Surfactants Monthly – January 2022
Back In Person
Like many others in our industry, I’ll be marking the end of the pandemic and the beginning of the endemic with a trip to Florida and the American Cleaning Institute Meeting. That may or may not be wishful thinking. Not the going to Florida part. That will have happened as of your reading this. The endemic part. That’s when you stop writing and talking about it except in the historical sense – like “hey do you remember that.. can you believe we were doing … such and such”. Let’s see. By the way, you’ll get no gossip or tittle-tattle from the ACI in this blog. Our motto is, as you know, that “you gotta be there”. So..
Another place you gotta be is our great ICIS / Neil A Burns LLC World Surfactant Conference, which is back in person in Jersey City, NJ May 9 – 11th. It’s 1.5 day conference and a 1 day optional course. Of course, we also have the great Surfactants Awards for which nominations are now open. After two years of, frankly, unsatisfying meetings over zoom and somewhat nervous get-togethers at various meetings, I am really looking forward to this singular event in the surfactants calendar. I will also add that we have a huge new sponsor that I really can’t say much more about until closer to the time, so that’s enough from me on that. I will say that you should book now. The usual Hyatt venue, although large, has a finite capacity and it looks like we will sell out very quickly. We’ll have some firm favorites speaking and some new and unexpected names. You’ll get information and insights that you just can’t get anywhere else – and the best networking you’ll experience in 2022. You gotta be there, so.. See you there!
End of commercial. Beginning of News
Credit for most of the news here goes again to our partners ICIS. Check them out. I’m a subscriber. Maybe you should be too.
A nice piece of news from Locus Performance Ingredients, (Locus PI), well known participants in our conferences. Dow and Locus have struck a deal in which Dow will sell the Locus sophorolipid biosurfactants in global home and personal care markets. The Dow deal sits within the company’s homecare solutions business. Locus PI is part of parent company, Locus Fermentation Solutions. Best of luck to both companies. Teaming up like this, makes a lot of sense.
More biosurfactants news from Evonik, another regular speaker at my conferences. This courtesy of C&E News: The specialty chemical maker Evonik Industries will spend what it describes as “a three-digit million-euro sum” to build a rhamnolipids plant at its site in Slovakia. Evonik says the plant will be the world’s first commercial-scale facility for the biosurfactant. Rhamnolipids, as readers know, are biodegradable surfactants made via fermentation and feature rhamnose sugar groups with fatty-acid tails. In addition to strong environmental bona fides, rhamnolipids are effective cleaners at lower concentrations than conventional surfactants while being gentler on skin and hair.
Evonik already has customers in mind for the new capacity. “Our initial focus is on applications in personal and home care based on foaming, sensory, and mildness benefits as well as a pressing need to improve the sustainability profile of surfactants in these markets,” the firm says. The investment builds on a partnership between Evonik and the consumer product giant Unilever [about which more at the end of the blog], which launched a dish soap using Evonik’s rhamnolipids in Chile in 2019. Unilever says rhamnolipids are an important part of its push to remove all fossil-derived ingredients from its cleaning products by 2030. Evonik also launched an industrial cleaning ingredient based on rhamnolipids in 2021.
Evonik makes its rhamnolipids by fermenting sugar using a genetically modified Pseudomonas putida bacteria. In February 2021, Stepan bought an idle 20,000 t plant in Louisiana where it plans to make rhamnolipids. The specialty chemical fermenter Jeneil Biotech says it already manufactures rhamnolipids in industrial-sized equipment.
Crazy volatile times in feedstocks, especially oleo. BTW – we’ll have a detailed PhD level explication of all that exclusively at the conference with the legendary Martin Herrington. In the meantime, ICIS’ Helen Yan reports from Asia that Asia’s fatty alcohols market is likely to find support from elevated upstream crude palm oil (CPO) and palm kernel oil (PKO) values, despite sluggish demand during the Lunar New Year holidays. Spot offers for the mid-cut C12-14 blend have been revised up to $2,900-3,000/tonne FOB (free on board) southeast (SE) Asia for February and March shipments, due to continued erosion in margins from expensive feedstock PKO costs.
On 19 January 2022, spot prices of C12-14 blend averaged $2,780/tonne FOB SE Asia, up $80/tonne from the previous week, ICIS data showed.
“We have no choice but to further increase our offers for the mid-cut C12-14 blend as margins have been severely squeezed from the high raw material costs, with PKO rising to around $2,300/tonne while buyers continue to seek lower prices,” a regional supplier said. Spot interest has waned due to the upcoming Lunar New Year or Spring Festival holidays. The Chinese market will shut from 31 January to 6 February for the Spring Festival, but factories have already shut in China in the run-up to the festive holidays.
