My Turn – Dr. Balaji B. Singh – Specialties are Special
The advanced nations with low projected polyolefins growth, the Middle East/China the future commodity players, ASEAN countries who are worried about the future impact of Chinese imports – everyone alike is focusing on specialties.
Specialties as a means of product differentiation via innovation, R&D, and bringing something unique to the table stopped almost 20 years ago – remember acid copolymers, ionomers, Hivalloys, TPX – Poly4methylpentene, EVOH/PVOH copolymers – the products that brought something unique in its own merit to solve the existing problems of polyolefins – instead of the 90s approach of traversing the value chain by capturing low hanging fruits – doing less research for more money.
The time has come again for organizations to develop new sophisticated products to understand what polyolefins lack (colorability, polarity, clarity, impact…) Polyolefin powder blends with Aluminum powder to revolutionize the construction industry rather than developing more and more copolymers – for more market capture.
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 via innovations. For more information visit www.CMRHouTex.com
Polyolefin producers report 1st quarter 2007 earnings
Dow Chemical
The Dow Chemical Company reported sales of $12.4 billion for the first quarter of 2007, 3% higher than in the same period last year, and a new first-quarter record.
Net income for the quarter was $973 million, down from $1.2 billion in the same period of 2006, which included significant licensing revenue within the Performance Plastics segment. Earnings per share were $1.00, compared with $1.24 a year ago. The fall was principally due to a decline in licensing revenues from extremely high levels a year ago.
Early in the quarter, the Company benefited from a temporary lull in the rising cost of purchased feedstocks and energy, resulting in a year-over-year decline of 2 percent compared with the same period in 2006, allowing some margin restoration. Equity earnings were again strong as the Company’s asset-light strategy – focused on creating long-term competitive advantage through joint ventures – continued its trend of recent times, contributing $274 million in the quarter, more than 60 percent higher than the same period a year ago. This reflects very strong results at Dow Corning, Siam Polyethylene, and Univation Technologies, and the absence of maintenance turnarounds at the EQUATE and OPTIMAL joint ventures.
In the Performance Plastics segment, sales for the first quarter were $3.5 billion, up 1% from the same period in 2006, with significant strength in Europe, Asia Pacific, and Latin America more than offsetting a sharp decline in North America. Price rose 6% from a year ago while volume declined 5% reflecting particular weakness in the US housing and automotive sectors and lower licensing revenue. Dow Epoxy had another outstanding quarter, with strong demand growth and solid price increases in every geographic region. Polyurethanes and Polyurethane Systems also saw robust increases in price and volume in all regions outside North America, with strong industry fundamentals in adhesives, sealants, and elastomers and healthy demand for industrial refrigeration applications. Specialty Plastics and Elastomers achieved record quarterly sales, with particular strength in Wire and Cable-driven by demand for fiber optic internet connections and high voltage power distribution applications. Performance Elastomers and Plastomers also saw significant volume growth, with healthy gains in both ENGAGE™elastomers and VERSIFY™ elastomers and plastomers. Equity earnings for the Performance Plastics segment increased compared with the same period last year, largely reflecting improved results at Univation. First quarter EBIT for the Performance Plastics segment was $441 million, compared with $726 million in the first quarter of 2006.
Sales in Performance Chemicals rose to $2.0 billion for the first quarter of 2007, 6 percent higher than the same period last year. Volume increased by 3 percent, with strong demand in the Designed Polymers and Specialty Chemicals businesses more than offsetting a decline in Dow Latex, where the business focused on effective price/volume management and faced continued softness in coated paper applications. Price was also up 3 percent compared with the first quarter of 2006, with increases across most businesses. Within Designed Polymers, Dow Water Solutions saw revenues increase by more than 30 percent compared with the first quarter last year, reflecting solid demand for ion exchange resins in industrial water treatment and water remediation applications, and the acquisition of Zhejiang Omex Environmental Engineering last July. The business continues to see strong sales of Omex systems within China and Omex components in other geographic regions. Specialty Chemicals saw volume improvements in all regions, with very strong growth in Asia Pacific and good demand from the agricultural chemicals sector and the electronic manufacturing industry. Equity earnings in the Performance Chemicals segment rose by more than 50 percent compared with the same quarter in 2006, with notable improvements at both Dow Corning and OPTIMAL. Performance Chemicals reported an EBIT of $312 million for the first quarter of 2007, up from $301 million a year ago.
