My Turn – Comments on Global Polyolefins & Elastomers – Globalization Trends – Dr. Balaji B. Singh
Polyolefin producers announce 4th quarter results
Dow Chemical
The Dow Chemical Company reported sales of $12.2 billion for the fourth quarter of 2006, 3 percent higher than in the same period last year, and a new fourth quarter record.
Year over year, volume was up 2%, as solid growth in the Performance segments and Basic Plastics more than offset declines in Basic Chemicals Hydrocarbons, and Energy. Strong demand outside North America, most notably in Asia Pacific, more than offset continued weakness in both Canada and the United States. Price edged 1% higher, reflecting healthy gains across most of the Company’s Performance businesses, dampened by negative price momentum in Basic Plastics and Basic Chemicals. Net income for the quarter was $975 million, 11% lower than a year ago.
In the Performance Plastics segment, fourth-quarter sales of $3.55 billion set a new quarterly record, up 11 percent from the same period in 2005. Price rose 8 percent and volume increased 3%, with strong gains in every geographic region except North America, where the housing and automotive sectors showed particular weakness. The Specialty Plastics and Elastomers business also reported stronger pricing and volume growth, with the Wire and Cable business seeing healthy demand from the high voltage power distribution industries in Europe and Asia Pacific, and fiber optic applications. Equity earnings for the Performance Plastics segment fell in the fourth quarter compared with the same period last year, largely reflecting the impact of the sale of Union Carbide’s interest in UOP in the fourth quarter of 2005. Fourth quarter EBIT for the Performance Plastics segment was $347 million, including a charge of $85 million related to a contingent liability for a fine imposed by the European Commission associated with synthetic rubber industry matters. EBIT for the fourth quarter of 2005 was $960 million, including a net gain of $637 million related to the sale of UOP, partly offset by restructuring charges totaling $28 million.
Basic Plastics sales rose 1% in the fourth quarter, from $2.92 billion in 2005 to $2.94 billion in 2006. Volume increased by 4%, with modest growth in Europe and double‑digit improvements in both Latin America and Asia Pacific more than offsetting some softness in North America. Price fell 3%, despite strong improvements in Europe and Asia Pacific, reflecting a marked decline in North America. This was particularly evident in the Polyethylene business, which reported increased demand in every geographic region, but saw North American prices decline by around 25% from the same period last year. PE price rose significantly year over year in both Europe and Asia Pacific and was up slightly in Latin America. Despite reporting price improvements for Polystyrene in every geographic region compared with the same period in 2005, the overall double‑digit increase was not sufficient to keep pace with the escalating cost of benzene, which continues to present a significant challenge for the business. Equity earnings in the fourth quarter fell from the same period in 2005, as a stronger contribution from the Company’s polyethylene joint venture with Siam Cement largely offset a drop in earnings from Petromont. Fourth quarter EBIT for the Basic Plastics segment was $461 million. This was down from $624 million in the same period last year, which included a restructuring charge of $12 million.
ExxonMobil
Upstream earnings were $6,220 million, down $818 million from the fourth quarter of 2005 primarily reflecting lower natural gas realizations and decreased volumes driven by lower European demand. On an oil-equivalent basis, production decreased by 1% from the fourth quarter of 2005. Excluding the impact of divestments and entitlements, production increased by 2%.
Liquid production of 2,678 kbd (thousands of barrels per day) was 49 kbd higher. Higher production from projects in West Africa and increased Abu Dhabi volumes were partly offset by mature field decline and the impact of entitlements and divestments. Excluding entitlement and divestment effects, liquids production increased by 6%.
Fourth quarter natural gas production was 9,301 mcfd (millions of cubic feet per day) compared with 9,822 mcfd last year. Lower European demand and the impact of mature field decline were partly offset by higher volumes from projects in Qatar and the absence of the 2005 hurricane effects.
Earnings from U.S. Upstream operations were $1,052 million, $735 million lower than the fourth quarter of 2005. Non-U.S. Upstream earnings excluding special items were $5,168 million, down $83 million from 2005.
Downstream earnings were $1,960 million, down $430 million from the fourth quarter of 2005, as lower refining and marketing margins more than offset the earnings benefit related to our continuing efforts to efficiently manage inventories. Petroleum product sales were 7,447 kbd, 145 kbd lower than last year’s fourth quarter, primarily due to divestments.
U.S. Downstream earnings were $945 million, down $213 million. Non-U.S. Downstream earnings of $1,015 million were $217 million lower than the fourth quarter of 2005. Chemical earnings excluding special items were $1,242 million, up $407 million from the fourth quarter of 2005 due to improved margins and higher volumes. Prime product sales of 6,827 KT in the 4th quarter of 2006 were up 535 KT from 2005.
