers are specifically designed to degrade within three years, unlike traditional polystyrene foam containers which require several hundred years to degrade. BioxoTM containers will take up considerably less space in landfill sites.
Every year, Cascades produces several hundred million food containers, making it one of the leaders in the industry. Cascades soon hope to announce the conclusion of BioxoTM sales to important firms operating in the agri-food and restaurant industries.
BioxoTM is the result of the addition of TDPA© (Totally Degradable Plastic Additives), developed by the Canadian firm EPI, of Vancouver. Mixed with the base resin, the TDPA© additive gives the polystyrene foam special degradation properties without compromising the performance of the packaging products. After use, when the product is discarded in a landfill site, it begins to undergo oxidative degradation much faster than traditional plastic products. Oxygen, together with heat, UV radiation, or mechanical stress transforms the polystyrene foam with its TDPA© additive into a fine powder, which bacteria and other micro-organisms can digest.
The line of BioxoTM products poses no hazard to human health or the environment. Cascades have received a letter of non-objection from the Canadian Food Inspection Agency (CFIA) and the Food and Drug Administration (FDA) in the United States for BioxoTM to be used in direct contact with food. A distinctive label appears on all BioxoTM products to inform consumers that they are using a container that contributes to environmental protection. Cascades have obtained exclusive Canadian and US rights for many years to use the TDPA© process developed by EPI. BioxoTM products are safe and effective, so they respond well to public environmental protection concerns.
Comments: This is welcome news from the Cascades for both the plastic industry and consumers, especially in light of the recent legislation in California banning the use of plastic bags to protect the environment. Since 100% biodegradability is limited to certain expensive plastics derived from polyhydroxy butyrate, the next best thing is to develop other viable options such as oxo-degradable and photodegradable polymers that can be disposed of easily, mitigating the effect on the environment. Bioxo(TM), a major innovation from the Cascades is indeed the first product line made from totally oxo-degradable polystyrene foam – specifically designed to degrade within three years, taking up considerably less space in landfill sites. By having no hazard to human health or the environment, and being safe and effective, Bioxo(TM) products respond well to public environmental protection concerns.
Bioxo(TM) solidifies Cascades’ role as a leader in environmental protection. Having commercialized the CFC-free polystyrene foam in 1988, Cascades is committed to sustainable development as the guiding principle of developing and manufacturing products.
Lubrizol to invest in China for products in performance coatings, textiles, and personal care applications
The Lubrizol Corporation announced that it will expand its presence in China by investing approximately $40 million US (equivalent to approximately RMB 310 million) to build a facility in Songjiang, just outside of Shanghai.
The new facility will include manufacturing, commercial and technical capabilities. It will be built on approximately 31,000 square meters of recently acquired land adjacent to the company’s existing Estane® TPU (thermoplastic polyurethane) plant in the Songjiang industrial zone. The company expects to begin construction in the third quarter of 2007 and to complete it in the fourth quarter of 2008.
Products initially slated for production at the site are primarily resins, polymers, and specialty additives used in coatings for paint, wood, plastic, metal, and textiles. They also are used in printing inks, specialty papers, and adhesives. Carboset®, Hycar®, Lanco™, Myflam®, and Solsperse® are among the branded performance coatings products planned for manufacture.
Personal care product ingredients also will be manufactured at the new facility. These include rheology modifiers, thickeners, and fixative polymers. These specialty ingredients enable consumer products, such as shampoos, cleansers, skin care creams and lotions, and cosmetics, to have distinctive aesthetic properties such as smooth appearance and flow and superior after-feel on hair and skin. Plans for the site could include adding other laboratories and production lines.
Comments: China has been the key region to target the fastest-growing markets. Lubrizol is adopting the same strategy as many other companies. The company has been present in China since the 1980s when it sold the lubricant additive technology to Sinopec.
Later the company opened offices and formed two joint ventures with Sinopec for blending plants in Tianjin and Lanzhou. The company opened Shanghai Lubrizol International Trading Co, Ltd. in 1998, to sell imported Lubrizol products to Chinese customers and to purchase Chinese raw materials for export. In 2000, the Lanzhou joint venture was expanded from just blending to a full-scale additive component manufacturing operation, and Lubrizol welcomed a new partner, PetroChina. Lubrizol’s 2004 acquisition of Noveon International brought four commercial, technical, and manufacturing organizations to the Shanghai area, along with offices and laboratories in Hong Kong. In 2005, the Estane® TPU plant was commissioned in Shanghai and was the first TPU plant in China built by a multinational producer.
While much of the focus has been on the opportunities in the Specialty Chemicals businesses, Lubrizol will also target investments in both infrastructure and R&D to enhance its position in lubricant additives.
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