Surfactants Monthly – July 2020

Surfactants Monthly – July 2020

Lots of interesting news this month, essentially all of it coming to us courtesy of ICIS and so, I will plug again their online services. Check them out and subscribe if you like what you see. I get nothing if you do, by the way. I just happen to like those guys as I’ve been working with them now for 10 years on my conferences.

Speaking of conferences, our surfactants events this year will be all online in super-high quality digital format. We’ll bring you the same relevant topics and highly original speakers you have come to expect along with a lot of new stuff that we want to try (how about a meditation session for example?).  You will now be a better-informed more highly-educated and just all round better person coming out of these events. But there’s more. The events this year are free. That’s right. It’s not a typo. They are free of charge. No strings attached. We want to support the industry and so we are doing it all absolutely free. You have to register and I encourage you to do so soon as there will be a practical limit to attendees on the platform. Here’s all the details for the September 16 – 18 event: I’ll see you there right?

Web: https://www.icisevents.com/surfactants
Reg page only: https://www.icisevents.com/200208928
Date: 16-18 September 2020
Time: 8am-4pm EST

End of commercial. The news starts here:

 We ended last month’s blog with a snippet about Pilot Chemical’s launch of low dioxane ether sulfates, helping customers to comply with the imminent NY state regulation of dioxane in consumer products. By the way, they have a sort of a special website section on the product range here with a neat hourglass motif indicating that time is indeed, on this occasion, running out. Meaning, I assume, that the NY State law is coming into effect whether you like it or not.

That got me reminiscing a bit. I remember in the 90’s a lot of talk around whether North America would follow Europe in restricting dioxane content for the bulk of the market. In fact, in the US, the FDA had been regularly monitoring dioxane in cosmetics since 1979. However, it took the NY state legislature to move dioxane (and its restriction in ether sulfates) firmly into the mainstream last year. Ideas have their time and sometimes old ideas become new again with a new lease on life. Something to bear in mind. Ideas can often be put safely into hibernation awaiting a more favorable climate for their implementation. Or they can be implemented quietly waiting for their time in the mainstream spotlight. Like sustainability for instance. Seventh Generation toiled away in obscurity in the beginning until reaching the status of core global platform brand of Unilever. This dioxane thing reminded me of all that.

We don't talk much about propylene oxide here but it is used in surfactants (EO/PO block copolymers and such) so I thought I’d throw in this summary from ICIS at the beginning of July:  -- The July European propylene oxide (PO) formula-based contract price has increased by €60/tonne, the result of a €75/tonne rise in the monthly propylene contract.  This brings the PO contract price up to  €1,264-1,364/tonne FD (free delivered) NWE (northwest Europe).  It was the second month of rising prices. In May, the PO contract price reached its lowest level since April 2016.

Each month, 80% of the propylene contract movement (if there is one) is typically taken into account when determining the PO contract price. The start of the year also sees an adder applied - which dropped by €150/tonne this January on predictions of a looser supply and demand balance.  Downstream producers now face the task of trying to hold onto margins at a time when demand remains curtailed. Over 80% of PO is consumed by the monopropylene glycol (MPG) and polyols markets.  MPG sellers previously said that they would independently target increases in July if propylene were to rise.  Prices for MPG reached their lowest level for almost 11 years in June due to slow demand. Future demand is also uncertain. The construction sector  is slowly increasing offtake of unsaturated polyester resins (UPRs) downstream of MPG, but many construction projects have been cancelled going forward  and June activity was below expectations.

There is also a question mark over MPG demand into de-icer for aircraft and runways this winter as a decrease in flights is expected. Polyols price discussions for July are underway, with producers looking to repair margins after recent increases in upstream feedstock costs. Prices hit close to 10-year lows in June for polyols.  Some improving demand for flexible polyurethane (PU) foam has been seen, while supply is generally ample.  For PO, much depends on developments in the downstream construction and automotive industries, where activity has increased, although both face tough months ahead.  It had previously been suggested that the typical downstream summer lull might be cut short this year, particularly in southern Europe, which could help stimulate downstream markets. However this is uncertain.

On a more positive note, the eurozone manufacturing sector purchasing managers’ index (PMI) for June rose to 47.4, rebounding from 39.4 in May.  Lack of visibility going forward will keep pressure on operating rates for PO. It is also unclear how much material is still being held within the chain, with downstream customers having built up inventories during the coronavirus crisis.  Trading of PO in and out of Europe has been limited to less than 2% of the market in recent years. This can be put down to strict safety regulations which makes shipping of PO over long distances very expensive. As a result, it is likely that PO sellers will have to keep operating rates reduced until co-product and downstream demand improves in Europe.

In more familiar territory, ICIS reported that US June ethylene oxide (EO) contracts settled 0.4 cents/lb ($9/tonne) higher, tracking rising feedstock ethylene costs.

June contracts were assessed at 48.6-58.1 cents/lb free on board (FOB) US.

