BASF and Shell review strategic options regarding their joint venture Basell
BASF and Shell announced their plans to review strategic alternatives regarding their joint venture Basell, in which they both hold a 50 percent equity interest. The options being reviewed by the shareholders include the sale of their stakes and an equity market transaction.
During the review process, the shareholders remain committed to supporting Basell’s strategic and operational goals and its ongoing financial progress. Credit Suisse First Boston (CSFB) and Lazard have been retained to assist in assessing the feasibility and attractiveness of these options.
At the same time, Basell intends to continue to pursue our business plans and strategies in three core businesses – Polyolefins, Advanced Polyolefins, and Technology.
Comments: Please see the enclosed article PR799BASF and Shell Announced Intention to Divest Basell Polyolefins.
Amir Kabir Petrochemical selects Lupotech T process for new 300 KT LDPE plant
Amir Kabir Petrochemical Company (AKPC), an affiliate of Iran’s National Petrochemical Company, has signed a licensing agreement for AKPC to use Basell’s Lupotech T process for a new 300 KT per year low-density polyethylene plant in Bandar Imam, Iran.
This is the ninth license for a Basell technology that NPC or its affiliates have signed in the past 7 years.
Amir Kabir Petrochemical Company, an affiliate of the National Petrochemical Company of Iran, has operations at the Mahshar Special Petrochemical Economic Zone, Bandar Imam, Iran consisting of olefin, high-density polyethylene, polypropylene, linear low-density polyethylene, low-density polyethylene, butadiene, and butadiene-1 units.
Comments: LupoTech T is a high-pressure tubular reactor process for the production of LDPE and EVA copolymers. The process was first licensed in 1953, and through steady improvements in technology, the capacity has grown to 3.6 million tons, including a 320 KT line in Europe. The steady increase in single-line capacity has enabled many producers of LDPE to lower production costs and compete more effectively with low-pressure processes.
Sabic subsidiary Ibn Zahr to construct a polypropylene plant
Sabic subsidiary Ibn Zahr announced its plans to build a 350,000 MT/year polypropylene (PP) plant at Al Jubail. Sabic holds a 70% stake in Ibn Zahr; and other companies Arab Petroleum Investment Corp. (Apicorp), Ecofuel of Italy, and Fortum each hold 10%. Completion of the plant is slated for 2008. The unit will obtain feedstock from an olefins complex planned by Sharq at Al Jubail.
Sharq, a joint venture between Sabic and a Japanese consortium led by Mitsubishi Corp., also received approval to proceed with a 1.2-million MT/year ethylene plant and downstream units with a capacity for 600,000 MT/year of ethylene glycol and 800,000 MT/year of polyethylene. Ibn Zahr has a total capacity of 640,000 MT/year of PP. The new PP unit is one of two that Sabic plans to build in Saudi Arabia.
Comments: Ibn Zahr also known as Sabic European Petrochemical Company, a SABIC subsidiary currently operates polypropylene plants having a total manufacturing capacity of 640 KT. It completed the construction of one PP plant in 1993 where it uses Unipol® technology having a capacity of 200 KT. The second PP plant with a capacity of 260 KT came online in 2000. The capacities were then increased to a total of 640 KT.
Samsung-Atofina to construct a polypropylene plant
Samsung-Atofina, a 50-50 joint venture between Samsung and Atofina, announced its plans to build a 300,000 MT/year polypropylene plant as part of a previously announced expansion of the joint venture’s Daesan, Korea complex. The JV plans to complete the expansion in several phases, kicking off with an aromatics project. The aromatics expansion is scheduled for completion in mid-2005.
The expansion will take place during 2006-07. The capacity of Samsung-Atofina’s 650,000 MT/year naphtha and condensates cracker will be debottlenecked, increasing ethylene capacity to 850,000 MT/year by late 2006. Cracking severity will be adjusted at the same time to maximize propylene yield.
Comments: Samsung-Atofina currently operates two PP lines based on Mitsui’s process PP lines with a combined capacity of 250,000 MT/year. Atofina is the third-largest producer of PP, behind Basell and BP.
The joint venture handles its marketing in addition to using Atofina’s worldwide network to sell products outside of Korea. About 50% of the output from the Daesan complex is exported, mainly to China and Japan. Atofina’s petrochemical operations will be renamed Total Petrochemicals, effective October 1, 2004, and Samsung-Atofina will be renamed Samsung-Total Petrochemicals.
