BP to sell over 50% of petrochemicals business and prepares for IPO
BP announced that it plans to consolidate the Olefins and Derivatives (O&D) division of its petrochemicals business into a stand-alone entity able to operate separately from the BP Group.
The new O&D business will incorporate more than half of the $13 billion of operating capital employed in BP’s petrochemicals portfolio, giving it the scale to be a major independent player in the global petrochemicals sector.
It will be headed by Ralph Alexander, who was today named as chief executive of BP’s petrochemicals business with effect from July 1, 2004.
BP said it plans to sell O&D in due course, possibly through an Initial Public Offering, depending on market circumstances and necessary approvals, in the second half of 2005.
The Group intends to retain the balance of its petrochemicals portfolio, comprising the aromatics and acetyls businesses. BP views these as “advantaged products” where BP has leading proprietary technology and strong positions in growing Asian markets.
According to the company, future investment would focus more on paraxylene, PTA, and acetic acid, and less on olefins and derivatives which form the bulk of BP’s petrochemical operations in Europe.
Comments: The core products of BP’s petrochemicals division include: (1) purified terephthalic acid, (2) paraxylene, (3) ethylene, (4) high-density polyethylene (HDPE), (5) polypropylene (PP), (6) acrylonitrile, and (7) acetic acid. The company’s Olefins and Derivatives (O&D) division consists of Ethylene, HDPE, and PP.
BP entered the polypropylene business through the $48 billion merger of British Petroleum Co. plc and Amoco Corp. Before the merger, BP’s only polypropylene presence was in Europe through the joint venture with Elf Atochem. BP’s merger with Amoco placed BP as a significant player in the PP industry.
BP formed a polyethylene joint venture with Solvay in 2001. In Europe, the two companies have combined their high-density polyethylene businesses into a 50-50 joint venture (BP Solvay Polyethylene Europe). In the United States, Solvay has contributed its HDPE assets to a separate JV, of which Solvay holds 51% and BP the remaining 49% (BP Solvay Polyethylene North America). The joint venture has a total HDPE capacity of 2,150 KT (4.6 billion pounds per year) at 6 manufacturing plants in North America and Europe. These include (1) Lillo, Belgium (170 KT), (2) Sarralbe, France (170 KT), (3) Rosignano, Italy (190 KT), (4) Grangemouth, Scotland (475 KT), (5) Lavera, France (265 KT), and (6) Deer Park, TX (880 KT).
BP’s strategy to consolidate the olefins and derivatives division into a standalone unit is similar to that strategy executed by Arco, Lyondell, Texaco, Chevron Phillips, DSM, and ENI prior to the sale or intended sale of their respective businesses. The new O&D business would employ approximately 7,500 people, mostly concentrated in North America and Europe. Major sites include Grangemouth in Scotland, Lavera in France, Köln and Gelsenkirchen in Germany, Lima, Chocolate Bayou, and Green Lake in the US, and the SECCO joint venture in China. Once the transitions take place, the business will have to learn to operate successfully without the oil parentage in a business environment that is proving to be increasingly more difficult.
The proposed reorganization should not impact the day-to-day operations of BP on a short-term basis.
Arak Petrochemical Company and Basell sign contracts for the expansion project
Arak Petrochemical Company (APC) of Iran and Basell have signed two expansion and technology license agreements to increase the capacity of two existing APC polyolefin plants that use Basell manufacturing process technologies. APC, an affiliate of the National Petrochemical Company of Iran, was the first company in Iran to license Basell technologies.
The capacity of the APC polypropylene plant that uses Basell’s Spheripol process will be increased by 50% and its product portfolio will also be expanded to cover additional market needs, according to APC. The expansion will be carried out in collaboration with Tecnimont S.p.A. of Italy and Tecnimont’s Iranian partner, Nargan Engineering.
The capacity of the APC polyethylene plant that uses Basell’s Hostalen process will be increased by 40%, according to APC. German engineering contractor Uhde will do the basic design, with implementation to be carried out by Uhde’s local partner, Sazeh.
Comments: Iran holds a lot of potential for polyolefins due to lower feedstock availability, and proximity to emerging demand centers. European and Japanese technology providers are in an advantaged position to offer licenses and leverage the lower feedstocks position, due to government regulations that restrict North American companies from participating in this growing economy.
Dow Chemical to cut 3,000 more jobs in 2004
Continuing its long-term cost reduction program, Dow Chemical Company announced on April 29th it would further cut 3,000 jobs Globally this year.
The announcement followed the company’s 2004 first quarter profit which was six times that of last year.
Dow Chemical Company plans to reduce the workforce through business re-organizations, attrition, shutdowns, and divestitures.