Lyondell
Lyondell Chemical Company announced net income for the fourth quarter of 2006 of $228 million, or 87 cents per share on a fully diluted basis. For the full year 2006, Lyondell had a net income of $735 million, or $2.83 per share.
Ethylene and ethylene derivative product sales volumes decreased by approximately 25 million pounds (1%) versus the third quarter of 2006. Compared with the third quarter, our quarterly average prices for ethylene and polyethylene decreased by approximately 9 cents per pound and the ethylene glycol price decreased by approximately 1 cent per pound. The company’s average cost-of-ethylene-production metric (COE) declined by approximately 4 cents per pound versus the third quarter. Acetyls results improved by approximately $15 million primarily due to increased margins.
Nova
NOVA Chemicals reported a net loss of $781 million ($9.46 per share loss) for the fourth quarter of 2006. The loss includes a $772 million after-tax ($9.35 per share) non-cash restructuring charge related to the write-down of assets in the STYRENIX business unit. This write-down reduces the carrying value of STYRENIX assets to reflect the estimated realizable value of the future cash flows from those assets.
The Olefins/Polyolefins business unit reported net income of $35 million in the fourth quarter of 2006 compared with net income of $123 million in the third quarter of 2006. The quarter-over-quarter decline in earnings was primarily related to a significant reduction in polyethylene pricing as North American demand fell due to inventory de-stocking by customers. In addition, ethane feedstock costs were higher in the fourth quarter due to higher Alberta natural gas prices.
Dow Chemical looks for partners for PS & PP joint ventures
In a bid to reduce earnings cyclicality, Dow Chemical announced its plans to find joint-venture partners for its polypropylene and polystyrene operations while boosting its performance-based chemical businesses.
To help achieve that goal, the firm is now seeking partners for its polypropylene and polystyrene operations that can offer additional strengths such as “further back-integration in feedstocks or expanded geographic presence.”
The formation of ventures in those two businesses would further what the company refers to as Dow’s “asset-light” strategy, intended to reduce capital investments, retain Dow’s traditional site and product integration advantages, and still maintain operational control.
As Dow tries to lighten up on its traditional chemical operations, it is taking additional steps to build up performance chemicals operations in promising markets. Liveris announced two new “market-facing” business platforms: one in coatings and the other in footwear.
The coatings platform would gather technologies from across Dow, such as recently launched amine- and polyurethane-based materials, and direct them to the $40 billion global coatings industry, Liveris said. And the footwear platform would enable Dow to apply technology in adhesives, urethanes, and specialty polymers to the $20 billion footwear industry.
Dow, which already has four market-facing platforms in building products, automotive materials, agro sciences, and water treatment, is “evaluating 12 additional market-facing opportunities,” Liveris said. The firm is unlikely to launch all 12 new platforms, he cautioned. But Dow does expect to launch some of the new platforms later this year.
Comments: Dow Chemical announced its quarterly results and along with the results announced plans to reduce earnings cyclicality. In support of its “Asset Light” strategy, Dow discussed several tactics aimed at reducing cyclicality and raising profitability across the cycle. To earn the cost of capital at the trough—an elusive achievement historically—Dow would need to generate continued strong growth in its performance businesses, while tightly managing the more commodity ones.
Reducing cyclicality is a fairly typical goal among basic material producers, driven by an expectation that reduced volatility will result in higher share prices. In general, the companies that most successfully navigate the path tend to drastically alter their portfolio of businesses, shedding the most commodity-oriented in the process. Dow is trying to reach its goal with investment in less capital-intensive assets except for basic products in feedstock-advantaged areas. Also, the company may jettison a part of its polystyrene and polypropylene operations if value-enhancing JVs present themselves.
It is hard to predict if a value-enhancing opportunity would be available in the PP and PS businesses. However, if there is such an opportunity it will most likely be from a player in emerging economies such as Brazil, Russia, India, China, Saudi Arabia, or even Mexico.
SABIC affiliate Kayan Petrochemical awards polyolefin contracts
Saudi Basic Industries Corporation (SABIC) affiliate, the Saudi Kayan Petrochemical Company signed Letters of Award with two companies for the construction of new Polypropylene (PP) and Low-Density Polyethylene (LDPE) plants at its complex in Al-Jubail Industrial City.
One contract was signed with Samsung Engineering for the construction of a 350 KTA PP plant and the other with Simon Carves Limited for a 300 KTA LDPE plant.