Dow to select a site for the production of Versify copolymer
Dow Chemical expects to choose a site within a “couple of months” to set up a commercial-scale plant to produce the company’s new family of Versify propylene-ethylene copolymers. The company is considering several sites including Tarragona, Spain.
Dow currently produces Versify’s range of products at a pilot plant in Freeport, TX. Dow had started producing Versify plastomers and elastomers using catalysts developed in partnership with Symyx Technologies, in combination with Dow’s proprietary Insite technology and its solution process.
Comments: Earlier this year, Dow introduced new grades of Versify® plastomers & elastomers. In continuation with the development of its Versify polymers, the company intends to select a site for commercialization.
Chemical Market Resources, Inc has continuously tracked the development of metallocene-based polymers, and several speakers have presented papers at the FlexPO conference, held every year. Please mark your calendars for this year’s upcoming FlexPO 2004 on Sept. 15-17, 2004 to be held in San Louis Resort, Galveston, TX.
Polyolefin producers report earnings for the second quarter of 2004
Dow Chemical
Dow Chemical Company reported record sales of $9.8 billion for the second quarter of 2004, 19 percent higher than the same period in 2003. Net income rose 74 percent to $685 million, and earnings per share were $0.72, an increase of 67 percent compared with $0.43 per share for the same quarter last year.
Overall volume improved by 11%, compared with the second quarter of 2003, while prices also strengthened – up 8% overall, with improvement in all segments and geographic areas. During the quarter the Company recorded a net pretax gain from restructuring of $20 million – equivalent to $0.01 per share. This included gains of $563 million from asset divestitures associated with the formation of two new joint ventures, MEGlobal and Equipolymers. These were largely offset by restructuring charges totaling $543 million.
Plastic sales increased 24%, compared to the second quarter last year, due to a volume increase of 14% and a price increase of 10%. Polyethylene demand increased significantly across all geographic areas, while price improvements kept pace with rising feedstock costs. Polystyrene sales were strong, with the business reporting double-digit increases in both volume and price compared with the second quarter of 2003. However, margins were compressed due. principally to the sharp rise in benzene costs during the quarter. EBIT for the Plastics segment was $399 million, which included a positive impact of $124 million from asset divestitures associated with the formation of Equipolymers. Excluding the gain from these divestitures, EBIT was 73 percent higher than the second quarter of 2003.
Chemicals sales rose 31% compared with the same quarter in 2003, with volume up 17% and price up 14%. The improvement was led by ethylene glycol, which reported greater than 30% increases in both volume and price compared with the same period last year. The Chemicals segment reported EBIT for the quarter of $726 million, which included a positive impact of $439 million from asset divestitures associated with the formation of MEGlobal. Excluding the gain from these divestitures, EBIT was up 184 percent compared with the same period last year.
ExxonMobil
Exxon Mobil Corporation reported second-quarter results. Net income was $5,790 million ($0.88 per share), an increase of $1,620 million, or 39%, from the second quarter of 2003. Earnings in the second quarter, excluding accounting changes and special items, were a record.
Revenues and other income for the second quarter of 2004 totaled $70,693 million compared with $57,165 million in 2003. Capital and exploration expenditures of $3,617 million in the second quarter of 2004 were down $214 million compared with last year. Chemical earnings of $607 million were up $168 million from the same quarter a year ago due to improved margins and increased sales volumes. Record prime product sales of 6,930 KT (thousands of metric tons) were up 595 KT, reflecting improved demand.
Nova
NOVA Chemicals Corporation reported net income to common shareholders of $27 million ($0.30 per share diluted) for the second quarter of 2004. This compares to net income to common shareholders of $7 million ($0.08 per share diluted) in the first quarter of 2004.
Second quarter 2004 earnings from NOVA Chemicals’ operations were significantly stronger than the same quarter last year.
The Olefins/Polyolefins business reported a net income of $54 million in the second quarter, $20 million higher than the first quarter. Co-product contributions remained strong, polyethylene sales volumes were up and prices were increased to compensate for higher feedstock costs.
The Styrenics business reported a net loss of $25 million in the second quarter, slightly worse than the first quarter net loss of $22 million. Styrene monomer prices outpaced the flow-through of much higher benzene costs. Styrene monomer margins widened slightly, but volume declined. North American polymer results were essentially flat on higher volumes, but European polymer results continued to lag.