ExxonMobil
The company reported a net income of $9,280 million, an increase of 10% or $880 million from the first quarter of 2006. Spending on capital and exploration projects was $4.3 billion. Cash flow from operations and asset sales was approximately $14.8 billion, including asset sales of $0.5 billion
. Earnings per share excluding special items were $1.62, an increase of 18%, reflecting strong earnings and the benefits of the share repurchase program. Share purchases of $7.0 billion reduced shares outstanding by 1.7%. ExxonMobil signed contracts for the Fujian Refining and Ethylene Joint Venture Project and the Fujian Fuels Marketing Joint Venture Project. The two joint ventures, with a total investment of about $5 billion, are the first fully integrated refining, petrochemicals, and fuels marketing projects with foreign participation in China.
Downstream earnings were $1,912 million, up $641 million from the first quarter of 2006, driven by higher refining and marketing margins and improved refinery throughput. Petroleum product sales were 7,198 kbd, 21 kbd higher than last year’s first quarter.
U.S. Downstream earnings were $839 million, up $160 million from the first quarter of 2006. Non-U.S.
Downstream earnings of $1,073 million were $481 million higher.
Chemical earnings were $1,236 million, up $287 million from the first quarter of 2006 due to improved margins. Prime product sales of 6,805 kt (thousands of metric tons) in the first quarter of 2007 were down 111 kt from the prior year.
Basell to relocate North American headquarters
Basell announced that it plans to relocate its North American headquarters from Elkton, Maryland to a new fit-for-purpose facility. The new facility will be the main location for all Basell commercial and administrative activity in North America, including sales and marketing, business management, finance, legal and human resources.
Basell currently employs 250 people at its Elkton site – approximately 180 people in commercial and administrative functions and the remainder in research and development. Most of the commercial positions will be moved to the new facility before the end of this year. Basell is also evaluating new sites for its R&D activities. Basell intends to relocate the R&D jobs to a new location within the same time frame.
Basell expects to make a final decision on its new commercial and R&D locations before the end of May. The company also plans to market the Elkton facility for sale concurrently with the relocation process.
Comments: Basell’s performance in 2006 exceeded expectations – a tribute to excellent management and pursuit of technology as a means of differentiation. Basell is in the news for various new developments including some potential acquisitions.
Basell is located in Wilmington DE, and Elkton, MD because of their history (Hercules – Wilmington, DE). With most products, and R&D facilities in North America located on the Gulf Coast and most of the major players on the Gulf Coast – it is logical for Basell to consider the move to U.S. Gulf Coast.
Bidders for GE Plastics – Apollo, SABIC, and Basell
Apollo Management, SABIC, and Basell are said to have entered the bidding for GE Plastics. The three contenders have submitted offers, each exceeding $10 billion.
Having announced the possible sale of the group’s plastics division in January, General Electric CEO Jeff Immelt told a conference call with analysts in April: “The plastics transaction is on track and there was lots of interest in this business.”
Comments: General Electric has been struggling to improve the performance of its plastics division for some time now. The company has therefore put its plastics business for sale. The key reasons for poor performance are increasing raw material prices – mainly benzene, and reduced capacity utilization, making it difficult to raise selling prices. GE Plastics will be a good fit for a company that has access to lower-cost feedstock.
Acquisition of GE Plastics by either Basell or SABIC will mark their entry into the engineering thermoplastics markets with a leadership position.
Borealis to invest in Brazil in a PP compounding facility
Borealis will invest R$ 18 million in the acquisition of a new extrusion line to enlarge its Itatiba (SP) plant. Borealis has two production units in Brazil located in Itatiba (SP) and Triunfo (RS). The investment, which will serve the automotive and appliances markets, will increase the polypropylene (PP) compounding capacity of the plant by 11,000 tons per annum and is due for completion in mid-2008.
According to the company, this investment reflects the commitment of Borealis to the Brazilian market and reflects the company’s responsiveness to meet their customer’s increasing requests for PP compounds in the automotive sector. In addition to serving the Brazilian market, the company aims to enhance its service to customers in Argentina.
For Braskem, as Borealis’ joint venture partner in Brazil, these segments are important not only in terms of product volume but also for the high level of technical requirements, which opens new perspectives to the innovation developments carried out at the Technological Centre in Triunfo.
Comments: In the last few years Borealis has invested in feedstock advantage regions and growing regions. The company’s Borough joint venture shows the company’s strategy to secure advantaged feedstock while its investment in Brazil shows the company’s strategy to focus on growing regions. Brazil is one of the important countries with anticipation of high growth. This investment will help Borealis improve its bottom line and achieve its growth targets.
