Westlake announces third-quarter earnings
Westlake Chemical Corporation reported a net income of $43.5 million and income from operations of $70.1 million on net sales of $605.4 million for the third quarter of 2005. This compares favorably with the third quarter 2004 net income of $28.3 million and income from operations of $68.9 million on net sales of $572.0 million.
Third quarter of 2005 net income decreased by $5.0 million from the $48.5 million net income reported in the 2nd quarter of 2005. In the third quarter of 2005 income from operations decreased by $12.7 million from the income from operations of $82.8 million reported in the 2nd quarter of 2005 while net sales increased by $24.7 million from the $580.7 million reported in the second quarter of 2005. These decreases were partially offset by higher selling prices for ethylene and polyethylene and higher sales volumes for ethylene, polyethylene, PVC resin, and PVC pipe.
OLEFINS SEGMENT
Income from operations for the Olefins segment increased by $0.4 million to $45.1 million in the third quarter of 2005 from $44.7 million in the third quarter of 2004. This increase was primarily due to ethylene and polyethylene price increases and an adjustment of $2.5 million related to prior periods which reduced depreciation expense. These increases were partially offset by higher raw material costs for ethane and propane, higher energy costs, lower sales volumes, and feedstock-related trading losses.
Third quarter 2005 income from operations for the Olefins segment increased by $13.1 million from the $32.0 million income from operations reported in the 2nd quarter of 2005. This increase was primarily due to higher selling prices and sales volumes for ethylene and polyethylene, which was partially offset by higher energy and raw material costs, lower selling prices and sales volumes for styrene, and feedstock-related trading losses.
VINYL SEGMENT
Income from operations for the vinyl segment increased by $2.6 million to $28.9 million in the third quarter of 2005 from $26.3 million in the third quarter of 2004. This increase was primarily due to higher sales volumes for PVC resin and PVC pipe and higher selling prices for all of the segment’s products. These increases were partially offset by higher energy costs and higher raw material costs for propane.
Third quarter income from operations for the vinyl segment decreased by $22.1 million from the $51.0 million income from operations reported in the 2nd quarter of 2005. This decrease was primarily due to higher raw material costs for propane and ethylene and lower selling prices for PVC resin and PVC pipe. These decreases were partially offset by higher sales volumes for PVC resin and PVC pipe. Ethylene is purchased in the company’s vinyl segment directly from its Olefins segment.
China National Chemical Corp. (ChemChina) to acquire Australian producer Qenos
China National Chemical Corporation (ChemChina) announced its plans to purchase Australian polyethylene products and olefin producer Qenos.
According to Qenos, “ChemChina is a global chemical industry player and Qenos is a strategic acquisition that complements ChemChina’s global growth strategy and portfolio of chemical businesses. The acquisition provides a strong Australian platform for further business growth.”
The state-owned ChemChina has signed an agreement with Qenos’s shareholders – Orica and ExxonMobil – with a settlement to take place in early 2006.
Comments: ChemChina was established in May 2004 when Lanxing Qingxi Group merged with HaoHua Group. It became the fifth-largest chemical conglomerate in China after Sinopec, PetroChina, CNOOC, and Sinochem. It is not a major player in olefins/polyolefins compared to Sinopec and PetroChina.
The new acquisition will give them an international platform to enter this market. Both Lanxing Qingxi Group and Haohua Group have gone through a series of quite successful acquisitions before they joined hands. This is their first major international acquisition after their merger.
Qenos is the only polyethylene producer in Australia. It was a joint venture between Orica and ExxonMobil. The company was in financial trouble for quite some time and hence was up for sale for more than a year now. Earlier this year, the company licensed metallocene technology from Univation. It divested its polypropylene business to Basell who is now the only PP producer in Australia.
Dow & Siam Cement plan naphtha cracker in Thailand
Dow Chemical in cooperation with Siam Cement PLC has planned to establish a $1.1 billion petrochemical plant in Thailand’s Rayong Province.
The proposed naphtha-cracking plant will have a production capacity of 900,000 metric tons per year of ethylene and 800,000 metric tons per year of propylene from naphtha, condensate, and liquid petroleum gas.
Siam Cement, Thailand’s biggest industrial company, will invest 67% in the plant, which will be located about 80 miles southeast of Bangkok and will start its operation in mid-2010.
In the planned downstream projects, Siam will invest $400 million to start a polyethylene and polypropylene plant using olefins obtained from the naphtha-cracking plant. This plant will have a production capacity of 300 KT/year of high-density polyethylene and 400 KT/year of polypropylene; it will start its operation in 2010.