Liveris to become CEO of Dow Chemical and William Stavropoulos to continue as chairman
Dow Chemical Company’s Board of Directors announced that Andrew N. Liveris, president, and chief operating officer (COO), will become president and chief executive officer (CEO), effective November 1, 2004. William S. Stavropoulos, chief executive officer and chairman of Dow’s Board of Directors, will continue as chairman.
Liveris, 50, was elected by Dow’s Board of Directors to his current position in November 2003. Liveris joined Dow in 1976. His career has spanned manufacturing, sales, marketing, new business development, and management. He has worked for Dow in Australia, Thailand, Hong Kong, and the United States. Prior to being named president and COO, Liveris served as business group president of Dow’s Performance Chemicals portfolio.
Liveris was elected to Dow’s Board of Directors earlier this year. He also serves on the board of Dow Corning Corporation.
Mitsui Chemicals to expand methyl pentene polymer capacity
Mitsui Chemicals announced its plans to increase the capacity for TPX® methyl pentene polymer comprising a part of its functional olefin polymers line-up.
The company plans to increase methyl pentene polymer capacity by 5,500 tons per year at its facility in Iwakuni-Ohtake Works. This expansion will increase the company’s total capacity to about 13,000 tons per year. The expansion is scheduled for completion in July 2005.
Mitsui plans to target this polymer in IT, electronics, and industrial applications due to the several benefits including (1) heat resistance, (2) clarity, (3) chemical resistance, (4) good mold release properties, and others.
Comments: 4-methyl pentene-1 polymer has an isobutyl group in place of a methyl group on alternate C atoms. The important properties of methyl pentene polymer (TPX) include (1) high transparency, (2) rigidity, (3) impact resistance, and (4) the ability to withstand temperatures of up to 200ºC for short periods (180ºC continuously). It is particularly suitable for volumetric apparatus such as flasks, measuring cylinders, and beakers. Like other polyolefins, PMP (“TPX”) is susceptible to attack by strong oxidizing agents over a period of time and some chlorinated solvents (e.g. trichloroethylene) can cause some softening and swelling.
Mitsui increased the capacity of its TPX polymer in 2003 to 7,000 tons per year. This move is in line with the company’s long-term strategy to de-commoditize the Japanese polyolefin industry. For more information, please refer to “Global Polyolefins & Elastomers – Strategic News Analysis” – Volume 1 – Issue 18.
Graham Packaging to acquire plastic container business unit of Owens-Illinois for $1.2 billion
Graham Packaging Company has signed an agreement to acquire the Plastic Container business unit of Owens-Illinois, Inc., of Toledo, Ohio, for approximately $1.2 billion. Closing of the transaction is subject to regulatory approval and other customary conditions.
The purchase positions Graham Packaging to become a leading producer of value-added blow-molded plastic packaging in North America—an estimated $1.8 billion in sales in North America and a global total of $2.2 billion, based on combined company figures.
Graham Packaging will grow from 4,000 employees to a total of more than 9,000 employees and will add 31 plants to its current complement of 57 plants throughout North America, Europe, and South America. Of the 31 new plants, 24 are located in the United States, two are in Mexico, three are in Europe, and two are in South America. Graham Packaging will keep its headquarters in York, Pennsylvania.
The Blackstone Group is the majority owner of Graham Packaging. According to the company, this opportunity puts Graham Packaging in a position to better meet the needs of its global customer base. Donald C. Graham, Graham Packaging’s founder, who sold controlling interest to the Blackstone Group in February 1998, will maintain his 15 percent ownership stake in the combined company after the completion of the transaction.
Comments: Graham Packaging headquartered in York, Pennsylvania is a supplier of blow-molded plastic containers primarily in the following three application sector which includes: (1) food & beverage, (2) household & personal Care, and (3) automotive lubricants.
The major resins used for blow molding include (1) HDPE, (2) PET, (3) PP, and (4) LDPE. An estimated 9,900 million pounds of resins are consumed in North America for blow molding of which HDPE accounts for 55% and PET accounts for 40% of the overall North American demand. The various containers that are blow molded include food packaging (milk & water containers), household chemicals (laundry detergents, dishwasher bottles, and others), cosmetics, pails & drums, motor oil bottles, fuel containers, and others.