Comments: The announcements follow almost an equal number of jobs reduced in 2003 and over 300 jobs reduced in the first quarter of 2004. Per Dow spokesperson, most of the reductions so far have been in management positions. Further reductions are expected to impact further down the organization.
We empathize with people impacted by the restructuring and this necessary evil will come to pass so the industry can look forward to future direction.
ExxonMobil Chemical develops new polyethylene resin for wire and cable medium-voltage insulation
ExxonMobil Chemical has expanded its polyethylene grade slate by introducing a new, low-density product for medium voltage wire and cable applications. Available globally, LD 100MED has been specially formulated to meet neat resin requirements. This additive-free product offers a cost-competitive solution for MV peroxide cross-linked insulation compounds. Its performance has been demonstrated in long-term cable tests.
According to the company, the total absence of additives in LD 100MED results in cleaner performance characteristics compared to additive grades.
Although LD 100MED can be used directly for medium voltage wire and cable applications, some filtration is recommended during in-house compounding for high voltage end-uses. In addition, due to the availability of modern dosing systems, cable manufacturers are positioned to tailor their additive package of cross-linking agents and antioxidants. Such flexibility during in-house processing helps cable manufacturers control the long-term cable performance and cost trade-off.
Comments: The major materials used in wire and cable applications include PVC, LDPE/XLPE, LLDPE, HDPE, TPOs, and EP(D)M. PVC is the most widely used material for both jacketing and insulation applications. LDPE and LLDPE are used in both jacketing and insulation applications while HDPE and EP(D)M are only used in insulation applications. Uncrosslinked LDPE accounted for 12% of the total North American demand and is used for insulation and jacketing for a variety of wire and cable products.
Major market categories include electronics, telecommunications, power transmission lines, and low-voltage wire for industrial and commercial instrumentation and durable equipment. Crosslinked LDPE (XLPE) accounted for 26% of the total demand and is largely used for wiring distribution for office buildings and factories. Insulation in medium to high-voltage applications is used for urban underground power distribution and transmission. Increase voltage ratings require materials to be cleaner to prevent the initiation of water treeing and other mechanical failures.
Dow reports substantial earnings improvement for the first quarter of 2004
The Dow Chemical Company reported sales of $9.3 billion for the first quarter of 2004, up 15% from the first quarter of 2003 sales of $8.1 billion and a new quarterly record, reflecting an 8 percent increase in price and a 7 percent increase in volume.
Volume increased 7 percent and prices increased 8 percent, more than offsetting a nearly $100 million increase in feedstock and energy costs above the very high levels of a year ago. Volume growth was particularly strong in Asia Pacific and Latin America.
In the Performance Plastics segment, sales increased by 17 percent with strong volume in several end-use applications and across all businesses, with the largest growth in Polyurethanes and Epoxy Products & Intermediates. Dow Automotive sales grew substantially more than the industry through an increased position at key accounts, particularly with customers in Europe.
In the Plastics segment, sales increased by 13 percent, and some margin restoration was achieved through effective price/volume management. Polyethylene recorded a double-digit increase in sales due to improved prices and sustained demand around the world. Dow customers who convert polyethylene into a stretch film for packaging reported improving business conditions.
Performance Chemicals sales increased 15 percent with higher volume and prices. Dow Latex posted a double-digit increase in sales, compared with a year ago, due to improved paper industry demand from advertising, magazines, and packaging. Specialty Polymers volume was up 7 percent, compared with a year ago, reflecting increased demand for FilmTec reverse osmosis membrane elements, Methocel cellulose ethers, and specialty chemicals of ANGUS Chemical Company.
In the Chemicals segment, sales rose 22 percent compared with the same quarter of last year. Ethylene glycol volume increased by more than 25 percent compared with a year ago, due primarily to increased demand for polyester fiber in Asia Pacific. Vinyl chloride monomer profitability improved as industry operating rates increased.
Comments: DSM Dyneema is the world’s largest producer of high-performance polyethylene fiber, marketed under the trade name Dyneema®, producing about 3,900 MT/year of fiber and 2000 MT/year of UD, depending on the product mix, in Heerlen (the Netherlands) and Greenville, North Carolina. Polyethylene fibers made from film fibers or monofilaments compete with polypropylene in cordage and twine, in bags and bagging, and in tarps and tentage applications. Polyethylene spun-bonded is used in paper replacement applications and, because of its poor dyeability and waxy hand, generally does not compete in the same markets as polypropylene spun-bonded monofilament fibers.