Borealis Brasil S.A. is a joint venture of Borealis (80%) and the Brazilian company Braskem S.A. (former OPP) (20%). In 2000 the joint venture took over OPP’s compounding business and assets in Brazil and is serving customers in the automotive and home appliances industries in South America. Borealis Brasil has two production sites in Brazil: (1) Triunfo, with a capacity of 25 KT, and (2) Itatiba, with a capacity of 24 KT. The current investment will increase Borealis’ capacity in the region and help serve the growing automotive and appliances market
Lanxess expresses interest in the acquisition of Degussa’s chemical business
Lanxess AG’s CEO Axel Heitmann reiterated his interest in RAG AG’s Degussa chemical business, stressing that an acquisition of the company would be possible without help from private equity companies.
According to the CEO, this would be a historical chance for the chemical industry in Germany. A company combining Lanxess and Degussa with a focus on chemicals would have better future potential than smaller separate chemical players.
He added that joining forces with Degussa would present an opportunity for growth and not restructuring.
Comments: German mining and industrial group RAG controls Degussa. The company is planning its IPO in 2007 and believes that Degussa is a fundamental part of this IPO. Therefore, the company is not interested in selling Degussa. The EUR 11 billion Degussa is part of the coal, chemicals, and property RAG conglomerate and includes a EUR 400 million engineering polymer business, covering PA 12 and a growing PEEK presence, as well as a EUR 800 million PMMA business.
It seems that Lanxess has approached the government because RAG has shown no interest in selling the company. The industry will have to wait and see how this battle for Degussa turns out. Speculators believe that it will be hard for Lanxess to acquire Degussa; considering that Degussa is important for RAG IPO.
Teknor Apex to start compounding plant in China
Teknor Apex Company subsidiary Singapore Polymer Corporation is carrying out startup procedures for a plant in Suzhou, China that will produce compounds that comply with international standards for the appliance, automotive, building, electronics, medical device, wire and cable, and other markets. SPC will formally announce the opening of the plant at Chinaplas 2007.
Operating the plant will be a new company, Teknor Apex (Suzhou) Advanced Polymer Compounds Co. Pte. Ltd. The plant will have the capability to manufacture rigid and flexible vinyl and thermoplastic elastomer (TPE) products like those developed in the U.S.A. by Teknor Apex and in Singapore by SPC; engineering thermoplastics (ETPs) produced in the UK and the US by Chem Polymer; and other specialty compounds developed by SPC.
The plant thus far includes two compounding lines with a combined initial nameplate capacity of 14,000 tons per year. The additional capacity will come on stream within the next two years.
Teknor Apex now operates production facilities in North America, Europe, and Asia. The company acquired SPC in 2001 and has since transferred technologies to SPC for the manufacture of Teknor Apex vinyl or TPE compounds, as well as the ETP compounds of Chem Polymer, which Teknor Apex acquired at the end of 2004. This year, besides starting up the Suzhou plant, Teknor Apex has begun production of TPEs in the UK and is adding a new ETP compounding line in the U.S.A.
Comments: Teknor Apex Company is a privately-held company that was founded in 1924 and headquartered in Pawtucket, Rhode Island. The company has eight divisions and two subsidiaries employing 2000 people in 10 locations in the United States, one in Singapore, and two in the United Kingdom.
Teknor Apex currently is a leading custom compounder of PVC and thermoplastic elastomers products used in many industries such as wire and cable, medical, automotive, building materials, and appliances.
The company has, over the years, taking advantage of the growth in the thermoplastic elastomers markets in North America. This growth is attributed to inter-material competition and an increase in new applications that utilize TPE’s. The advantages Thermoplastic elastomers have include easier injection molding application, recyclability, elastomeric property, and others. Technor Apex’s is taking advantage of the high-growth economy that China currently has in markets such as automotive, building, wire & cable, and others. China has the highest growth in automotive manufacturing in the world.
Blackstone Group acquires Klöckner Pentaplast Group
The Klöckner Pentaplast Group (Luxembourg) announced that an affiliate of The Blackstone Group (London, UK) has signed a contract to acquire the company and all its holdings from Cinven (London, UK) and JPMorganPartners LLC (CCMP Capital Advisors, LLC, manages their investment) (New York, USA, and London, UK). The Blackstone Group is one of the world’s leading private-equity firms. The purchase price is EUR1.3 billion ($1.8 billion). The sale is subject to approval by various regulatory authorities.