Milk and water containers account for the majority of consumption of HDPE resins. HDPE competes with PET resins in the water container markets. PET is the preferred material in bottled water markets because of its superior clarity. The other major application for HDPE is household containers. Recycled HDPE is also preferred in these applications. In the food container market, PP is used in various plastic bottles including syrup, ketchup, and others. PP provides batter barrier properties, aroma resistance, light resistance, and thermal stability. PP competes mainly with PET and PE resins in these applications. In household/consumer markets, PP-based blow-molded containers are used in packaging household chemicals like detergents, glass cleaners, fabric softeners, bleach stain removers, toilet cleaners, and others. PP offers improved clarity, barrier properties, and higher stiffness.
Owens-Illinois is the largest manufacturer of glass containers in the world, with leading positions in Europe, North America, Asia Pacific, and South America. Owens-Illinois is also a major manufacturer of healthcare packaging including prescription containers and medical devices, and closures including tamper-evident caps and dispensing systems. Owens-Illinois had previously announced its intention of expanding into the glass container segment by the acquisition of BSN Glasspack, S.A., adding 18 glass container manufacturing plants and nearly doubling the Company’s European presence. The sale of its plastic blow molding operations indicates Owens-Illinois’ strategy to divest its plastics operations and focus its long-term strategies on glass containers.
UCB sells its films business for EUR 320 million
UCB announced the signing of an agreement to sell its films business for a total amount of EUR 320 million in cash to a consortium led by Dennis Matthewman and Candover Partners Ltd. Denis Matthewman, the former Managing Director of Hays Chemical Distribution, will chair the new company.
The deal is expected to close in early September. The film business is part of UCB’s Surface Specialties and generated a turnover in 2003 of EUR362 million. Its production facilities are located in the UK (Wigton and Bridgwater), in the United States (Tecumseh), in Australia (Melbourne), and Belgium(Merelbeke), with commercial operations worldwide.
It is a leading producer of cellulose and biaxially oriented polypropylene films, UCB says. The acquisition also includes UCB’s 50% stake in Securency (Craigieburn, Australia), which produces high-security substrates for polymer banknotes and substrates for government security documents. The Reserve Bank of Australia (Sydney), Australia’s central bank, holds the other 50%.
Comments: UCB is one of the leading producers of BOPP films in Western Europe. The company has a total capacity of 90 KT of BOPP films. Their BOPP specialty films are manufactured in Great Britain, Belgium, and Australia under the trade name Propafilm. The company uses bubble extrusion technology to manufacture BOPP films. The company mainly supplies BOPP films to the packaging and label markets and is the second largest supplier of BOPP films for the tobacco packaging market.
The total demand for BOPP films in Western Europe was about 800 KT in 2003. The demand is expected to grow at about 5% per annum for the next five years. Chemical Market Resources, Inc has published a multiclient study on “Global Polypropylene Films”. For more information, kindly contact us at 281-333-3313.
Tredegar Corp. acquires film manufacturer in China
Tredegar Film Products Corporation announced that it has purchased Shanghai Yaheng Perforated Film Material Co., Ltd., a manufacturer of apertured nonwovens used primarily in personal care markets. Yaheng is based in Shanghai, China, and has 40 employees.
According to the company, the acquisition of Yaheng expands its technology base and product line in apertured nonwovens for feminine hygiene products and other potential applications in personal and household care markets. Yaheng is Tredegar’s third manufacturing site in China. The company has another plant in Shanghai and one in Guangzhou.
Tredegar Film Products is a major supplier of apertured and elastic materials for use in personal care markets. Primary applications include diapers and feminine hygiene products. It also produces films for a variety of packaging and specialty markets. The subsidiary had sales of $366 million in 2003 and employs approximately 1,300 people at its production facilities in the US, South America, Europe, and China.
Comments: Tredegar Films has identified China as the key location for the manufacture of films to take advantage of the growing demand in the region. The acquisition of Yehang Perforated Materials is its third site in China since 2002.
In 2001, Tredegar opened a blown polyethylene hygienic films plant in Shanghai, China, for personal-care products firms in Asia. In 2003 the company announced its plan to construct another film plant in Guangzhou, China by the end of 2004. The new facility will make polyethylene film for personal-care products, including sanitary napkins and diapers. The acquisition of Yehang will also strengthen Tredegar’s position in nonwoven markets. Tredegar had closed facilities in North America that produced cast film for diapers which were losing market share to nonwoven laminates.