The physical properties of polypropylene and polyethylene, especially tensile strength, abrasion resistance, and inertness to most chemicals, including water, make them well-suited for functional applications. The major producers of PE fibers include (1) The American Group (Lafayette, LA), (2) Barbour Threads (Anniston, AL), (3) FiberVisions (Oxford, GA), (4) KoSa (Spartanburg, SC), (5) Nexcel Synthetics (Trussville, AL), (6) Polymer Group, and others.
ExxonMobil reports earnings for the first quarter of 2004
ExxonMobil Corporation reported a net income of $5,440 million for the first quarter of 2004, a $1,600 million decrease from the first quarter of 2003 income.
Chemicals earnings of $564 million were up $227 million from the same quarter a year ago due to stronger worldwide margins and favorable foreign exchange effects. Downstream earnings of $1,004 million were the highest first quarter since 1991 and increased $281 million from the first quarter of 2003, reflecting improved worldwide refining margins partly offset by weaker marketing conditions.
Nova Chemical reports positive earnings after three years of losses
Nova Chemicals Corp. reported net income to common shareholders of $7 million ($0.08 per share diluted) for the first quarter of 2004. This quarter is the first positive quarter after three years of losses and compares to a net loss to common shareholders of $15 million ($0.18 per share loss diluted) in the fourth quarter of 2003.
The Olefins/Polyolefins business reported a net income of $34 million in the first quarter, $11 million higher than the fourth quarter net income of $23 million, due mainly to strong co-product contributions. Prices for ethylene and polyethylene largely kept pace with rising feedstock costs. Sales volumes decreased slightly from record-setting fourth-quarter levels.
The Styrenics business reported a net loss of $22 million in the first quarter, a $9 million improvement over the fourth quarter net loss of $31 million. Prices increased overall, keeping pace with the flow-through of rising feedstock costs.
Comments: The improving economic conditions and pricing power are slowly helping the polyolefins companies maintain margins and realize profits. After 12 successive quarters of losses, Nova Chemicals has started showing positive earnings. The styrencis segment for Nova Chemicals is still losing money but the overall profits were positive due to the better performance of the olefins/polyolefins business. The styrenics business even though at a loss showed some improvement and the overall losses were lower. In both cases, increasing prices have been one of the key factors contributing to the improvement.
Equistar offers new polypropylene tie-layer resins with novel technology
Equistar Chemicals, LP has developed a new series of Plexar® Tie Layer Resins that offer numerous processing and performance advantages in high barrier co-extrusion for blow molding, blown film, and sheet-thermoforming applications.
Designated Plexar 6000 Series, the new products include Plexar PX 6002 and PX 6006. These new polypropylene resins extend the company’s extensive tie-layer resin offering and are now available in commercial quantities.
Based on Equistar’s proprietary technology, these novel tie-resins provide outstanding adhesion to ethylene-vinyl alcohol (EVOH), polyamide (nylon), and homo- and co-polymer polypropylene, while providing excellent heat resistance and high clarity.
The new Plexar® resins offer excellent processability, which results in even layer distribution and increased line speeds. Additionally, their outstanding adhesion, barrier properties, and structural integrity are maintained after down-gauging. All offer superb compatibility in the regrind layer and meet FDA requirements for adhesives.
Plexar PX 6002 is intended for blow-molding and film applications. This high molecular weight resin offers broad applicability and is expected to be the workhorse of the new series.
Plexar PX 6006 is a high-performance resin designed for demanding sheet, thermoforming, and blow molding applications, including deep-forming (straight wall) containers, and retort/autoclave processing.
Comments: Polypropylene-modified tie layer resins are most commonly used in rigid packaging applications. PP-based tie layer resins are anhydride-modified PP made by grafting modified maleic anhydride on a PP backbone in an extruder. PP-modified tie layer resins are further compounded with primary and secondary antioxidants such as hindered phenols and phosphates. PP-based tie layer resins adhere well to PP, EVOH, and nylon.
Equistar is the second largest (DuPont is the largest) supplier of tie layer resins in North America. The company markets its tie layer resins under the trade name Plexar. Equistar offers six types of Plexar tie layer resins based on the following backbone polymer: (1) EVA, (2) LDPE, (3) LLDPE, (4) MDPE, (5) HDPE, and (6) PP. The new resins developed by Equsitar expand its existing portfolio of tie layer reins allowing it to compete more effectively in blow-molding and film applications. The major applications for PP-based tie-layer resins include multilayer bottles, barrier sheets, and squeeze tubes.
Basell launches Alastian, its new no-frills online business
Alastian, a new no-frills online business from Basell, is available to customers in Europe. The web-based business channel will offer a selected range of polypropylene and polyethylene grades at attractive prices and trimmed-down service levels.