According to Blackstone Group, Klöckner Pentaplast has a strong international market position and performance. Klöckner Pentaplast is committed to providing its customers with the most innovative and comprehensive solutions to meet their film needs. The Group’s high-quality films, superior technical expertise, and support, and its global manufacturing platform have earned its position as a recognized industry leader. We will continue to support Klöckner Pentaplast’s aggressive growth and investment strategy. The management of the Klöckner Pentaplast Group will remain in place.
The Klöckner Pentaplast Group is the world’s leading producer of films for pharmaceutical, medical devices, food, electronics, and general-purpose thermoform packaging, as well as printing and specialty applications. Founded in 1965 in Montabaur, Germany, Klöckner Pentaplast has grown from its initial facility to 21 current production operations in 11 countries.
Comments: Klockner Pentaplast (KP) is one of the largest producers of rigid films. The company recently completed an expansion in Thailand and is building a new coating and laminating line in Brazil and planning more expansions in Asia. Cinven, UK based private equity firm acquired Klockner Pentaplast in 2001 and increased the revenues from EUR 833 million to EUR 1.2 billion. KP is changing ownership from one private equity firm to another and hence this should not be a major change in the operations of the company.
The company was originally a packaging unit of Kloeckner-Werke which was then sold to the German group WCM and then to Cinven. Kloeckner-Werke had acquired Hoechst’s stake in Kalle Pentaplast to strengthen its position in the rigid films market. Kalle Pentaplast GmbH, which started operations in September 1996, was a joint venture of Kloeckner-Werke and Hoechst formed through the merger of Kloeckner Pentaplast GmbH and Kalle Hartfolien GmbH.
Ingenia Polymers to build a compounding plant in the Middle East
Houston-based concentrates maker Ingenia Polymers Corp. announced its plans to build a plant in Dammam, Saudi Arabia. The plant will be operating for the next 18 months. The facility will make masterbatches, compounds, and super blends.
The company said that the new facility will be similar in size to its plants in North America. The combined capacity of Ingenia’s plants in Brantford, Ontario; Calgary, Alberta; and Houston totals 300 million pounds per year.
Ingenia is investing about $8.5 million to add a 100 million-pound-per-year carbon black line in Houston. The new line will make high-end carbon black polyolefins for applications in pipe, wire, and cable.
Comments: Ingenia Polymers was formed in 1986 under the name WedTech Inc. The company 2000 changed its name to Ingenia Polymers. Ingenia Polymers started as a small Canadian-based polymer grinding company. The company is composed of two business units – (1) Primary Producer Division which provides thermoplastic toll compounding and size reduction solutions and (2) Masterbatch Division.
Ingenia Polymers’ move to open a plant in the Middle East follows the increasing production of polymers in the region. The Middle East in recent years has seen tremendous growth in the polyolefin industries that are taking advantage of its low-cost raw materials. After expansions at cracker and polymer levels, the Middle East is now focusing on downstream operations. This includes films, injection molding, blow molding, and compounding operations.
Mitsubishi to license ABB’s olefins conversion technology in Japan
ABB announced that it has been selected by Mitsubishi Chemical Corporation to provide technology for its new olefins conversion unit at its Kashima petrochemical complex in Japan. The unit will employ the Olefins Conversion Technology (OCT), licensed by ABB Lummus Global, to convert ethylene and butene to propylene. Propylene capacity at the site will increase by approximately 150,000 tons per year (TPA) by processing C4 raffinates from the chemical complex.
ABB Lummus Global will provide the basic engineering and technology license. The plant is expected to come on stream at the end of 2008 and will be the fourth plant installation in Japan to produce propylene using the OCT technology.
OCT is based upon the principle of metathesis to catalytically produce propylene via the reaction of C4s (butene) and ethylene. Strong growth in propylene demand has generated significant interest in this low-investment, low-energy route. In the past twelve months, new units were commissioned in Japan, Korea, and Singapore. Seventeen additional projects are currently in varying stages of engineering, construction, start-up, and operation.
Comments: Olefins conversion technology is one way of obtaining more propylene as demand for propylene keeps increasing faster than ethylene. Over the last few years, more interest has been generated in identifying alternative sources of propylene to keep up with the growth of about 6-8% per year. Traditionally, propylene is produced in steam crackers and fluidized catalytic cracking units as a by-product of ethylene or transportation fuels. Other alternative competing technologies are propane dehydrogenation, methanol to olefins, and others.