Market activities in other countries in Asia have also wound down as players have retreated to the sidelines to wait for a clearer outcome post-holidays. South Korea, Indonesia, Malaysia, Singapore and Vietnam also celebrate the Lunar New Year, which falls on 1 February this year. Demand has also not rebounded as expected due to the economic fallout from the highly infectious Omicron coronavirus variant on the global economy. Spot appetite for C12-14 has been tepid as the global economic recovery has been hampered by restrictions reinstated to contain the spread of the Omicron coronavirus variant, which emerged in late November 2021. Lower-than-expected growth in the world’s two largest economies, the US and China, is expected to dent global growth in 2022 sharply, the International Monetary Fund (IMF) said on Tuesday.
Global GDP growth is now expected at 4.4% in 2022, said the IMF, half a percentage point lower than its prior forecast issued in October 2021. Global GDP growth in 2021 stood at 5.9%. The IMF, which delayed the publication of its World Economic Outlook by three weeks to assess the impact of the Omicron coronavirus variant, said the world had started the year “in a weaker position” than expected.
By contrast, LAS pricing in South Asia remains weak in line with demand, as reported by ICIS. In India, domestic LABSA spot market remains at around Indian rupees (Rs) 93/kg, with production staying low. Market participants attributed the low LABSA output to the weak detergent market. “Usually demand for LAB will peak in February, but this year buying interest is very weak,” said a LAB producer in India. Some participants in this sector cited soaring costs of soda ash in the last quarter for dampening demand of LABSA and detergents. “Soda ash makes up around 30% with the remainder being LABSA for manufacturing detergents,” said a trader in India. This resulted in lower demand for detergents as prices (LABSA and soda ash) rose last year. With reduced demand for detergents, there was lower output of LABSA. Due to weak downstream LABSA market, some local makers of LAB are considering exporting LAB due to an overhang of supply domestically. India is a net importer of LAB.
On the other hand, the LABSA/LAS market in Pakistan seems to be faring better with demand overall staying decent, with the spot market for LAB at around $1,700/tonne CFR Pakistan. Tufail Chemicals, a key LABSA producer in Pakistan, added to its capacity in Q4 2021, bringing its total output to around 110,000 tonnes/year. The company plans to add another line in 2023 with more cargoes available for export.
However, the export destination of SE Asia continues to experience slow demand. The LAS market hovered at around $1,430-1,500/tonne CFR SE Asia, but some participants anticipate some downward pressure if the India market fails to recover in the near term.
“The weak LABSA and LAB market in India is impacting sentiment across the region,” said a producer in northeast Asia.
Back in the US, detergent range alcohol prices follow a familiar trajectory – up – way up. ICIS’ Lucas Hall reports that bullish feedstock and soaring freight costs against the backdrop of persistent shipping logistics constraints globally continue to underpin US fatty alcohols markets, with demand for multiple fatty alcohols chains continuing to outstrip supply. Short chain C8 and C10 as well as long chain single-cut C18 alcohols are particularly tight, depending on the supplier. Mid-cut alcohols availability has improved following supply chain disruptions that eased in December. The majority of these supply chain constraints stem from import disruptions from southeast Asia associated with persistent shipping equipment shortages and tight vessel space against the backdrop of soaring freight costs. Bullish feedstock costs across the oil palm complex stemming mostly from tighter production in Malaysia because of weather and coronavirus-related labour issues in the country are adding to concerns, with production costs rising faster than producers can pass down increases and forcing some to cut back operating rates.
Tightening availability of mass balance-certified (MB) material in the US because of increased scrutiny against Malaysian-origin material over force labour allegations in the country is also supporting the market, particularly for palm kernel oil (PKO) and PKO-derived material. Ongoing import bans have heavily increased the demand for MB material outside of Malaysia, supporting premiums in that market. Rising PKO premiums are sustaining demand for coconut oil (CNO) and CNO-derived material. Logistics issues also persist in the US, particularly in truck markets, where an ongoing labour shortage is keeping truck availability tight. Domestic production is insufficient to make up for inconsistent import market, underpinning the wider market.
Downstream demand remains overall healthy. Demand in the spot market has somewhat waned from 2021 as downstream players increased their contract allotments in an effort to prioritise security of supply. Demand for mid-cut alcohols in Mexico remains limited because of persistent ethylene oxide (EO) shortages in the country, supporting demand for ethoxylated material instead.