Applied Extrusion Technologies to enter Chapter 11 in agreement with bondholders
Applied Extrusion Technologies Inc. announced that it has entered into an agreement that will send it into Chapter 11 reorganization, but allow it to emerge quickly as a private company controlled by its senior lenders.
The company had missed a bond payment on July 1 and had a 30-day grace period to respond. On July 30, AET announced it had an agreement in principle with six bondholders representing 70 percent of its senior notes.
The plan would send AET into a pre-packaged Chapter 11 in which the company and the bondholders would exchange notes carrying a 10.75 percent rate for all of the common equity in a reorganized company. AET will cancel its existing publicly held stock with shareholders receiving a portion of $2.5 million in cash. Trade creditors will be paid in full. AET officials expect the company to be in Chapter 11 for less than 60 days before re-emergence as a private entity.
Comments: Film producer Applied Extrusion Technologies, Inc (AET) has been undergoing restructuring over the last few years. The company was shuffling between decisions on whether to sell the company or restructure under existing ownership and then it decided to restructure under existing ownership. In 2002, the company eliminated about 50 positions and also closed its headquarters in Peabody, MA. The company had also made a strategic decision to focus more on upcoming “platinum products,” shifting more employees and capital resources to new technology and away from lower-margin, traditional OPP film products.
AET is the second-largest producer of BOPP films in North America. The company has about 23% of the North American market share. AET’s decision to be in Chapter 11 for about 60 days before re-emergence might solve the organizational problems the company has been facing over the last few years.
Zeon Chemicals commercializes a new grade of thermoplastic vulcanizate
Zeon Chemicals commercialized a new grade of Zeotherm thermoplastic vulcanizate, Zeotherm® 100-70B.
Zeotherm 100-70B provides the heat and oil resistance the automotive and industrial markets have come to expect from Zeotherm TPVs – continuous (3000 hours) resistance to 150°C with spike temperature resistance to 175°C. And, like the other Zeotherm 100-series grades, it provides superior over-mold adhesion to polyamides (nylons) and polyesters.
The lower durometer of Zeotherm 100-70B makes it ideally suited for sealing and grip applications where a softer touch and more “rubbery” flexibility are advantageous. Applications include dynamic/rotational seals and electrical connectors plus nylon over-molded parts such as air intake ducts and power tool grips.
With the addition of Zeotherm 100-70B to its portfolio, Zeon Chemicals offers Zeotherm TPVs in three durometers – 70s ShA, 80s ShA, and 90s ShA. All three grades are based on polyacrylate (ACM) rubber dispersed in a polyamide (nylon) matrix.
Comments: Thermoplastic vulcanizates (TPV) were first commercialized by Monsanto in 1981 under the trade name Santoprene®. TPVs are essentially thermoplastic olefins (TPOs) where the elastomeric/rubber phase has been crosslinked. TPVs are better positioned to compete with thermoset rubbers on a cost-performance basis than non-crosslinked TPOs. Typically the property advantage TPVs exhibit include (1) high heat resistance (2) low-temperature properties, (3) UV Resistance (4) low compression set, (5) high flexural fatigue resistance, (6) oil resistance, and others.
In recent years the consumption of TPV with low shore A hardness has increased as consumers opt for soft touch applications in grips. TPV’s resistance to synthetic oils, lubricating fluids, and high temperatures will allow its use in automotive under-the-hood applications and industrial environments.
German firm, Albis Plastic GmbH starts TPV production in a license agreement with Alfagomma
Albis Plastic production and worldwide marketing of the TPV products known under the name ALFATER XL under an exclusive license agreement with Italian firm ALFAGOMMA S.p.A. For several years both companies have been working successfully together in the marketing of ALFATER XL as ALBIS has always been the exclusive distributor outside of Italy. The now concluded agreement lays down that the product ALFATER XL will no longer be produced by Alfagomma at their site in Italy, but by ALBIS at their site in Hamburg, Germany.
Furthermore, it is planned to consequently extend the product range. At this stage, ALBIS and Alfagomma are already working on developing new product types.
