My Turn – Commentary by Dr. Balaji B. Singh
Some good reasons to attend Flexpo2006 in Houston, Sept 20-22, 2006
✿The conference is now in its 13th year – Always winning kudos from all of the attendees for having the best blend of technology and marketing issues
✿ Every session and its papers are handpicked to reflect a composite message
✿Come hear four different versions of Olefin Block Copolymer developments
✿ Your chance to congratulate Dr. P.S.Chum on his election to the Plastics Hall of Fame – Come join the major polyolefin innovators including Prof. Kaminski presenting in his honor
✿As usual, everyone else will do what we do after we do, why wait for imitations when you can attend to the original concepts ???
Basell to license Spherizone technology for 300 KT per year PP plant in Thailand to its joint venture
Basell has announced that its joint venture in Thailand, HMC Polymers Company Ltd., has selected Basell’s Spherizone technology for a new 300 KT per year polypropylene plant to be built at Map Ta Phut, Rayong, Thailand. HMC will also build an associated propane dehydrogenation plant to supply the required feedstock. The start-up of both plants is expected in 2009.
In addition, PTT, the publicly listed natural resources company of Thailand, will through the purchase of new and existing shares in HMC, acquire a 40% interest in the company. Basell will remain a major shareholder in the joint venture. The transactions are scheduled to be finalized in August.
According to Basell, these transactions will put HMC in a leading regional position – with strong local partners, increased upstream integration, and state-of-the-art process technology – to meet the growing needs of customers in Thailand and the Asia Pacific region. HMC already operates two existing Spheripol polypropylene plants at Map Ta Phut with a combined annual capacity of 450 KT.
Comments: The development of the Spherizone process started in the mid to late 1990s. In 1999 Basell scaled up a pilot plant in Ferrara (0.5 t/h), and later in 2002, started the first commercial Spherizone plant in Brindisi with a capacity of 160 KT. Over the past few years, Basell has managed to license several Spherizone units including a couple to its joint ventures: Indelpro in Mexico 350KT/yr (2006-2007), Sahara in Saudi Arabia – 450KT/yr (2008). Other units include Samsung Total in Korea 250KT/yr (2007). At one time, Braskem was also considering converting its Spheripol units to Spherizone. Basell is working hard to establish the Spherizone process as a competitive PP platform, leveraging its relationship with its joint venture partners as well as some third parties. Time will tell if the Spherizone process will follow the tremendously-successful path of the Spheripol process.
Univation Technologies to assist Lotte Daesan in LLDPE expansion
Univation™ Technologies, LLC, announced that Korea’s Lotte Daesan Petrochemical Corp. (Lotte), a wholly owned subsidiary of Honam Petrochemical, has selected Univation Technologies to assist them in their planned linear low-density polyethylene plant expansion. This 130,000 ton-per-year capacity increase is part of a major petrochemical expansion at Lotte’s site in Daesan, South Korea.
Lotte reported that reliable Super Condensed Mode Technology (SCM-T™) with advantages in investment and operating costs were the primary reasons for the selection of Univation’s PE technology.
Univation Technologies, LLC licenses gas-phase polyethylene technology. Univation has technology programs focused on the UNIPOL™ PE gas-phase process, conventional catalysts (UCAT™ Catalysts), and metallocene catalysts (XCAT™ Catalysts and PRODIGY™ Catalysts).
Comments: Lotte Daesan Petrochemical was created in 2003 as a result of the acquisition of Hyundai Petrochemical jointly by Honam Petrochemical and LG Chem. The portion belonging to LG Chem was named LG Daesan, which recently was integrated into LG Chem’s operations. Lotte Daesan has an ethylene capacity of 600 KT which is integrated into its PE and EO/MEG operations. Its downstream LDPE and LLDPE units have capacities of 140 KT and 160 KT, respectively. The upgrade to Super Condensed Mode will bring the total LLDPE capacity to 290 KT, enabling Lotte Daesan to compete more effectively with today’s world-scale LLDPE units.
BASF receives a majority of Engelhard’s shares
BASF Aktiengesellschaft announced the expiration of its initial tender offer period to purchase all of the outstanding shares of Engelhard Corporation (NYSE: EC) and the commencement of a subsequent offering period. The subsequent offering period will expire at 12:00 midnight, New York City time, on Thursday, June 8, 2006, unless extended.