June ethylene contracts settled 0.5 cents/lb higher, tracking higher spot prices and rising cash costs.  As readers know, the major EO producers in the US today include BASF, Dow, Eastman Chemical, Indorama Ventures, Lotte Chemical, LyondellBasell, Nan Ya Plastics, Sasol and Shell Chemical.

 

Over in China: ICIS reports that domestic ethylene oxide (EO) list prices plunged by yuan (CNY) 600/tonne ex-tank early on July 19, according to market sources.

 

The fall was mainly due to poor performing downstream derivatives such as monoethylene glycol (MEG) and ethanolamines, in a poor economy.  Since early April, EO prices in China have risen by 31% to peak on 15 July at CNY7,600/tonne ex-tank because of the uptrend in feedstock ethylene prices. One of the largest EO producers in China - China Petroleum & Chemical Corp, or Sinopec, announced the revision of its list price to CNY7,000/tonne ex-tank.  Upstream ethylene falls of about 5% also contributed to EO’s plunge, ICIS data showed.

A few good chunks of news from Stepan this month. First up, Clariant finally offloads it’s last remaining sulfonation plant and, true to form, Stepan snaps it up as the company continues to execute from its playbook to consolidate its position in North American surfactants. As reported in ICIS: Stepan has agreed to acquire Clariant’s anionic surfactant business and associated sulfation equipment at Santa Clara, Mexico, the US-based producer of specialty and intermediate chemicals said on Wednesday.  "The purchase of Clariant's surfactant business in Mexico will enhance our ability to support our customers' growth in the Mexican consumer and functional markets for surfactants," said CEO  F Quinn Stepan. Stepan plans to transition manufacturing from Clariant's Santa Clara site to its Mexican sites in Ecatepec and Matamoros over the coming months. The acquisition is expected to close in Q3, subject to regulatory approvals. Financial terms were not disclosed. This comes a couple of years or so after Stepan acquired BASF’s surfactants assets in Mexico including the aforementioned Ecatepec site. Nicely done by Stepan.

Next – Stepan reported a record Q2 for its surfactants business, it said in its quarterly earnings presentation.  Reported surfactant operating income was a record $48.5m, an increase of $16.4m, or 51%, compared with Q2 2019.  The increase was primarily attributed to a 10% increase in global surfactant volume and an improved product mix.

Sales volume growth was principally higher because of increased demand across global consumer product end markets, namely cleaning and disinfectant products, as a result of the coronavirus, as well as a $5m operating income improvement in Mexico.  Stepan reported record quarters in Mexico and in Brazil. Mexico net sales increased $5m because of sales volume growth of more than 33% and an improved product mix. Brazil's sales volume growth was more than 32%. Stepan plans to continue its surfactant diversification strategy into functional markets, including in agricultural and oilfield chemicals. At the same time, Stepan said the global market for disinfectant products is tight, particularly in the industrial and institutional space. Although Stepan has sufficient capacity to meet surfactants demand, including through the acquisition of Clariant's surfactant business in Mexico, there are not enough raw materials to offer larger volumes to the market. So there it is. I don’t really need to say much more about the essential nature of our industry. Yet more evidence there in the Stepan results of the critical role that surfactants play in our civilization. It’s not hyperbole. No surfactants. No civilization. Think about it. You should take some modest satisfaction in what you do every day, dear reader.

 

ICIS’s Lucas Hall has really gotten his teeth into the fatty alcohol patch at ICIS. His July coverage included the following: -- US fatty alcohols supply and demand are finding more balance as H2 demand eases, delayed imports arrive and producers take summer and fall maintenance. Supply and demand fundamentals are rebalancing as feedstock costs surge, putting upward pressure on the market.  Q3 demand is easing following Q2 stockpiling and panic buying amid the onset of the coronavirus pandemic.

Supply chain disruptions in Asia, and to a lesser degree Europe, caused many Q2 volumes to be delayed into Q3, prompting some buyers to dip into the spot market to cover their positions. As such, many manufacturers took on less contractual volumes for Q3 as they await their Q2 volumes to arrive over the next couple months.  Some producers will take maintenance over the summer and fall, further reducing supply.

Indorama had an unplanned outage at its ethylene oxide (EO)/ethylene glycol (EG) site in Clear Lake, Texas, late last week. The outage is expected to last into next week and may further weigh on demand, as multiple companies toll manufacturer their surfactants with Indorama.

The wider market faces pressure from a strong rally in feedstock costs across the palm oil complex. Palm oil harvesting activities in Indonesia and Malaysia have been impacted by flooding following heavy rainfall, putting upward pressure on palm oil prices. Malaysia also forecast a much lower palm oil yield in July amid a coronavirus-related labour shortage during the harvest, adding to the pressure.  Market participants are hesitant to commit to forward-looking supply agreements amid an uncertain feedstock outlook. Some expect feedstock costs to increase with recovering edible oils exports globally and improving biodiesel production. Recent news regarding poor weather conditions and labour concerns in Malaysia during the ongoing harvest have only added to concerns. Others are wary of the impact of a second wave of the pandemic on demand.