Comments: This new project has at least two things going for it: (1) it is in the epicenter of the fast-growing Asian petrochemical market and (2) the project undoubtedly will take advantage of Thailand’s 15 TCF of proven natural gas reserves. These reserves are heavily condensate laden and this probably will make up for a majority of the project’s feedstocks. Unocal is an active field developer in the Gulf of Thailand and they have indicated that natural gas is more than 40% less expensive than crude oil. Thailand is a net importer of crude oil but increasing use of natural gas is forecast to slow this dependence. From Dow’s standpoint, the project’s ownership follows a stated strategy recently of the company to expand globally in areas where there is a feedstock advantage and it would seem that this is precisely the strategy in Thailand. The investment is undoubtedly protected by long-term advantageous feedstock contract which Dow can use to an advantage to help Siam develop downstream derivatives and market them efficiently which is one of the strengths of the Dow global organization in olefins.
Russian petrochemical producers Novatek & Titan signed a cooperation memorandum for the development of a petrochemical complex in the Omsk region
Russian petrochemical producer NOVATEK and Titan Group of Companies signed a cooperation memorandum for the development of a petrochemical plant in the Omsk region.
The Memorandum provides for the development of a modern petrochemical facility and the expansion of Titan’s existing capacity as well as improvements to the region’s environment. The petrochemical facility, to be developed by NOVATEK and Titan, will produce polypropylene, butadiene, and synthetic rubbers through deep processing of liquefied petroleum gas.
The Omsk regional government will provide support for the Project.
The Project will also contribute to the economic and social development of the region through the creation of jobs and environmental improvements. The regional government is prepared to review proposals, developed under the Memorandum, and update its regional development plan accordingly.
Comments: Much of the polyolefins expansion and licensing activity over the past decade has concentrated in the Middle East and China. The former is a result of advantaged feedstock and the latter is due to increased consumption, low labor costs, and export trends in converted products. However, in the past few years, activity in Eastern Europe and Russia has increased as the economies have improved and as large chemical companies start to build downstream industries. This memorandum is an indication of the continuation of this trend.
Novatek is Russia’s largest independent gas producer and the second-largest natural gas producer. The company was founded in 1994 and is engaged in the exploration, production, and processing of natural gas and liquid hydrocarbons and had 4.1 billion oil-equivalent barrels of proved reserves at the end of 2004. The company’s upstream activities are concentrated in the Yamal-Nenets Region, which is the world’s largest natural gas-producing area and accounts for over 90% of Russia’s natural gas production and 20% of the world’s gas production.
In downstream activities, Novatek-Polimer is the largest domestic producer of anticorrosive insulating materials which are used in the oil and gas industry for the insulation of underground pipelines. The company produces different types of polyethylene-based insulating tapes, including polymer tapes and wraps, heat-shrinkable tapes, and sleeves for the protection of welded pipe joints. In June 2005, the Company launched a modern, biaxial-oriented polypropylene (BOPP) wrap film plant with an annual production capacity of 25 mt. This deal will strengthen Novatek’s position and allow it to participate at all levels of the value chain.
Titan Polymers of Malaysia and Westlake Chemicals of North America, are both majority owned by the same group of Chao family. For all practical purposes, the Titan group and Westlake group are handled independently without any crossover.
Süd-Chemie expands PP catalyst business in China
Süd-Chemie AG announced its plans to take a majority interest in a joint venture with local partners in China to produce, further develop and distribute polymerization catalysts. This joint venture marks Süd-Chemie’s entry into the market for catalysts used in the manufacture of polypropylene. The future Shanghai Süd-Chemie Jinhai Catalyst Co., Ltd. has a modern production and research facility near Shanghai.
Süd-Chemie has had close trading relationships with China for three decades. In 2002 Süd-Chemie was the first Western company to invest in a joint venture to produce synthetic gas catalysts for the chemical and petrochemical industry. Shanghai Süd-Chemie Jinhai Catalyst will further strengthen Süd-Chemie’s position as the world leader in the field of catalysts to produce and condition source materials for plastic.
By investing in the joint venture company, which has been active in the Chinese market since 2003, Süd-Chemie will also tap attractive markets outside China in the future.