BASF has been informed by The Bank of New York, the Depositary for the offer, which, as of the expiration of the tender offer at midnight, New York City time, on June 5, 2006, a total of 110,456,159 shares or approximately 89% of Engelhard’s outstanding common stock had been tendered into the offer and not withdrawn. Of those shares tendered 18,464,174 shares, representing approximately 15% of Engelhard’s outstanding common stock, were tendered subject to guaranteed delivery. All shares validly tendered and not properly withdrawn before the expiration of the offer have been accepted for payment by BASF.
According to BASF, with the acquisition of the majority of the shares and the expected closing of the transaction shortly, BASF can now begin with the integration in order to create a leading provider worldwide in the dynamically growing catalyst market. By combining the businesses, BASF will also expand into other growth markets, such as specialty pigments. This will allow the company to further strengthen BASF’s profitable growth.
Comments: The agreement, announced on Tuesday (April 6, 2006) ends a five-month standoff that saw Engelhard rejecting BASF’s original offer of $37 a share in January and a revised bid of $38 in April. BASF raised its bid again by $1 a share to $29 but warned that it would walk away from the deal if the latest price was not enough to win over shareholders. The total value of the deal is estimated to be over $5 billion.
BASF wants to buy Engelhard to reduce the cyclical nature of its business and mop up some of the cash that its integrated production generates.
The agreement to buy Engelhard is one of the string of acquisitions made by BASF, including Degussa’s construction chemicals unit for 2.7 billion euros and U.S. company Johnson Polymer for $470 million. It seems BASF wants to take advantage of some of Englelhard’s specialty business before the downturn in profitability at its chemicals unit. The chemicals cycle is projected to peak in a year or two and a more diversified portfolio will help BASF in minimizing the risks associated with the cyclical nature of the chemical industry.
Acquiring companies and diversification is a better strategy for using the cash generated during the upturn. Often the chemical industry builds too much capacity during the up-cycle, which triggers a downturn in the industry. BASF could continue this acquisition trend as the company has a solid balance sheet and generates substantial cash flow. The total value of the deal is estimated to be over $5 billion and is the biggest takeover in BASF’s 140-year history.
INEOS to undergo a major expansion of its ethylene cracker plant at the Köln site
NEOS has agreed to pre-sanction expenditure for a major cracker expansion at its Köln Site. Construction of a EUR40 million unit is planned to begin early in 2007, following the project’s final approval expected later this year. Capacity from the new unit would be brought online during 2008.
According to the company, the expansion of the Köln Cracker is a clear sign of INEOS’ commitment to the Köln Site and the Olefins Business in Europe.
Once completed, the new expansion unit will serve two naphtha crackers and will lead to additional production of ethylene of around 100,000 tons per annum. The additional ethylene will either be used at the Köln Site to produce polyethylene or will be supplied to other INEOS sites via the ARG pipeline system. In constructing the new unit, advanced technology will be applied with an emphasis on the optimization of energy use and the control of emissions. Basic engineering work has already commenced with LINDE and ABB Lummus leading the project planning activities.
Comments: This expansion is neither major nor unexpected. Ineos has been fishing for more ethylene capacity in Europe but the addition of 100,000 mt hardly puts a dent in the marketplace. However, at $500/kt cost it is a relatively inexpensive capacity so the incremental investment should have a very short payout time assuming ethylene remains somewhat snug in Europe. Soon, the Huntsman LDPE plant will start in the UK which will take a large slice of merchant ethylene off the market so a pre-emptive strategic move by INEOS to add capacity at Koln and other sites in Europe is a good move. It allows them to control more of their destiny than to rely on the variability of the merchant market. The market for ethylene in Europe has remained stronger than the US and this is forecast to continue as some large expansion plans like SABIC’s Geleen cracker’s 400,000 KT have been put on hold.
INEOS to retire the INNOVENE name to become INEOS Technologies
Innovene, the olefin derivative company of BP/Amoco officially changes its name to Ineos Technologies.
Effective June 16th – The Changes
Comments: BP, following in the footsteps of major European oil company initiatives, decided to retrench itself to cracker plus 2. Unlike Shell which went ahead and sold or divested all the operations, BP decided to build an organization focused on Olefin derivatives for an eventual IPO. These plans were however hampered by the low growth in the industry and other competing olefin derivative-based IPOs – most of which did not succeed.
Ultimately Innovene was sold to INEOS to become part of INEOS’ diversified portfolio of products – another Huntsman/Sterling in the making.
The INNOVENE name itself is well known to the entire polyolefins and elastomers crowd as the famous polyolefin technology from BP – Remember the late 1996 – Dow-Innovene Exxon-UCC four-way matches with Metallocene soccer balls?