Alastian has been designed for experienced polyolefins customers who order in full truck-load quantities, are very familiar with the polyolefin products they use, and rarely need technical advice from their resin supplier. In addition to the no-frills benefits, speed, and convenience are among the key elements of Alsatian. Customers can place orders 24 hours a day and seven days a week in a user-friendly environment.
Alastian will operate in parallel to Basell’s traditional polyolefins business, which will continue to offer a wide range of products and services.
Comments: In 2002, Dow Corning was the first chemical company to sell silicones via the Internet through its Xiameter service. GE Polymerland is an online service for buying engineering resins established by GE in 1988. Polymer was formed to offer engineering resins, commodities, custom compounds, and colorants from the industry’s leading manufacturers through a network of distribution centers and supporting warehouses, strategically located to serve customers around the country. Basell is using the online business model to sell its polyolefin products.
Czech government approves sale of Unipetrol to Polish petrochemical PKN Orlen
The Czech Cabinet approved the sale of the Czech petrochemical holding Unipetrol to Poland’s petrochemical giant PKN Orlen. PKN Orlen was the only company of the three short-listed in the second round of the tender to submit a binding bid for the 62.99 % state-owned stake in Unipetrol.
PKN Orlen offered CZK 11.05 billion for the Unipetrol shares held by the FNM, CZK 1 billion for Spolana shares, and CZK 1 billion for claims against the company held by the Czech consolidation agency (CKA). The government’s adviser on the sale recommended Cabinet accept the PKN bid, saying it met all formal conditions of a transparent, clear, and competitive privatization process.
The commission says PKN Orlen is a strong, strategic, and financially stable investment that will contribute to the future development of the Czech chemical and petrochemical industry.
Two other bidders shortlisted for the Unipetrol stake in January – the British/Dutch concern Royal Dutch/Shell and Hungary’s MOL — pulled out before submitting final bids.
PKN Orlen made its bid independently, without official partners; however, in January it signed a preliminary agreement with the US giant ConocoPhillips. In November 2003, PKN Orlen signed an agreement on cooperation with the Czech company Agrofert, which won the previous tender for Unipetrol, which fell through when the winner failed to pay the EUR 361 million price in September 2002.
Comments: Unipetrol is a holding company that was created as a government vehicle to integrate and subsequently privatize the Czech petrochemical industry. The privatization of Unipetrol kicked off again on 6 November 2003. The National Property Fund (NPF) offered its 62.99% stake in Unipetrol, along with its 6.9% stake in Spolana and receivables of the Czech Consolidation Agency (the Czech Republic’s ‘bad’ bank) against Aliachem and Benzina.
The different operational subsidiaries of Unipetrol include (1) Ceska Rafinerska, (2) Paramo, (3) Benzina, (4) Chemopetrol, (5) Kaucuk, and (6) Spolana. Ceska Rafinerska (CRAF) is Unipetrol’s biggest subsidiary in terms of revenue and is also important for its strong links to other subsidiaries. CRAF is the key supplier of motor fuels to Benzina, C4 fractions to Chemopetrol, and heavy fuel oils to Kaucuk, which are used in its electricity-generating plant. Paramo operates a small refinery with an annual capacity of 800,000 MT of crude per year. Its production is focused on heavier fractions, such as lubricants and asphalts. Benzina is the largest operator of petrol stations in the Czech Republic, with a 15% share in terms of number of stations.
Chemopetrol’s core business is the production of petrochemicals. Its ethylene cracker unit, with a capacity of 485,000tpa, is the biggest in Central Europe. The company is a producer of high-density polyethylene and polypropylene. Chemopetrol also produces materials, which are used for the production of fertilizers, such as urea and ammonia.
Kaucuk, which originally concentrated on the production of synthetic rubbers, is shifting its focus to plastics. It is the only producer of polystyrene, ABS polymer in the Czech Republic and these products represent 39% of physical volumes and 47% of revenues of Kaucuk.
Spolana is a plastics producer that was acquired by Unipetrol in late 2001. Unipetrol owns 82% of the company and 9.8% is owned by the Czech Consolidation Agency. Most of its production is based on ethylene, which is supplied by Chemopetrol via a special ethylene pipeline connecting the two companies. PVC-based plastics are Spolana’s key product.
Tosoh plans investments in China resulting in the largest VCM player in Asia
Tosoh Corporation announced its plans to invest in integrated chlor-alkali operations that will span facilities in Japan and Asia. The combined total investment of JPY 47 billion (USD 432 million) will make Tosoh the top manufacturer in Asia for vinyl chloride monomer (VCM) and allow the company to benefit from the strong growing demand in China.