An interesting snippet here on the continuing role of private equity in our industry: US private equity firm OpenGate Capital has acquired Chemsolv, a regional distributor of commodity and specialty chemicals based in Roanoke, Virginia, for an undisclosed sum. Chemsolv, with distribution centres South Carolina, Tennessee and Virginia, distributes more than 1,000 chemical products to customers in construction, roofing, chemical intermediates, paints and coatings, automotive and other markets.
Its products include solvents, plasticizers, coolants, lubricants, surfactants, diesel exhaust fluid, additives, among many others. OpenGate acquired Chemsolv from the Austin family. Glenn Austin founded Chemsolv in 1979, and the family will continue to retain an ownership stake and a role in the company. Regular readers will recall that OpenGate is the investor that bought the, now, Verdant out of Solvay and combined them with Baze and DeForest, last year.
Interestingly, US EO pricing continues to fall. ICIS reports that US December ethylene oxide (EO) contracts fell for the fifth consecutive month, tracking a lower same-month feedstock ethylene settlement. US December EO fell by 3 cents/lb ($66/tonne).
Feedstock ethylene prices fell due to greater steam cracker production and easing derivative demand. Lower feedstock costs in December hastened this price decline. As readers know, the majority of EO contracts are formula-based, and price movement comprises 80% of the change in the ethylene price and an additional conversion fee, or adder.
By contrast, the European picture for EO is a bit different as reported by the hugely talented Melissa Hurley at ICIS. European ethylene oxide (EO) contract market players are awaiting the upstream ethylene contract price settlement for January to inform formula pricing. Sellers remain concerned with margin pressure amid continued high energy costs. Stable to double-digit increased adder fees are being discussed for 2022, depending on starting point and account. Some multiyear EO contracts are also not up for renewal next year so fees are steady in these instances. According to Alice Casagni, ICIS deputy editor for European Spot Gas Markets, “a tight supply outlook and weather-driven demand will remain the key drivers in control of European natural gas prices in the first half of 2022.”
High ethylene prices have also dominated the market this year, impacting seller margins. Downstream demand is mixed depending on sectors, and there was some end-of-year slowdown amid destocking activity.
Feedstock spread - Ethylene and EO Europe
Supply was constrained at the end of 2021, but this is expected to improve in January.
There was an unplanned outage at the beginning of December in the Netherlands at Dow's Terneuzen EO facility, which is not expected to be resolved by the end of this year. Upstream ethylene supply remains balanced-to-tight. The status of BASF's Antwerp EO and ethylene glycol (EG) facility is also unconfirmed, although glycol sources believe it is back running again at the end of December 2021. There is a wait-and-see attitude to how demand pans out at the start of 2022.
In the downstream monoethylene glycol (MEG) market, there is interest in spot material stemming from the downstream polyethylene terephthalate (PET) market due to good demand. Most are covered by contractual requirements for the time being but if demand continues to perform well or strengthen, MEG consumption could increase.
PET makers could opt to run production harder, leading to increased interest in the spot market. For coolants, demand has been impacted by poor automotive industry performance. A buyer added it was covered for material until the end of the year.
There was mention of additives typically used in coolants being placed on allocation from a local European supplier which could impact downstream conditions, depending on how long the situation lasts. This was not confirmed by the company. There is a planned turnaround at Lavera, France impacting glycol ethers, according to sources, which is expected to finish by the end 2021. In the ethanolamines market, difficulties concerning the supply chain are widely expected to persist into 2022. Ethoxylate demand has performed well during the year.
OK – so there’s the main surfactant news. Some interesting things there right? But here’s the really big story of month and my favorite by far. I love a good corporate thriller and this one is shaping up to one of the best and, of course, I’m talking about Unilever. For those of you who have been sleeping under a rock or too absorbed by the Real Housewives of [fill in the blank], here’s the story.
The problem is this: Unilever’s moribund stock over the past 3 years, compared to that of peer P&G . In the chart below, P&G is in blue and Unilever in black
The solution? Nelson Peltz, activist investor (i.e. one that cares) and, until recently, a board member of P&G, a seat he gained the old-fashioned way, that is via a proxy fight (one of the most expensive and hard-fought ever). During Peltz’s tenure on the P&G board, the stock roughly doubled. He plans now to do the same or better with Unilever.