The announcement however does not make it clear if the polyolefin technology will still be called INNOVENE TECHNOLOGY.
Ferro to sell its specialty plastics business
Ferro Corporation announced that it has entered into a non-binding letter of intent to divest its Specialty Plastics business unit. The sale, which is expected to close in the third quarter of 2006, is subject to negotiation of definitive agreements, due diligence, completion of information and consultation procedures with the Works Councils in Europe, as well as certain other closing conditions.
Ferro’s Specialty Plastics business generated 2005 revenues of approximately $270 million. The unit develops and produces customized thermoplastic compounds and alloys, plastic colorants, gel coats, and thermoset pastes that are marketed to manufacturers in a broad range of end markets.
The Specialty Plastics unit has production facilities in the United States, Europe, and Latin America; its largest facilities are in Evansville, Indiana; Stryker, Ohio; Castellon (Almazora) Spain, and Rotterdam, The Netherlands.
Comments: The decision to sell the specialty plastics business Ferro seems to be a mix of accounting and strategy initiatives. The specialty plastics business is not considered a core business in terms of Ferro’s long-term business strategy under its new chief executive officer, James Kirsch. Ferro will continue to focus on businesses that include inorganic specialties – such as color and glass performance materials, porcelain enamel, and tile coatings – and organic specialties – such as pharmaceuticals and polymer additives. The end markets for the specialty plastics business include the automotive industry, which has been struggling in recent years.
The company also has been plagued by some accounting concerns that led to delays in filing financial statements to the Securities and Exchange Commission. Ferro released its unaudited 2005 financial results earlier this month, showing a profit of $14.3 million on sales of $1.9 billion. Considering its financial position the company may decide to shed additional underperforming businesses. The company also completed a $700 million credit deal in the first week of June to improve liquidity and refinance debt. The company secured a $250 million revolving line of credit and $450 million in terms of loans.
Basell sells its components business and custom catalyst assets at its Edison site to W. R. Grace
Basell completed the sale of the Components business and Custom Catalyst assets located at the company’s Edison, NJ (US) site to W. R. Grace. The assets are part of the Polymerization Catalysts and Components (PC&C) business that Basell acquired from Akzo Nobel in March of this year.
According to the asset purchase agreement, W. R. Grace will acquire the assets associated with the components distribution business that is used for the preparation of titanium and vanadium-based compounds and titanates. The transaction also includes a custom catalyst plant which is currently used to toll manufacture polyethylene catalyst systems. Basell will retain ownership of the Edison Supported Catalyst plant and site infrastructure, and provide services to W. R. Grace so they can operate the purchased assets located at the site.
Comments: Davison has a long history in the petrochemicals industry as a supplier of silica-/alumina-based, as well as, other catalyst systems. The company has made some key acquisitions throughout its history to strengthen its position in the catalyst industry. It acquired Crosfield’s hydroprocessing catalyst line in 2000 for $30MM. Davison also attempted to acquire the polyolefins catalyst business of Crosfield in 1998, but the move was disallowed by the Federal Trade Commission. Late last year, Davison acquired the assets of Single-Site Catalysts, LLC, a manufacturer of metallocene catalysts and components based in Chester, PA. With the present announcement, Davison continues its tradition to make strategic acquisitions to sustain a competitive advantage as a manufacturer of proprietary and custom catalysts for the polyolefins industry. The acquisition should allow both parties to optimally use the assets at the site.
GE & PetroChina form a joint venture for polycarbonate manufacturing
GE and PetroChina Company Limited announced the creation of a polycarbonate (PC) resin manufacturing joint venture in China.
Under the terms of the joint venture agreement, PetroChina Company Limited will supply the feedstock, and the partners will collaborate on a phosgene-free, melt technology-based polycarbonate plant that will be built to serve the growing local demand for PC resin.
According to the companies, by combining GE’s polycarbonate manufacturing technology with PetroChina’s leadership and local expertise they could provide service and high-technology materials right to Chinese customers.
Comments: Finally, GE made the right decision. GE’s previous focus was its plant in Cartagena, Spain. However, that plant does not have a competitive position to serve the fast-growing polycarbonate market in the Asia Pacific, particularly China. They have been trying to compensate for it by expanding compounding capacity in China and establishing an R&D center in Shanghai. This new polycarbonate plant in China will significantly enhance GE’s polycarbonate position in China.