As part of the integration plans, Tosoh has decided to establish a PVC joint venture in China (Guangzhou, Guandong Province), for JPY 4 billion (USD 37 million). The completely Japanese-owned company, Tosoh (Guangzhou) Chemical Industries, Inc., will be the first of its kind in China. The plant is slated for completion in mid-2006 and will have a capacity of 110,000 MT/year.
Tosoh is also considering capacity expansion for its subsidiaries, more specifically the PVC manufacturer, Philippine Resins Industries, Inc. As Tosoh plans to supply the VCM with the new capacity from Japan, the company is also increasing that capacity. Investment of JPY 15 billion (USD 138 million) in a new VCM plant in Yamaguchi Prefecture Japan will add an initial capacity of 400,000 metric tons and another 200,000 is being considered. With this added capacity, Tosoh’s annual output will increase to 1.47 million tons in 2005 and to approximately 1.7 million tons in 2006.
Comments: With this new investment, Tosoh will have an annual production capacity of 1.67 million tons of vinyl chloride monomer, exceeding that of Formosa Plastics Corp of Taiwan Province and making it the largest producer in Asia. Tosoh’s decision to enter China in a PVC joint venture with Mitsubishi (Guangzhou, Guandong Province), will ease the PVC short supply that China faces today. China consumed over 6.7 million tons of PVC in 2003 and the demand is growing at 15 % annually. With the production of PVC not being able to meet the demand, China depends heavily on imports, importing close to 3.4 million tons of PVC in 2003. Domestic production can only meet about 50%–60% of the market demand.
Tosoh’s PVC resins production sites in Japan include the PVC paste production facility at the Nanyo Complex (annual capacity-28,000 tons); Taiyo Vinyl Corporation, a Tosoh subsidiary and Japan’s largest supplier of PVC (610,000 tons); and Tokuyama Sekisui Co., Ltd. (110,000 tons), a joint venture between Tosoh and Sekisui Chemical Co., Ltd. Overseas facilities, aside from PRII, include P.T. Standard Toyo Polymer (86,000 tons) and P.T. Satomo Indovyl Polymer (70,000 tons) in Indonesia. Following the increase in production capacity at PRII, the Tosoh Group’s total annual capacity for PVC resins will be 1.06 million tons.
Formosa PVC plant explosion under investigation
An explosion at Formosa Plastics Corp’s PVC plant in Illiopoilis, IL resulted in the death and injury of some workers. About 1000 people were evacuated from Illiopolis and the surrounding area. The cause of the blast is being investigated. Products manufactured at the site included specialty resins used in vinyl flooring, interior automotive parts, carpet backing, and traffic cones. While the specialty resins are made exclusively at the Illiopolis plant, some of the PVC paste resins can be made at the Delaware plant. Formosa has declared force Majeure on all specialty PVC resins produced at the Illiopolis plant.
The schedule for restarting the plant has not been decided. The damages are being assessed and the possibility of restarting production is being evaluated. A second production line at the facility, which was bought from Borden Chemicals and Plastics LP in April 2002 and has been idle ever since could be restarted according to the company’s spokesperson. Formosa plant is the largest employer employing 136 people in the town of Illiopolis with a population of 950.
Comments: Formosa Plastics Corporation was founded in 1954 and started its first PVC plant in 1957 with a capacity of 4 MT/day. Currently, Formosa Plastics has an annual production for PVC resins capacity of 2.39 million MT/year making it the largest manufacturer of PVC resins in the world.
Formosa Plastics Corp.’s US subsidiary produces nearly 1 million tons of PVC per year. Formosa’s has four manufacturing facilities (1) Delaware (dispersion PVC) (2) Formosa Plastics Corporation Illinois (specialty and commodity PVC) (3) Formosa Plastics Corporation, Louisiana (caustic soda, EDC, suspension PVC, and VCM) and (4) Formosa Plastics Corporation, Texas (caustic soda, EDC, suspension PVC, VCM, ethylene, HDPE, LLDPE, and PP).
Formosa operates two plants in Illiopolis, one being a solution process and the other being an emulsion process. The total capacity at Illiopolis is 320 million pounds. With this capacity becoming unavailable, the company’s US PVC manufacturing capacity will reduce to 2,500 million pounds.
Polymer Group Inc. introduces new technology to produce spunbond polyethylene fabrics for hygiene products
Polymer Group, Inc. (PGI) introduced spun-bond polyethylene-based Comfortlace(TM) fabrics, its highest-performing fabrics for feminine hygiene products that offer a customized appearance, greater absorbency, and superior comfort.
The engineered fabrics are made with PGI’s proprietary LACE (Laminar Air Controlled Embossing) technology, a new manufacturing process that adds a soft, three-dimensional imaged, or bulky surface layer to a reticulated film. This body contact layer directs liquids away from the skin and into the absorbent core.