SAUDI KAYAN is currently under construction. SABIC holds 35 percent of the company’s capital of SR 15 billion and Kayan Petrochemical Company holds 20 percent. The remaining 45 percent will be offered for public subscription.
The company’s complex at Al-Jubail Industrial City is expected to go live in 2009 with an annual capacity exceeding 4 million tons of chemical products. It will add some specialized chemicals to the Saudi marketplace that will be produced in Saudi Arabia for the first time. These products include aminoethanols, aminomethyls, dimethylformamide, choline chloride, dimethyl ethanol, dimethylethanolamine, ethoxylates, phenol, cumene, and polycarbonate. This is in addition to ethylene, propylene, polypropylene, ethylene glycol, polyethylene, and other products which will provide wide opportunities for downstream industries.
Comments: There is significant capacity being planned in Saudi Arabia. The majority of these plans were started to monetize gas. Most of the capacity in Saudi Arabia, as well as the Middle East, is expected to come on-stream in 2009. The Saudi Kayan complex is no exception with a 350 KT PP and a 300 KT LDPE plant expected to come on stream in 2009.
Saudi Kayan industrial complex hopes to add some specialized chemicals to the Saudi marketplace that will be produced in Saudi Arabia for the first time.
These products include aminoethanols, aminomethyls, dimethylformamide, choline chloride, dimethyl ethanol, dimethylethanolamine, ethoxylates, phenol, cumene, and polycarbonate that will provide wide opportunities for downstream industries. This is in addition to ethylene, propylene, polypropylene, ethylene glycol, butene-1, and other products. Saudi Kayan also plans to establish an applications center that will focus on the development of industrial products and applications, especially polycarbonate research and other new downstream industries in Saudi Arabia.
The majority of the new complexes will include some sort of plans for the downstream industry as it becomes difficult to obtain the gas allocation. New gas and land allocation in Saudi Arabia seems to be dependent on the development of downstream industry and employment generation in these sectors.
Qatar Petrochemical to double petrochemicals production
Qatar plans to double petrochemical production within a year to levels above 18 million tons from the current 8 million tons. The current annual production of polyethylene is about 1,000 KT/year. By 2012 this will scale up to 4,600 KT/year. The current ethylene production of 1.1 million tons will be stepped up to 6.4 million tpa by 2012.
Qatar’s annual PP production of will reach 800 KT and PS will reach about 200 KT. Qapco’s Qatofin project, to be constructed at Mesaieed Industrial City (MIC), adjacent to Qapco facilities, would be completed in Q4 2008. The Qatofin project for the production of linear low-density polyethylene (LLDPE) will have a nameplate capacity of 450 KT/year with production expected to start in 2009.
Comments: Qatar Petrochemical Company (QAPCO) was established in 1974 to utilize associated ethane gas from petroleum production in line with the industrialization plan of the State of Qatar. QAPCO commenced full commercial operations in 1981. The company is a joint venture between Qatar Petroleum with an 80% share and Atofina of France holding a 20% stake QAPCO manufactures ethylene, low-density polyethylene (LDPE), and other petrochemical products. LDPE is marketed under the brand name Lotrene and QAPCO is currently the largest producer of LDPE in the Middle East with a capacity of 360,000 metric tons per annum (MTA), in addition to producing 525,000 MTA of ethylene and 70,000 MTA of sulphur.
The company is planning various new projects including the expansion of ethylene, polyethylene, and polypropylene. Like many other projects in the Middle East, some of these expansions are planned for start-up in 2009.
BP to sell Coryton Refinery to Petroplus Holdings AG
BP announced that it has agreed to sell, subject to required regulatory approvals, its Coryton Refinery in Essex, UK, to Petroplus Holdings AG, a leading independent refiner and wholesaler of petroleum products headquartered in Zug, Switzerland.
The sale price of $1.4 billion-plus hydrocarbons to be valued at closing – includes the adjacent bulk terminal and BP’s UK bitumen business which is closely integrated with the refinery. BP and Petroplus have also entered into a long-term supply agreement which will provide BP’s UK-based retail and other businesses with the products they require.
Following the completion of the sale, which is expected in mid-2007, the staff at the refinery will transfer to Petroplus but BP will continue to operate its own UK logistics and supply infrastructure.
Comments: It seems a win-win situation for both parties! BP is following its core strategy for the downstream operations, i.e., continue to focus on advantaged refining locations, targeting distinctive returns, and operate in retail markets where supply advantage and distinctive offer can capture market share and margin, underpinned by efficiency improvements. As announced, BP is still very much committed to the UK and does not need to own a refinery in the UK to offer its UK customers the best in fuel products.