The global polycarbonate market is dominated by GE, Bayer, Dow, and Teijin. Together, they take more than 80% share of the global polycarbonate market. Teijin started its 50kt polycarbonate plant in Jiaxing, Zhejiang Province in May 2005. It will be expanded to 100kt by the end of 2006. Bayer’s new 100kt polycarbonate plant in Shanghai is scheduled to come on stream this year, and it will be expanded to 200kt by 2007.
GE’s new polycarbonate plant will leave Dow as the only global player without a polycarbonate resin production facility in China. Dow has a joint venture with LG in Korea which has a capacity of 80kt. Dow has announced that they are building a second line at the same site with a 65kt nameplate capacity.
Dow Chemical signs a Letter of Intent with Zhangjiagang Free Trade Zone – a move forward to step up investment in China
Dow Chemical signed a Letter of Intent (LOI) with the Administrative Committee of Zhangjiagang Free Trade Zone in Jiangsu Province and expressed its intention to significantly step up investment in China.
Located on the Yangtze River approximately 200 kilometers (125 miles) upstream from Shanghai, Zhangjiagang is uniquely positioned to supply domestic customers as well as export markets. The LOI covers products in three downstream Performance businesses of Dow – DOWANOL™ PM glycol ethers in Specialty Chemicals, styrene-butadiene latex in Dow Latex, and STYROFOAM™brand insulation in Dow Building Solutions.
Dow currently operates three world-scale, state-of-the-art facilities in the Yangtze River International Chemical Park in Zhangjiagang Free Trade Zone: a converted epoxy resin plant, a styrene-butadiene latex facility, as well as a polystyrene resin plant. Total investment so far is about US$300 million. The facilities under the LOI would bring an additional US$200 million investment to this strategic site in China.
According to the company, this LOI again underscores Dow’s commitment to investing in emerging geographies, in particular China which is a key component of Dow’s global business strategy and a significant contributor to our growth and development.
China is Dow’s third largest market behind the US and Germany in terms of sales. In 2005, Dow Greater China’s revenue was US$ 2.3 billion.
Comments: Dow is catching up on their investment in the growing Chinese market. $ 200 million new investment is not an insignificant amount. However, it is still less compared to the investment of other global players in China. Shell, BASF, and BP all have started ethylene crackers and downstream complexes with their Chinese partners. ExxonMobil’s cracker in Fujian is scheduled to start in 2008. SABIC is planning to build a new cracker with its Chinese partner, Dalian Shide. Dow has negotiated an ethylene cracker project in Tianjin for years, but eventually, the project did not go through.
In polycarbonate, Dow will be the only global player without a resin manufacturing facility in China. The other three players, Bayer, Teijin, and GE have all started or plan to start polycarbonate manufacturing in China. See our comment in this issue on the new polycarbonate joint venture between GE and PetroChina. It won’t be a surprise if Dow releases additional investment in China in the near future.
PMitsui Chemicals to increase PP automotive materials capacity in North America, Thailand, and China
Mitsui Chemicals, Inc. (MCI) and Prime Polymer Co., Ltd. announced their plans to increase annual polypropylene production capacity in North America, Thailand, and China by 27%, for a combined annual total of 63,000 tons. This move is being taken to ensure MCI can respond to the growing demand for polypropylene-based automotive materials in the North American and Asian regions. Outlined below is the company’s plan for capacity expansions in several regions:
North America:
The capacity will be increased from 98 KT to 109 KT by the end of 2007 at its subsidiary Advanced Composites Inc., Ohio plant. The Tennessee plant will have an increase of 6KT capacity to 63KT. Capacity at Advanced Composites Mexicana will be increased from 15 KT to 20 KT per year.
Thailand:
Capacity at Grand Siam Composites will be increased by 32 KT from 52 KT to 84 KT per year.
China: Capacity at Mitsui Advanced Composites (Zhongshan) will be increased by 9 KT from 15 KT to 24 KT per year.
The company plans to close its 10 KT per year facility in Europe in 2007.
The annual growth rate in worldwide automobile production is currently around a few percent. By 2007, the number of vehicles produced by Japanese automakers is expected to grow around 10% annually as these firms begin to accelerate their global business development.
MCI and Prime Polymer are poised to meet the coming needs of the Japanese framework with four key bases in Japan, North America, Europe, and Asia. This latest augmentation of capacity in North America, Thailand, and China will ensure that the company can further enhance its already globally top-ranking supply capacity for polypropylene-based automotive materials.