Comments: The European TPV market is growing at 3.2 % and will continue to do so for the next 5 years. The highest growth rate is in the automotive section growing at 4%. Another major use for TPV is in soft touch applications such as grips. In the Automotive market, TPV is increasingly being used in applications such as weather seals and other under-the-hood applications.
The main advantage the automotive industry has found with TPV is its recyclability, weight reduction, design flexibility, and overall systems cost-savings.
Chemical Market Resources, Inc recently published a Multiclient report on “Worldwide Flexible Polymers – 2003-2008” which covers an in-depth chapter on TPVs. For more information, kindly call us at 281-333-3313.
Nycoa to launch new grades of nylon alloys & increase capacity
Nylon Corp. of America (Nycoa) announced that is commercializing new grades of nylon copolymer alloys while working to increase its production capacity by 10% by the end of 2004. The company will increase its nylon 6 capacity by 10% from the current 30 million pounds.
According to the company, the new alloys have very low flex modulus without the use of plasticizers. Markets for the alloys include athletic shoe soles, windshield wiper tubing, brake cables, and laminated sheet used in skis and snowboards. Nycoa expects to launch one or two new grades of the alloys in early 2005. The materials first were commercialized in late 2003.
Comments: Nylon resins are typically classified as engineering thermoplastics. Like other engineering thermoplastics, nylons are noted for their outstanding properties, including high tensile strength; creep resistance; chemical and heat resistance. Nylons constitute a family of resins, the most important of which are nylon 6 and nylon 66. In the United States, nylon 66 is the major type of nylon resin produced because of DuPont’s major position in the production of nylon 66.
Since the mid-1980s, a number of nylon alloys have been developed. Nylon alloys can be characterized by differences in heat resistance, impact resistance, chemical resistance, moisture absorption, and ease of processing. A majority of these alloys have primarily been used in automotive applications. The most dominant of the alloys is nylon/PPE produced by GE Advanced Polymers. The other major alloys of nylon available include nylon/ABS, nylon/polyolefins, nylon/polycarbonates, and nylon/PET alloys. Nylon alloy usage in the automotive industry has been under threat mainly because the automotive industry prefers to use polypropylene-based materials because of recyclability issues.
Nylon Corporation of America, Inc. (NYCOA) was formerly known as Nyltech Group. Nyltech was a joint venture agreement between SNIA Acquisition Corp and Rhone-Poulenc S.A. In 1998 this JV was dissolved and Nyltech changed its name to NYCOA. NYCOA currently supplies custom nylon resins for applications that include (1) wire & cable, (2) packaging, (3) filaments, (4) sporting goods, (5) consumer products, (6) electronics, and (7) automotive applications.
Saudi International Petrochemical Company signs agreement with Eastman to license its acetyls technology
Saudi International Petrochemical Company (Sipchem) and Eastman Chemical Company jointly announced they have signed an interim agreement for Eastman to license its proprietary acetyl co-production technology to Sipchem. The licensing agreement is part of Sipchem’s plan to establish a world-scale acetyls complex in the Kingdom of Saudi Arabia through the expansion of its petrochemical complex in Al-Jubail Industrial City. The acetyl complex will focus on the production of acetic acid and vinyl acetate monomer (VAM) and is expected to start up in 2008.
Eastman’s acetyl co-production technology will allow for the production of acetic acid and acetic anhydride at a cumulative capacity of 460,000 MT/year. In addition to the technology license, Eastman will provide technical support and market all acetic anhydride produced from the facility. The majority of acetic acid produced will be used by Sipchem in the manufacture of VAM with technology secured from other sources.
Eastman currently operates acetyl co-production facilities at its Kingsport, Tennessee, facilities for internal use in a variety of derivatives and for merchant market sales. Sipchem has secured the commitment for long-term supplies of natural gas feedstock for the complex from Saudi Aramco. Methanol feedstock for the acetic acid plant will be sourced from Sipchem’s affiliate International Methanol Company (IMC) located at the same site.
Comments: Vinyl acetate monomer is mainly used in the production of homopolymer polyvinyl acetate and a variety of copolymers including ethylene-vinyl acetate (EVA). About 50% of the demand for VAM comes from polyvinyl acetate production, and EVA accounts for about 10% of VAM demand. EVA is used in several applications including (1) hot melt adhesives, (2) textiles, (3) coatings, and others.