As I flicked through my morning copy of the Korea Herald last week I came across more on the continuing Sasol story regarding the Lake Charles, LA site. OK fine, I actually read about it in Al Greenwood's article on ICIS. Al cites the Herald and according to him, Hanwha Solutions has submitted a bid to acquire a 50% stake in the chemical complex that Sasol is developing in Lake Charles, Louisiana, in the US.  The size of the bid is Korean won (W) 2tr-4tr ($1.7bn-3.4bn), according to The Korea Herald, which attributed the information to unnamed industry sources.

 

The bid was for what the publication called an ethane cracking centre. The Herald did not specify if the bid was limited to the complex's cracker or if it included other downstream units.  In a statement, Sasol said, "Our expanded asset disposal process has yielded good interest by strong contenders for a number of our assets."  Hanwha did not immediately respond to a request for comment after hours in South Korea.  The Korea Herald reported that Hanwha refused to confirm or deny the bid.

 

Another publication, BusinessKorea, reported that Hanwha formed a consortium with Daishin Private Equity, which has about W750bn under management. Daishin plans to invest some of its blind funds and to raise money from major institutional investors.

Daishin did not immediately respond to a request for comment after hours in South Korea.  Hanwha received more support from South  Korea's four largest financial holding companies, BusinessKorea reported. The four pledged to provide W2tr to finance any acquisition.  LG Chem also participated in the final bid, BusinessKorea reported. LG Chem did not immediately respond to a request for comment after hours in South Korea.  SJL Partners, a South Korean private-equity firm, participated in the preliminary tender, BusinessKorea reported. SJL Partners did not immediately respond to a request for comment after hours in South Korea.  The Sasol project also attracted interest from INEOS, LyondellBasell and Chevron Phillips Chemical, according to a source from the financial community, which made the comment in mid-June.  The three were proceeding into a second round of bidding.  At the time, INEOS and Chevron Phillips Chemical each said that they had no comments.  LyondellBasell declined to comment.  BusinessKorea reported that the non-Korean companies participating in the preliminary tender included ExxonMobil.  ExxonMobil declined to comment.

Earlier on 12 March, Sasol said it was reviewing a number of actions to address challenges created by the coronavirus and the decline in oil and chemical prices. Among those actions was "the potential for exploring partnering options at Sasol’s US Base Chemicals business”.  Sasol would maintain a majority interest in the project, but the size of the minority stake in the complex would be significant.

It is unclear if Sasol still plans to maintain a majority stake, given the report of Hanwha submitting a bid for a 50% stake.  Sasol is under severe financial stress from the debt taken on for the Louisiana project and the collapse in crude oil prices.  The cost of the project has risen from $9bn to up to $12.9bn.  Among the units at the project, the 1.5m tonne/year ethane cracker is producing to plan within pipeline specifications. The ethoxylates unit achieved beneficial operation at the end of January.  The linear low density polyethylene (LLDPE) and the ethylene oxide/ethylene glycol (EO/EG) units were producing at targeted levels.  The fatty  alcohols expansions were expected at the end of the second quarter.  Sasol plans to start-up the new 420,000 tonnes/year low density polyethylene (LDPE) plant by the end of October.

In other Sasol news, the company announced an agreement to sell gas facilities to Air Liquide in a deal worth 8.5B rand ($515M. The sale includes the air separation units used to supply Sasol's fuels and chemicals processes at plants in Secunda, South Africa, which comprise the biggest oxygen production site in the world.

As I understand it, Sasol is looking for about $5Bn to deleverage their balance sheet. The Hanhwha deal would get them some of the way there and the Air Liquide deal helps. Let’s see. If I was Sasol, I’d want to make sure I had the dry powder available to take advantage of opportunities going forward. My gut feeling says there should be a better partner out there than Hanwha, but of course they have to pay, because, right now the shareholders really want to see some of the green stuff.

OK that’s the news this month.

 

What are you listening to these days?           

This lockdown has, for me been a great time for Iron Maiden. It seems that many workout videos on Youtube have some pretty lame music accompanying them. But turning down the private label synthetic version of Miley Cyrus and cranking up the Irons behind the video works wonders for the adrenaline. Here’s a couple of songs spanning 30 years.

From 1981 – Transylvania and, if you’ve got the time, keep listening for Phantom of the Opera right after it. I saw them on this tour. A much-needed antidote to the likes of Rick Springfield, Hall & Oates and Shakin’ Stevens (no kidding) that dominated mainstream pop in those days.

And from 2011, the lads played Santiago in front of a crowd of basically the same age as the 1981 crowd at the Rainbow. Listen to the singalong at the beginning. Nice, right? Best sellers that year in the mainstream? Adele, Katy Perry. Gotta love a bit of variety though..

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