Comments: The increase in polypropylene capacity is in line with current market predictions. The Chinese economy is growing at 8-10%, with the automotive sector’s new-car sales reaching 3.1 million last year. The first quarter of 2006 showed a 74% increase over the first quarter of 2005 with sales topping 890,000 units. The Thai auto industry has also shown strong growth recently. The auto exports in the first quarter of 2006 surged 49 percent year-on-year to 174,674 units. The Middle East is the largest overseas market for Thai-made vehicles, making up 27 percent of their total exports. In North America, Japanese car manufacturers have experienced strong sales increasing their market share as consumers opted for smaller and more fuel-efficient vehicles.
The Mitsui Chemicals Group views the polypropylene-based automotive materials business, chiefly overseen by subsidiary Prime Polymer, as one of the core businesses of its Petrochemicals Business Group. Over the last few years, Mitsui has set up several subsidiaries and joint ventures. In January 2003, Advanced Composites Inc. was established with a capital investment of US$14.1 million. The partners are Mitsui Chemicals, Prime Polymer (62.8%), and others (37.2%), with manufacturing locations in Ohio and Tennessee. Advanced Composites Mexicana S.A. DE C.V. was established in February 1994 with an investment of US$2.6 million as a subsidiary of Advanced Composites Inc. (100%).
Grand Siam Composites was established in February 1996 by Mitsui Chemicals, Prime Polymer (48.2%), Cementhai Chemicals (46.2%), and others (5.6%). Mitsui Advanced Composites (Zhongshan) Co. was established in April 2004 by Mitsui Chemicals, Prime Polymer (70%), Cementhai Chemicals (20%), and others (10%) in China.
INEOS considers manufacturing options in China
The INEOS board visited China in mid-May to consider manufacturing options in the world’s largest growth market. The company, which has extensive manufacturing facilities in Europe and North America has a relatively undeveloped base in Asia.
INEOS was encouraged to consider further investment in China in addition to considering a world-scale Phenol plant in Zhangjiagang, Jiangsu Province near Shanghai. The level of infrastructure in the country, and the professionalism and drive of the people impressed INEOS and it has committed to the Chinese Government, to review possibilities for development in China, and to expand its manufacturing base into upstream refining and petrochemical activities.
Comments: This is the third news on global companies making new investments in China. See our comments on Dow’s investment plan in Zhangjiagang and GE’s polycarbonate joint venture with PetroChina. Historically, INEOS did not have a strong position in China.
The acquisition of Innovene from BP helped very little because BP kept their joint venture with Sinopec, SECCO. Now, INEOS also wants to catch the boat before it is too late.
Dow extends polystyrene shutdown at Joliet, IL
Dow Chemical announced that it will keep its polystyrene (PS) plant at Joliet, IL down for at least another two weeks, following the completion of a maintenance turnaround last week. Dow cited weak conditions in the PS industry as the reason for the delay in the startup of the 280-million lbs/year unit to June 1.
The plant was originally scheduled to start up on May 16, following a scheduled turnaround that lasted two weeks.
Comments: First of all, a 280mm lb/yr unit is only about 3% of the total US market and a two-week shutdown is hardly material. But in a market, that is oversupplied and with the lowest or non-existent profitability like polystyrene, every little bit helps. To make a difference, more plants have to be shut down completely and for good. Let’s see, capacity has recently been shuttered in Japan, the US, and Europe (by Dow & others). Profitability is not going to improve until operating rates improve from around 80% in polystyrene in N. America. Get the message? It’s a bad market with too much capacity and it’ll stay that way if producers only shut down for two weeks.
European Commission fines methacrylate producers for price fixing
European Commission has fined ICI, Arkema, Degussa, Lucite, and Quinn Barlo a total of about $443 million. The companies have been charged for running a cartel between 1995 and 2002 in the European market for methacrylate monomers and derivatives products.
ICI has been fined EUR91.4 million following an investigation into alleged cartel activity in the European methacrylates market during a period from 1997 to 2002. ICI cooperated fully with the Commission throughout the investigation. The fine relates to ICI’s period of ownership of ICI Acrylics, which ended in 1999 when the business was sold. ICI will make a provision for this fine in its Q2 2006 Income Statement as a special item.
The ruling would mark the second time in May the European Commission, the EU’s antitrust regulator in Brussels, has penalized chemical companies for fixing prices. EU Competition Commissioner fined seven hydrogen peroxide makers EUR 388 million ($495 million) on May 3.
Comments: The European Union’s executive commission began a formal probe into some of Europe’s biggest chemical producers amid suspicions they were involved in price-fixing and anti-competitive behavior in the market for methacrylates in August 2005.
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