BP’s downstream operations refine, transport, sell and trade crude oil and petroleum products in over 100 countries. They include refineries, petrol stations, lubricants, business marketing, and chemicals (Aromatics & Acetyls) businesses. BP owns – wholly or in part – 19 refineries with processing capacity is 2.8 million barrels a day. Of these, 5 refineries are in the USA, producing up to 1.5 million barrels a day, 9 are in Europe, with an 0.9 million barrels per day capacity and 5 are in other parts of the world generating 0.5 million barrels on a daily basis. In addition, through a joint venture with TNK, BP has access to 4 Russian refineries.
By acquiring this additional capacity, Petroplus Holdings AG is shoring up its existing refineries operation in Europe – Teeside Refinery in Teeside, UK, Cressier Refinery in Neuchatel, Switzerland, and the Belgium Refining Company’s refinery in Antwerp, Belgium – with a total crude capacity of 295,000 barrels a day. Petroplus is also in the process of purchasing a refinery in Ingolstadt, Germany, with a crude capacity of 110,000 barrels a day from ExxonMobil Central Europe Holding GmbH.
Dow Chemical in talks with Russian firm Gazprom to construct more facilities
Dow Chemical is in talks with Gazprom regarding the possibility of building joint production facilities. Dow Chemical plans to close a deal to create a joint plant with Gazprom. Dow Chemical and state-owned Gazprom announced in May 2006 that they would consider working together.
German company BASF is also discussing the possibility of setting up a joint manufacturing operation with Gazprom.
Comments: The trend towards securing advantaged feedstock continues in 2007. In the last quarter of 2006, Dow initiated talks with Aramco for jointly developing a petrochemical complex in Ras Tanura. Dow aims to get cost-advanced feedstock in Russia via its talk with Gazprom. Other players have been working on similar strategies to gain access to lower-cost feedstock. As the year progresses the industry will know which of the above plans materialize and the specifics of the deal.
LANXESS expands polyamide plant in Germany
The Semi-Crystalline Products business of Lanxess has expanded polyamide 6 productions at its plant in Uerdingen, Germany. An existing production line has been extended by adding further processing stages, enabling extra annual production of around 20,000 tons of polyamide 6.
Lanxess operates a compounding facility at Uerdingen for producing its commercial grades of Durethan polyamide 6. It says the capacity increase will enable the site to remain competitive and manufacture Durethan materials to the highest standard.
Durethan is finding an increasing number of automotive under-bonnet applications on account of its excellent stiffness and strength combined with outstanding toughness. Particular interest currently is for applications in oil circuits where long-term heat stability and resistance to oil and other media are key requirements. Durethan is also used as a high-viscosity, special-purpose polyamide for packaging films.
Comments: This is a strategic move by Lanxess to remain competitive and manufacture Durethan materials to the highest standard in meeting the growing market needs. The Durethan® product lines of the Semi-Crystalline Products (SCP) Business Unit offer Lanxess an outstanding potential for growth and innovation. By owning efficient production facilities and focusing on product application development, Lanxess plans to become one of the leading suppliers of several products such as polyamide 6 & 66 (Durethan®), polybutylene terephthalate (Pocan®), a range of glass fibers as reinforcements for plastics, and polyamide monofilaments (Perlon®, Atlas® & Bayco®). Durethan® is ideal for applications in the automotive and electrical/electronics industries as well as construction. Pocan® is primarily used in the electrical/electronics industries, but applications for this versatile product are also found in the areas of the automotive industry, medicine, sports, and recreation. The monofilaments Perlon®, Atlas®, and Bayco® are used for paper machine clothing, fishing lines (both amateur), cables and ropes, and agriculture and sports articles. Lanxess further support its plastics business by in-house relevant starting materials. – facilities in Krefeld-Uerdingen and Antwerp that produce cyclohexanol/cyclohexanone, caprolactam, adipic acid, and glass fibers are among the largest of their kind.”
Dow starts polystyrene plant in Russia
Dow Chemical Company has started up its first-ever production facility in Russia. The plant, located at Kryukovo, outside Moscow, will produce STYROFOAM™ brand extruded polystyrene (XPS) insulation boards for Dow Building Solutions, one of Dow’s market-facing business units.
Dow has been established in Russia since 1974, and its business there has been growing rapidly. The company had combined sales of about $350 million in Russia and the Commonwealth of Independent States (CIS) in 2005, about a 50% increase over the previous year.