On January 23rd, the Wall Street Journal reported that Trian Fund Management LP, the activist hedge fund run by Nelson Peltz, acquired a stake in Unilever PLC, adding pressure to the packaged food and consumer goods giant in the wake of its failed $68-billion bid for GlaxoSmithKline PLC’s consumer-health business. Apparently, Trian started buying Unilever shares well before its bids for the GSK unit surfaced earlier this month. Unilever’s shares have been under pressure in recent months as it has struggled to boost volumes. Analysts say it has underperformed some rivals during the Covid-19 pandemic in areas such as hygiene and packaged food and hasn’t launched any blockbuster innovations in some time. The company faced strong opposition from investors to its plan to buy the GSK healthcare business, with analysts pointing to its mixed record on several other big acquisitions. Critics said the London-based company would be overpaying for the GSK business, and that it should focus on turning around its existing categories rather than taking on new ones in which it had little experience.
Jefferies [IBank] analyst Martin Deboo said he thinks Trian will push Unilever to sell food brands more quickly or to sell or spin off the unit entirely. “The force and temperature of debate around Unilever now looks set to rise by several notches, with Trian likely to find a sympathetic audience,” among Unilever shareholders, said Mr. Deboo, adding that the episode would increase pressure on [Unilever CEO] Alan Jope.
Interesting right? So what happens next? Well, no coincidence, I’m sure, but a mere 2 days after the Trian story broke, Unilever announced a major reorganization. The company said it would restructure its operations into five stand-alone divisions, reshuffle top executives and cut jobs in a sweeping reorganization aimed at accelerating sales growth.
The company said it would now run as five, category-focused divisions—beauty and well-being, personal care, home care, nutrition, and ice cream—rather than its three previous units of food and refreshments, beauty and personal care, and home care.
Unilever Chief Executive Alan Jope said the overhaul would allow the company to be more responsive to trends and create more accountability. “Growth remains our top priority and these changes will underpin our pursuit of this,” he said. Still, while the restructuring—particularly separating ice cream as a stand-alone unit—should make it easier for Unilever to sell slower-growing businesses, the overhaul doesn’t go far enough and will likely disappoint investors, some analysts said. Unilever shares traded flat in London in the wake of the announcement [uh..oh]
Unilever said its beauty and well-being division would include vitamins—an area where the company has been beefing up—as well haircare, skin care and its prestige business, which houses upscale beauty brands. The personal care division will include skin cleansing, deodorants, and oral care brands, and be led by Unilever’s current head of North America, Fabian Garcia.
The nutrition arm will include ingredients lines such as Knorr, and a group of foods Unilever is describing as healthy snacking such as its Graze brand. Also included in the nutrition business: so-called functional-nutrition products, such as its Horlicks malt drink, plant-based meat alternatives, and its business that sells ingredients to restaurants and offices. It will be led by Unilever’s current head of food and refreshments, Hanneke Faber.
The company said it expects its new operating model to reduce senior management roles by around 15% and more junior management roles by 5%, which it said amounts to around 1,500 roles globally. Unilever employs about 149,000 people. Unilever also said its head of beauty and personal care, Sunny Jain, who joined the company in 2019 from Amazon.com Inc., will step down. Its Chief Operating Officer Nitin Paranjpe will take on a new role as chief transformation officer while also heading up human resources.
Analysts have previously said they expect Mr. Peltz to push for Unilever to sell or spin off its food business. Now that that has been split into ice cream and nutrition—with the latter housing some higher-growth categories such as health snacking—RBC analyst James Edwardes Jones said he thinks the company could focus on selling off ice cream. Despite this, Mr. Edwardes Jones said he isn’t convinced the reorganization will work. “The new operating model announced today might make divestments easier, but we would prefer them to focus on reinvesting cost savings behind their brands and categories,” he said. He also criticized the lack of fresh faces, noting that the new divisions are all headed by Unilever incumbents.
And so it starts. “You have to change course in a big way now” says Nelson. “We’re doing it already. We’re ahead of you” says Alan “It’s too little and too slow” says Nelson. “You need me on the board and to get rid of the tired old incumbents” “No” says Alan “We got this. We know what we’re doing”. “It hasn’t looked like it for the past 3 years” says Nelson. Does this remind you of anything? It’s a replay of Peltz’s drama with P&G that we blogged about extensively in our year end editorial of 2017 (Check it out here. It’s a classic). It’s early days, but I fully expect Trian to get Unilever in a stranglehold as they did P&G. It hasn’t appeared yet, but watch out for a “white paper” to appear on the Trian Website. It’s then up to Jope how to proceed. Reach an accommodation, tap out or …
Like Ted and that riff. Nelson's hard to Ignore