Over the last few years, Eastman has adopted a strategy to focus on three core businesses including (1) polyesters, (2) oxo-chemicals, and (3) acetyls. Eastman’s agreement with Sipchem is a significant achievement in line with Eastman’s strategy to focus on acetyls being one of its core businesses.
Goodyear shelves its plan to sell its chemicals business
Goodyear announced that it has scrapped plans to sell its $1.2-billion/year chemical unit, saying “that the business remains more valuable to the company and its stakeholders if retained than if sold.”
According to the company, the cash flows and cost advantages Goodyear derives from the chemical business, as well as its positive contributions to the tire business, outweigh the benefits of a potential sale.
The chemical business has headquarters, R&D facilities, and a pilot plant at Akron, OH, and manufacturing units at Niagara Falls, NY; and Beaumont, Bayport, and Houston, TX. Its largest business is synthetic rubber; the unit also makes adhesive resins, antioxidants, and latex, and employs more than 1,400.
Crude oil prices are continuously on the rise
Crude oil prices soared briefly to new heights on worries of a possible shortfall in crude supplies. Prices have been increasing constantly despite assurances from OPEC that it is prepared to raise daily oil output by more than one million barrels. US light crude for September delivery on Thursday was at $44.41 a barrel on the New York Mercantile Exchange.
A fire at a Texas refinery and Russia’s decision to revoke permission for beleaguered oil company Yukos to use previously frozen bank accounts to keep itself afloat have added to anxiety in energy markets. However, concerns about Yukos eased somewhat after a Moscow court ruled late Friday that bailiffs’ seizure of one of the company’s key subsidiaries was illegal.
Comments: Who knows where crude oil prices are going to end up? One surprising thing is that even with over $40.00/bbl prices, demand is still holding up and central economies are not damaged. Some people think that the real bogey to the problem is supply uncertainty due primarily to crude oil brinksmanship surrounding the Russia/Yukos situation and that by about the end of the year, this risk premium will be abated and crude oil prices will settle again into the high $30.00s/bbl range. This may hold true or maybe not. With demand up and global supply on the edge of balance, there are just too many other hot spots that could erupt and cause disruptions. This is the probability. Solving the Russian situation will not make the problem go away. Even today with OPEC promising 1.5mm BPD more crude production, crude prices are still setting records.
For chemicals, this all means that significant portions of world naphtha-based ethylene capacity will push ethylene to continued lofty levels approaching $.40/lb in some regions, particularly Asia and Europe. The BTX floor will remain high due to refining strains. No one knows how this is all going to shake out but one thing seems certain, our industry and the population should “Get Used to Higher Oil Prices”.
NOVA Chemicals to sell Alberta ethylene pipeline
NOVA Chemicals announced that Taylor NGL Limited Partnership will purchase an existing Alberta ethylene pipeline and a proposed pipeline that NOVA Chemicals will operate to transport Natural Gas Liquids (NGLs) from Fort Saskatchewan, Alberta, to NOVA Chemicals’ Joffre, Alberta, petrochemical facilities. The net cash proceeds are expected to total $25 million Cdn. ($19 million U.S.) for NOVA Chemicals during the third quarter of 2004.
Taylor will pay $25 million Cdn. for the existing Alberta ethylene pipeline, the Ethylene Delivery System (EDS), which runs from Joffre to various ethylene consuming and storage points in Alberta. The proposed Joffre Feedstock Pipeline will be built primarily along an existing NOVA Chemicals pipeline right-of-way. The total value of the asset sale and the construction project is expected to be approximately $80 million Cdn. ($60 million U.S.). The Joffre Feedstock Pipeline will provide the company’s Joffre facility with propane and other NGLs that will be used as feedstocks in the manufacture of ethylene.
Comments: This transaction both (1) monetizes an existing asset in the Alberta ethylene pipeline and (2) provides for construction funding of a new pipeline to deliver NGL feedstocks to NOVA’s Joffre ethylene complex. Partnered in the venture is Taylor NGL Limited Partnership which will construct the new feedstock pipeline and is the capital holder/owner of the existing ethylene pipeline.
This transaction is essentially a captive leaseback of the pipelines that allows NOVA access to the infrastructure but frees the company from the capital expenditure. A $25mm Cdn and avoiding a capital expenditure of $55mm Cdn should have a positive material impact on NOVA’s quarterly earnings which are just beginning to expand along with the current business cycle.
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