Targeted for use in pantyliners, feminine napkins, diapers, adult incontinence, and other hygiene products, the new fabrics were introduced at the International Engineered Fabrics Conference and Expo (IDEA04).
Comments: PGI Nonwovens is headquartered in Dayton, NJ, and operates 21 manufacturing sites in 12 different countries. PGI is the fourth largest manufacturer of nonwoven fabrics. PGI’s core focus remains in four different areas which include (1) Industrial and specialty applications (30%), (2) Hygiene applications (36%), (3) Wipes (21%), and (4) Medical (13%).
PGI entered the Asian markets in 1999 through a joint venture with Nanhai Nanxin Nonwovens, Guangdong, China. PGI set up a Reifenhauser line in China for the manufacture of hygiene, medical, and agricultural end-use markets. Nonwovens are predicted to grow at 10% annually through the year 2008 in the Asian markets (excluding Japan). Hygiene and medicine are the largest growth sector in the Asian markets.
PGI currently offers a broad portfolio of hygiene as well as medical products and has been actively products that include top sheets, back sheets, sublayers and acquisition layers, elastomeric, ultralight, and ultrasoft nonwovens. PGI’s hygiene portfolio includes (1) baby wipes, (2) adult incontinence products, (3) feminine napkins, (4) baby diapers, (5) panty liners, (6) training pants, (7) tampons, and (8) adult wipes. PGI’s medical portfolio includes (1) Surgical Gowns, (2) Surgical Drapes, (3) Wound Care, (4) Head and Shoe Covers, and (5) Face Masks. PGI had announced in December 2003 that it plans to invest in a Reifenhauser spun melt line to be located in Shanghai, China.
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Lubrizol to acquire Noveon for $1.84 billion
The Lubrizol Corporation announced that it has signed a definitive agreement to purchase Noveon International, Inc. in a transaction valued at $1.84 billion. The acquisition, which has been approved by the boards of both companies, is subject to regulatory approval and is expected to close within three months.
The addition of Noveon, a privately held Cleveland-based specialty chemical company with $1.2 billion in revenues for the last 12 months, will create a combined company with approximately $3.2 billion in annualized revenues. It will complement Lubrizol’s existing businesses in fluid technologies and, in particular, it will expand the company’s application base within the personal care and specialty coatings markets. Noveon’s businesses include several high-growth, industry-leading product franchises marketed under well-recognized brand names. These global brands include Carbopol® acrylic thickeners for personal care, TempRite® chlorinated polyvinyl chloride resins and compounds, Estane® thermoplastic polyurethane, and Hycar® reactive liquid polymers for engineering adhesives and water-borne acrylic emulsions for performance coatings.
The transaction value includes a cash payment of approximately $920 million for equity and the assumption of net debt, which was approximately $920 million as of December 31, 2003. To fund the transaction, Lubrizol has secured a bridge financing facility from Citicorp North America, Inc., which it intends to refinance after the transaction closes.
Comments: Lubrizol is one of the leading suppliers of specialty additives for lubricating oils in the world. The company was founded in 1928 and is headquartered in Wickliffe, Ohio. Lubrizol owns and operates 37 manufacturing plants in 16 countries, has 53 sales and technical offices, and employs about 5,000 employees worldwide.
The company is broadly divided into the following divisions: (1) Fluid Technologies for Transportation (FTT), (2) Fluid Technologies for Industry (FTI), and (3) Other Segments. Fluid Technologies for Industry represents the majority of Lubrizol’s established businesses outside of transportation such as metalworking fluids, hydraulic fluids, and performance chemicals. Fluid Technologies for transportation can be further divided into (1) engine oil additives, (2) driveline oil additives, (3) fuel products, and (4) additive components. Other segments include products such as 2-acrylamido-2-methylpropane sulfonic acid monomer, specialty surfactants, and others. FTT accounts for about 80% of the total sales.
Lubrizol is one of the market leaders in the lubricant additives business. The company’s acquisition of Noveon will increase its non-lubricant additives portion of the business from about 25% to 50% of the total revenues. This is a very bold move on the company’s part and will significantly broaden its portfolio of non-lubricant additive-based products.
In addition to this, Noveon’s acquisition will change Lubrizol’s capital and investment profile. Noveon is a specialty chemicals company that was formerly a part of B. F. Goodrich. Specialty chemicals have a higher growth rate compared to lubricant additives markets. Along with Noveon, the company will have total sales of about $3.4 billion.
Albemarle to acquire Akzo Nobel’s catalysts business
Albemarle Corporation announced its plans to acquire Akzo Nobel’s catalyst business for 625 million euros in cash.