Comments: Süd-Chemie AG has been expanding its catalyst business in China very quickly in the last three years or so. It set up its first wholly-owned subsidiary in China in November 2002 by acquiring 100% of the shares in Liaoning Redhill Volclay Co. Ltd. via its wholly-owned holding company SC Redhill GmbH. The new company is named Süd-Chemie Redhill Bentonite (Liaoning) Co. Ltd. (“SC Redhill”). Its registered office is located in Jianping, Liaoning Province, while management, marketing, and technical sales operations are based in Beijing.
This past September, its joint venture with Liaoning Huajin Chemical (Group) Corporation for making maleic anhydride catalysts just started construction. The capacity is 150t/a, and it is expected to be completed by December 2006.
The news release did not reveal the Chinese partner for this new joint venture. Chinese PP catalyst market is dominated by three domestic PP catalyst suppliers including Auda, Xianhua High-Tech, and Xiangyang. The first two are Sinopec subsidiaries and were recently grouped into Sinopec Catalyst Company. Xiangyang is an independent catalyst supplier located in Yingkou, Liaoning province.
Grace purchases assets of Single-Site Catalysts, LLC
W. R. Grace & Co. announced the acquisition of the assets of Single-Site Catalysts, LLC (SSCL), a supplier of organometallic catalysts, serving a variety of industries, including polyolefins and elastomers, headquartered in Chester, PA. The purchase includes customer agreements and intellectual property for the manufacture of metallocenes and boron co-catalysts.
The terms of the acquisition will ensure that no product re-qualifications will be required since Grace will maintain a manufacturing relationship with SSCL affiliate, Norquay Technology, Inc. also of Chester, PA. This relationship will also combine the substantial organometallic expertise of SSCL, Norquay, and Grace to provide catalyst development and commercialization services to current and new customers. The business will be integrated into Grace’s Davison Chemicals business segment.
Comments: Single-Site Catalysts, an affiliate of Norquay Technology acquired Sud-Chemie Catalytica in 2002. The company was formed in 1998 as a joint venture between Catalytica and Sud Chemie. It also formed a partnership with Honeywell for the manufacture of boron-based cocatalysts. The company is also involved in the manufacture of tris- and tetrakis(pentafluorophenyl) borane and borates.
This acquisition by Grace will help it expand and strengthen its competencies in the Specialty Catalysts business unit. Leveraging Grace Davison’s catalyst support technology and manufacturing capabilities with Single-Site’s advanced synthesis technology will result in high-value products for the polyolefin industry.
DuPont announces cost-cutting plan
DuPont Co. announced that it will cut back on certain research and plans to let some jobs go unfilled as it moves to cut costs in the face of tough economic conditions.
The company cited a “structural shift in the global industrial economy” for the changes in a prepared statement providing details on a broad plan outlined last month. In October, DuPont said it was reacting to higher material costs, slower U.S. growth, and competitive difficulties for U.S.-based natural gas-dependent businesses.
DuPont said it does not plan layoffs but does expect to streamline its workforce through a combination of employee attrition, “contractor displacement” and assigning employees to different projects. The company predicted that such cost-cutting efforts will save $1 billion over the next three years. DuPont added that it expects to see “meaningful benefits” in 2006. The company said it is asking one-third of its more than 80 business units to improve their return on capital investment, making changes in costs and deployed capital over the next 18 months so that they at least break even.
Comments: DuPont, once the giant of the North American chemical industry underwent more cost cuttings than most other organizations. Tracing back, DuPont’s strategic move into biotechnology, and agriculture in the late 80s, giving up the unquestionable leadership in innovative material development, did not go as planned.
DuPont is still one of the top innovators in the world and will get back to the top soon – surprising is the lack of movement to Asia – like others ?????
Dow to construct XPS plant in Russia
Dow Chemical announced its plans to invest in the construction of a Russian plant for the production of STYROFOAM™ extruded polystyrene insulation boards (XPS), thermal insulation products designed to increase the energy efficiency of homes and commercial buildings.
The plant will be built near Moscow and hence will be able to supply to central Russia as well as to customers in Belarus, Kazakhstan, and Ukraine. The decision makes Dow the first international XPS producer to invest in a Russian production facility. XPS production is due to start in the first half of 2006 using a future-oriented ecologically clean technology that will produce STYROFOAM boards.