ABB Lummus has been successful in licensing its olefins conversion technology as the low-capital and low-energy-consumption option for the manufacture of propylene. In this technology, propylene is produced by the metathesis of ethylene and 2-butene, and 1-butene is isomerized to 2-butene as 2-butene is used in the reaction. This process can be integrated with an FCC unit for the optimization of products.
Solvay Solexis to increase polyvinylidene fluoride production capacity in France
Solvay Solexis, a world leader in polyvinylidene fluoride (PVDF), announced its plans to increase the production capacity for this specialty fluoropolymer, which it markets under the SOLEF® brand name. Solvay Solexis has been very successful in providing consistent marketing and R&D efforts to develop new applications and increase SOLEF® market penetration worldwide.
The new capacity expansion will increase Solvay Solexis’ existing PVDF capacity at its plant in Tavaux (France) by some 30% and is scheduled to come on stream early in 2009. Several key industries and applications such as chemicals, semiconductors, oil & gas, and pipes & fittings are driving growth, as SOLEF® PVDF provides a unique combination of chemical, mechanical, and processing properties to meet the growing and more stringent requirements of such industries. In addition, several promising new SOLEF® PVDF applications are developing rapidly in other high-end markets, such as environmental technologies – with membranes for water purification or key components in rechargeable lithium-ion batteries.
Comments: The major advantages of PVDF include: good mechanical strength, toughness, excellent resistance to weathering, radiation, and most chemicals and solvents. The major producers of PVDF include (1) Arkema and (2) Solvay. Major applications of PVDF include coatings, wire & cable, and industrial applications.
Solvay has invested significantly in specialty polymers since 2005 – PTFE fine powders and micro powders, Hyflon® MFA/PFA, PFPE Fluorofluids, Polysulfones, PEEK, Ultrapolymers, and PVDC barrier polymers.
Huntsman to scale-up manufacture of propylene glycol from biodiesel by-product
Huntsman Corporation announced a further step in its plan to commercialize a process for manufacturing propylene glycol from renewable raw material and will make it available for customer trials as early as June 2007.
Using proprietary technology developed at the Huntsman Advanced Technology Center, the company initially will manufacture the bio-based propylene glycol at its Process Development Facility in Conroe, Texas. This facility can turn out products in intermediate-scale quantities, pending further scale-up and transfer of the process to Huntsman’s large-scale plants. Huntsman expects its bio-based propylene glycol to be commercially available by 2008.
The production of biodiesel from vegetable and seed oils creates the by-product glycerin, which then can be used to manufacture propylene glycol for the global market’s four-and-a-half billion pounds annual demand for the material. Propylene glycol is used to de-ice commercial aircraft prior to take-off, and in the manufacture of construction materials, among other end uses.
Comments: Glycerin is a byproduct of plant-based biodiesel production and will be in ample supply in the future because of a significant increase in biodiesel production worldwide. Typically, crude glycerin can be purified in several steps including vacuum distillation to produce USP-grade glycerin. However, the process is too complex and expensive to handle for small-scale producers. Hence, nearly 50% of the total crude glycerin byproduct is disposed of and the remaining is sold at minimal prices. The last few years have witnessed an increase in global biodiesel production which in turn has led to a search for new avenues to utilize this byproduct and add value to the biodiesel production process. Some of the technologies currently under consideration include the production of methanol (for use as a hydrogen source) and/or propanol, propylene glycol, etc.
Propylene glycol (PG) is a major commodity chemical that is used in the food, pharmaceutical, and chemical industries. It is used as a solvent, preservative, softening agent, lubricant for food machinery, heat transfer fluid for the processing of food and pharmaceutical products, and in coolant and antifreeze products. PG is commercially produced by the hydration of propylene oxide derived from propylene by either the chlorohydrin process or the hydroperoxide process. The rising crude oil prices have today made the production of PG from renewable feedstocks a viable alternative.
Dow and Archer Daniel Midland (ADM) have also recently announced plans to make PG from glycerin, which costs about one-fourth as much as propylene. Huntsman currently produces around 145 million pounds of fossil-fuel-based PG annually. With 100 million pounds of renewable PG, Huntsman’s PG products will grow independent of any potential variability in the cost of feedstocks (renewable or non-renewable). From the perspective of economics, this would provide Huntsman with a distinct cost advantage.
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