The acquisition is expected to close in the second quarter of 2004, and management anticipates it will be immediately cash accretive and accretive to earnings in 2005. The boards of directors of both Albemarle and Akzo Nobel have approved the agreement. Upon completion of the acquisition, Albemarle will be the world’s largest producer of hydroprocessing catalysts (HPC) and the second-largest producer of fluidized catalytic cracking (FCC) catalysts.
The strategic acquisition of the catalyst business had 2003 sales totaling approximately 350 million euros. The proposed acquisition will provide Albemarle with a leading position in the $2 billion refinery segment of the $10 billion catalyst industry.
Albemarle intends to operate the new business as a third segment, joining it with existing polymer chemical and fine chemical segments, moving its current catalysts products into the new division, and incorporating other polymer additives and flame retardants into a newly named Polymer Additives segment.
Comments: Akzo Nobel put its catalysts business for sale 10 months ago. Akzo Nobel’s catalyst business is predominately refinery or fuels oriented. These are such areas as catalytic cracking, hydrotreating, and isomerization; all areas where fuel quality and growth will continue to expand horizons. The group also is a leader in specialized chemical catalysts such as oxy chlorination and other related technologies which some believe may be the path to methane chemistry directly around syn-gas. The custom processing side of the catalyst business also has some reach into polyolefin custom catalyst areas which have better-than-average returns.
The drive to de-aromatize gasoline and de-olefinize gasoline and de-sulfurize all fuels makes this a growth arena. It is not without risks because the demands on the refiner are driven by the marketplace and regulatory concerns which can change direction at the moment. Albemarle’s lineage from the former Ethyl Corporation (which was also a pioneer in LAOs and PE Film) with roots in TEL made the transition away from that environmentally obscured base to new heights. They have demonstrated unusual nimbleness. Now it appears after the sale of their LAO business they see a strong future in fuels catalysts. We agree.
Quality standards will continue to put demand on refiners (and process catalysts) and incremental gasoline growth demand will not abate so there will be a continued drive to make more gasoline from each barrel of crude oil capacity. Here too, catalysis will play a major role. A move in this direction is a lineage-dedicated play for Albemarle and we should see more from this business platform in the soon-to-emerge significant new areas of fuel processing called GTL, Super Sized Methanol & MTO, and syngas-based hydrogen. Some other leaders in these areas are forecasting $0.5B to $1B/year in these new areas alone over the next decade and the upside could be more probable than the downside.
Acetex announces $1 billion expansion project in acetyls
Acetex Corporation announced that it has finalized definitive joint venture agreements with National Petrochemical Industrialization Company (TASNEE Petrochemicals) regarding the construction of world-class acetic acid, vinyl acetate monomer (VAM) and methanol projects to be established in Jubail, Saudi Arabia. Once completed, the project will extend Acetex’s global acetyls position as well as establish Acetex as the lowest-cost supplier of acetyls in the Far East market. The projects will benefit from the favorable natural gas supply as well as from Acetex’s proprietary integration technology for the co-production of acetic acid and methanol. It is anticipated that this technology will reduce investment by more than US $100 million as well as reduce operating costs.
The projects will be located at the petrochemical complex site of TASNEE Petrochemicals (an affiliate of National Industrialization Company) in Jubail Industrial City, Saudi Arabia, with an annual production capacity of approximately 500,000 MT/year of acetic acid, 275,000 Mt/year of VAM and 1.8 million MT/year of methanol. Acetex, in cooperation with TASNEE Petrochemicals, will be responsible for the marketing of the acetyls products and will integrate this new business with the existing acetyls business into one global marketing organization.
It is expected that production will begin in 2007. The investment in these projects is estimated at US $1 billion. Acetex will own 50% of the acetyls (acetic acid and VAM) company and 25% of the methanol company.
Comments: Acetex Corporation has two primary businesses – it’s European Acetyls Business and the Specialty Polymers and Films Business. The company’s acetyls business is Europe’s second-largest producer of acetic acid and polyvinyl alcohol and third-largest producer of vinyl acetate monomer. Specialty polymers developed and manufactured by Acetex are used in the manufacture of a variety of plastics products, including packaging and laminating products, auto parts, adhesives, and medical products. The film business focuses on products for the agricultural, horticultural, and construction industries.
Tasnee Petrochemicals was established by and is majority owned by National Industrialization Company (NIC) with the participation of a number of strategic partners including Gulf Investment Corporation (GIC), which is owned by the GCC countries with headquarters in Kuwait, Saudi Pharmaceutical & Medical Appliances Co. (SPIMACO), National Industries Group (NIG), Kuwait, and Al-Olayan Financing Co., Riyadh, Saudi Arabia. TASNEE Petrochemicals established its first plant in Jubail for the production of about 500,000 MT/year of propylene and polypropylene annually which is currently under start-up.