Comments: Downstream products like extruded insulation board (XPS) bring more margin than selling solid crystal polystyrene. The insulation markets in Russia are growing steeply and XPS is an integral part of both commercial and residential construction. For several years, the Russian insulation market has enjoyed dramatic double-digit growth rates with activity increasing so rapidly that producers and suppliers have had difficulty keeping up with demand during the high season. Figures show growth of 15% in 2003 and 14% in 2004. As a direct result, the major foreign manufacturers of quality insulation products in Russia have been running full steam. Companies other than Dow are expanding and building production capacity in Russia and Siberia. The factors that are responsible for the insulation market’s major rise are, (1) growing heating prices, (2) new construction regulations which between 1995 and 2002 saw insulation capacity on outer walls triple, (3) the arrival of Western developers and widespread adoption of Western construction styles, (4) arrival of modern insulation materials like XPS and their promotion and (5) re-insulation of the walls of in existing buildings. Dow’s intended markets geographically are wide and they have an established brand name with excellent performance. This plant will also help consume polystyrene which is very long on regional markets and improved operating rates could help all producers, including Dow’s dominant polystyrene position.
Dow Chemical to close polystyrene plant at Barry, UK
Dow Chemical announced its decision to close its polystyrene production facility at Barry, South Wales, in the United Kingdom, by the end of 2005.
According to the company, Dow continues to be firmly committed to the polystyrene business. “With a total global polystyrene capacity of 2.3 million metric tons, Dow remains a leading producer in this industry,” he said. “Our customers can expect a continued high level of service and quality, with their needs fully supplied from our other plants in Europe.”
Dow produces STRYON® and STYRON A-TECH® Polystyrene Resins at six sites in Europe: Tessenderlo, Belgium; Schkopau, Germany; Lavrion, Greece; Terneuzen, The Netherlands; Bilbao, Spain; and Barry. The plant in Barry has the capacity to produce 75,000 MT annually of polystyrene but has operated historically below capacity. The Barry site employs 24 people. The actual number of jobs that could be impacted will be determined during the 30-day employee consultation period.
Comments: There’s just too much polystyrene capacity on stream in Europe for demand. Low margins for all producers reported have proven this for some time. The rationalization of the Dow polystyrene plant at Barry, South Wales, UK is therefore no surprise.
It comes right on the heels of an announcement last month by NOVA in their Innovene polystyrene joint venture that the joint venture would close permanently an EPS plant at Carrington, UK, and a polystyrene plant at Berre, France. Both the Nova/Innovene closures amounted to about 10% of polystyrene capacity in Western Europe so the Dow closure will account for less than half the magnitude on the same scale. But in a market where prices are still declining in the face of high raw materials, every little bit helps. We said when Nova/Innovene made their announcement to expect more closures. Now with Dow’s announcement, we still believe that there will be some more capacity taken offline unless polystyrene local demand growth exceeds 5% in 2005 which is questionable. One tribute to Dow is that they operate a 75,000 MT/year polymer plant with only 24 people, this has to be one of the most efficient operations from a manpower standpoint in the industry.
BASF to eliminate 400 jobs in North America by 2007
BASF announced that it will cut about 400 jobs through plant closures at Enka, NC; Aberdeen, MS; and Portsmouth, VA by 2007, and transfer production at those sites to its Freeport, TX site. The Enka site produces polycaprolactam, and the Aberdeen and Portsmouth plants manufacture superabsorbent polymers. BASF will build a superabsorbent polymers plant at Freeport, where it also manufactures acrylic acid, a key raw material for the polymers.
The plant closures and job cuts are part of BASF’s plans to reduce annualized costs in North America by $150 million by mid-2007. BASF expects one-time costs of $80 million from the $150-million, cost-savings measures, he says. Those measures are part of a restructuring of BASF’s North American operations that began in 2003 that has so far yielded $250 million in annualized savings. BASF expects to achieve the full $ 400 million savings by mid-2007.
Comments: See DuPont comment.
Finnplast Oy acquired PVC operations from Dynea Chemicals Oy
The transaction between Finnplast Oy, a fully owned subsidiary of International Petrochemical Group S.A., Luxembourg, and Dynea Chemicals Oy regarding the sale and transfer of Dynea Chemicals Oy’s PVC production plant in Porvoo has been finalized. The annual capacity of the Porvoo PVC plant is 100 KT of PVC resin and 15 KT of compounds. The plant employs some 90 people mainly in production and technical service.
Comments: Dynea has been manufacturing PVC for Japanese PVC producer Shin-Etsu for the past six years, under a tolling agreement. PVC production was started at Porvoo in 1972, first under Pekema’s name and thereafter by Neste Chemicals and Dynea Chemicals. PVC production does not fit in the overall company’s business portfolio and hence the divesture.
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