Dow is already working on a second production facility in Russia. Dow and Izolan recently announced the formation of a joint venture company (Dow Izolan) that will provide customer-tailored, polyurethane systems products to a growing customer base. The joint venture will employ more than 100 staff and plans to construct a large, state-of-the-art production plant in the Vladimir area within the next two years.
Comments: Dow Invented polystyrene foam more than 50 years ago when in the 1900s, the company invented a process for extruding polystyrene to achieve a closed-cell foam that resists moisture. Today PS based foam is most commonly used as insulation in the construction industry and in the consumer market they are seen in the disposable industry in items such as cups, soup bowls, and salad boxes, foam egg cartons; produce & meat trays disposable utensils. Other applications include packing peanuts foam inserts that cushion new appliances and electronics, television and computer cabinets, and others. The growth in this market will depend on the increase in new residential and commercial construction.
The Russian demand for polystyrene and other plastic raw material has shown strong growth in recent years, growing close to 10% per year. The current demand for polystyrene in Russia is close to 500 million pounds with approx 50% of the demand being imported.
In recent years to meet the demand a number of companies have started building and operating polystyrene plants such as Nizhnekamskneftechim, Russia’s largest manufacturer of styrene. Other recent production capacities include Kirishinefteorgsintez in St. Petersburg and BASF AG and OAO Nishnekamskneftechim (NKNC) a 50/50 joint venture for the production of polystyrene and expandable polystyrene in the Republic of Tatarstan, which is some 1000km east of Moscow.
Dow’s startup of their plant will help meet the growing increase in demand for polystyrene in Russia.
Israel government launches $2 billion privatization for Haifa Refinery
Israel’s government could raise as much as $2bn (EUR1.5 billion) from the privatization of an oil refinery business in what is set to be the largest deal in the country’s equity market in over two years.
JP Morgan, Lehman Brothers, and Merrill Lynch are appointed to assist in the sale of shares in Oil Refineries Haifa, which is expected to raise between $1.5 billion and $2 billion for the government, which owns 100% of the company’s shares, and will sell all of the stock in the deal.
Institutional investors are being offered 40% of the company’s shares, and have until February 9 to place their bids in the auction process. Following this, a second auction led by three local banks will sell the remaining 60% of the shares to the Israeli public.
The privatization of Oil Refineries follows a 2004 decision by the Israeli government to restructure and sell the business.
Comments: The government has been planning on privatization of oil refineries for a long time now. This time round the process seems likely to be completed.
In 2004, the social economic cabinet approved a proposal by the ministers of finance and national infrastructures to split and privatize Oil Refineries, and the sales procedure prepared by the Ministry of Finance. The Ashdod refinery was sold first, either as a separate sale, a subsidiary, or as an activity of Oil Refineries. And now, the Haifa refinery will be sold by a public issue.
SIBUR to invest in new TPE plant
SIBUR Holding OJSC is planning to invest RUB 1.5 billion in thermoplastic elastomer production at Voronezhsintezkauchuk OJSC, annual capacity being 40 KT.
The implementation of the project in Voronezh is stipulated by SIBUR’s investment program adopted in 2005 and covers the modernization of the company’s main facilities. In the framework of the project, SIBUR Holding and Voronezhsintezkauchuk will conclude an investment contract, under which SIBUR Holding will be the owner of the new production and Voronezhsintezkauchuk will be the contractor of the survey and construction and installation works. It is planned to launch the new facility by 2010 and reach the design level after 2011.
SIBUR Holding was founded in 2005 in accordance with the decision by Gazprom’s BOD to create a new company on the base of SIBUR JSC OJSC oil and chemical assets. In 2005, the assets were transferred from SIBUR JSC to SIBUR Holding.
SIBUR Holding is Russia’s largest producer of petrochemical products, such as rubbers, tires, polymers, and liquefied gas. Gazprom holds 25% + one share of the Holding, and Gazprombank owns 75% minus one share.
Comments: The thermoplastic elastomers (TPE) market in Russia has seen an increase in demand in recent years a reflection of economic growth in the country. The growth of TPE also comes from the inter-material competition as it replaces thermoset rubbers. The main area of growth for TPE in Russia is in Roofing applications. Other applications include industrial, road, and footwear.
The main advantage of TPEs such as Styrene-Butadiene-Styrene (SBS) is that for roofing applications the formulations perform well in cold weather and possess superior elongation and recovery properties. When it is used in road pavement application, the TPE due to its elasticity prevents cracking due to temperature variation. In footwear applications, SBS brings traction control to soles providing slip resistance.
Contact us at ADI Chemical Market Resources to learn how we can help.