Tupperware to outsource 50% of its production
Tupperware Corp. announced its plans to outsource approximately 50 percent of its products, including core plastic products and non-core, non-plastic products over the next 5-6 years.
Tupperware has manufacturing plants in Belgium, Brazil, France, Greece, Japan, South Korea, Mexico, the Philippines, Portugal, South Africa, and the United States, and leases manufacturing and distribution facilities in China, India, and Venezuela. In the United States, that means shifting toward kitchen, tools, and gadgets. In China, where direct selling is illegal, Tupperware is opening hundreds of entrepreneurial storefronts. It currently has 986 stores in that country.
Comments: In the current economic conditions companies are looking to decrease their cost and improve margins. Coupled with this is the trend towards globalization that is moving both the customer base and manufacturing to different regions across the globe. The company had seen strong sales in Europe and Latin America. Tupperware’s sales in North American markets are still not fully recovered and hence the company is reducing its costs in North America. To continue increasing sales and profits, the company is using the strategy to reduce its manufacturing costs through outsourcing. Tupperware in an attempt to improve its profitability might use the advantages of both outsourcing and globalization through this move. The announcements regarding the locations of the company’s new manufacturing sites have not been made but, likely, the benefits of cheaper labor and equipment and therefore lower costs can be achieved via manufacturing in Asian countries such as India, China, Malaysia, Thailand, Taiwan, and others. With time other companies might make similar moves to realize gains by lowering manufacturing costs.
Visteon increasing operations in China
Visteon Corp. announced its plans to open a technical center in 2005. Visteon opened a plant making interior and exterior trim for “several automakers” through its joint venture with automaker Dongfeng Motor Corp. in Wuhan, China, in 2003.
By 2005, the firm will open a technical center in Shanghai. That facility will house 200 Visteonengineers plus support staff, as well as 400 engineers from YanFeng Visteon, the company’s joint venture with carmaker Shanghai Automotive Industry Corp. Through YanFeng Visteon, the company supplies General Motors Corp.’s growing Chinese base.
Comments: YanFeng Visteon, is a joint venture between Visteon and Shanghai Automotive Industry Corp. in Shanghai, China. YanFeng began supplying instrument panels for the Shanghai General Motors Corp. Ltd lineup of Buick Regal cars in early 2003. The popularity of this redesigned vehicle coupled with a growth market has doubled the requirements for instrument panels. The production of these instrument panels, developed by Visteon’s Saline, Michigan injection molding operations combines a hard plastic substrate, PVC skin, and polyurethane foam to make soft instrument panels.
Visteon has rapidly expanded its operations in the Asia-Pacific region in order to capture the high-growing auto industry in Asia. Visteon has seen its first-quarter sales in Asia jump by 20 percent in 2004 compared with the previous period in 2003. Most of Visteon’s revenues in Asia are being driven by plastics-intensive cockpits, automotive electronics, and climate control systems.
Dow Corning to Emerge from Bankruptcy
After nine years of litigation, Dow Corning Corp. is finally positioned to emerge from Chapter 11 bankruptcy on June 1, following the recent settlement of breast implant litigation for $3.2 billion.
In the implant case, US District Judge Denise Hood set June 1, as the effective settlement date, setting the stage for around 245,000 plaintiffs to partake in the $3.2 billion settlement. Dow Corning has already deposited around $1 billion toward the settlement, and the rest will be funded by cash on hand, insurance proceeds, and operating earnings.
At the end of 2003, Dow Corning had $462 million in cash and $973 million in short-term marketable securities. The company also had another $254 million in long-term marketable securities and anticipated implant insurance receivables of $434 million as well as $207 million in restricted insurance proceeds. All in all, Dow Corning had $2.33 billion in liquid assets, insurance proceeds, and expected insurance coverage at the end of 2003.
Claimants will have up to 15 years to submit their claims if they develop certain adverse effects from implants. Dow Chemical and Corning have agreed to provide $300 million in loans to Dow Corning to help finance payments if financing is unavailable. Dow Corning will also pay another $800 million plus interest to trade creditors as part of the reorganization plan.
Comments: Dow Corning, a 50-50 joint venture between Dow Chemical Company and Corning Inc., was forced into bankruptcy in 1995 from a tidal wave of lawsuits from tens of thousands of plaintiffs allegedly suffering from ill effects from silicone breast and other implants. After emerging from bankruptcy, Dow Corning’s ownership structure will remain intact.
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