Surfactants Monthly – October 2020

October 2020 – Monthly Review

What a month! Another record for basic surfactants but – what will we all be doing at the end of January? We won’t, most likely, be in Orlando, FL as the ACI has made the prudent decision to go virtual for their annual meeting. Not unexpected but I’m sure I’ll miss being there in person and I expect you will too. No matter, the industry as a whole does great and continue to …. what? You know.. “make civilization civilized”. Our next surfactant event comes up in about a week on November 10^th. It’s the digital European and Asian Surfactant Conference. It’s free, but you have to register or you may be locked out for platform capacity reasons. Register here.

Here’s something to think about. I’ve been in and around surfactants for almost 40 years. And, like most people, I’ve been a daily surfactant user for almost 60 years. I still meet people that cannot even pronounce the word surfactants – and that includes some lifelong friends. Now and again, I’ll come across someone (not in the course of business) who knows what they are and what they do and that our entire civilized world depends on them. That is a true joy. Anyway – as part of my weekend routine, I like to browse YouTube for, usually, rock music, but often, insights into the culture’s view of what our industry does. Here are two great videos talking about surfactants from I guess what you could call amateur cosmetics V-loggers. These two ladies do a pretty nice job of explaining what surfactants are in terms that most people can understand. You may find some things to quibble with but overall, not bad. Kudos to them. I'd love to see more like this.

First Tara Lee from Columbus, OH

 

And a lady who rejoices under the appellation “Swavy Curly Courtney” who actually teaches a class on curly hair – Fair enough!

It is honestly, and this may not surprise any of you, my dream to have Kim Kardashian (or Kylie or Kendall - but not one of the minor Kardashians) talk about surfactants in a factual positive manner. On the off-chance, that this remains just a dream, it's a good thing that, in the meamtime, more or less normal mainstream people like Tara and erm.. Ms. Swavy Curly talk about them, right?

Right at the beginning of the month, US September ethylene oxide (EO) contracts settled at their highest level in two years, in line with feedstock ethylene contracts. ICIS assesses US EO contracts for September at 53.8-63.3 cents/lb ($1,186-1,396/tonne) FOB (free on board), higher by 2.6 cents/lb from the previous month. This is the highest EO contracts have been since October 2018, when they were at 54.0-63.5 cents/lb, according to ICIS data.

US September feedstock ethylene contracts settled higher by 3.25 cents/lb, amid production constraints.  EO demand remains strong into cleaning supplies amid the ongoing pandemic.  These derivatives are more profitable than ethylene glycol (EG), encouraging producers to divert EO feedstock into surfactants and other end uses.

Demand into EG also has been reduced amid a heavy turnaround slate and unplanned outages.  The following EO/EG sites were experiencing issues as of the beginning of October:

Company	Location	Status
Indorama	Clear Lake, Texas	Unplanned shutdown
Lotte	Lake Charles, Louisiana	Shut down
Sasol	Lake Charles, Louisiana	Shut down
Shell	Scotford, Alberta, Canada	FM on EG due to feedstock issue

Scheduled maintenance is as follows:

Company	Location	Timing
Shell*	Geismar, Louisiana	Sep-Oct
Dow*	Seadrift, Texas	mid-Sep-Oct
Formosa*	Point Comfort, Texas	Aug-Dec

*according to market sources; not confirmed by company

More fallout and commentary on the Sasol / Lyondell deal that we reported on last week. First the great Al Greenwood reported in ICIS Moody's Investors Services downgraded its ratings for LyondellBasell to Baa2 from Baa1 following the company's announcement that it will acquire a 50% stake in some of the units at Sasol's chemical complex in Lake Charles, Louisiana, US. The new score, which applies to LyondellBasell's senior unsecured ratings, remains within Moody's investment-grade range.  Under the agreement, LyondellBasell will pay $2bn for the stakes in the plants, which are in Sasol's complex in Lake Charles.  The plants in the joint venture have a capacity to produce 1.5m tonnes/year of ethylene, 470,000 tonne/year of linear low density PE (LLDPE) and a 420,000 tonne/year of low density PE (LDPE). The joint venture agreement does not include Sasol's alcohols and ethoxylates plants – [so that means that the surfactants business remains wholly within Sasol’s ownership and control – good for Sasol and the business, I think (and the industry actually – also in my opinion). ]

Moody's acknowledged that LyondellBasell is getting a good deal, as the price tag is well below the replacement costs of the joint venture's units.  However, LyondellBasell's credit profile would be very weak for its Baa1 rating through 2022, said John Rogers, senior vice president and lead analyst for Moody's. In addition, companies around the world are adding new capacity, which could put pressure on selling prices and margins.

Low oil prices could add more pressure to margins. Many of LyondellBasell's crackers can use ethane and other gas-based feedstock. Most of the world's crackers rely on oil-based naphtha.  When crude prices are high, ethane crackers have a cost advantage against those that use naphtha. Low oil prices erode that cost advantage. West Texas Intermediate (WTI), the US benchmark price for oil, should remain between $40-50/bbl in 2021, limiting the US feedstock advantage.

The combination of growing global capacity and weak oil prices over the next couple of years will make it more difficult for LyondellBasell to generate free cash flow and lower its debt, Rogers said.  One of LyondellBasell's main products is PE, and margins for the material have risen after a string of price increases that took place from July to September, Rogers said.  Prices could rise again in October because of the shutdowns caused by Hurricane Laura, Moody's said. Once US PE production returns to normal, prices and margins could fall.  Demand for PE for packaging should remain strong, Moody's said. It is unclear when other uses for PE will return to pre-pandemic levels.

Moody's expects LyondellBasell to keep capital spending near $2bn and dividend payments at $1.5bn.  During the second quarter, LyondellBasell reported 3.0x in terms of net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). It should reach 3.5x by the end of 2020 before falling to 2.8x by the end of 2022, Moody's said.  Free cash flow should remain positive over the next 12-18 months, Moody's said. In November 2021, $1bn of long-term debt is scheduled to mature. Another $2.8bn matures in March 2022.

Back to Sasol: As you will recall, the Lyondell deal was part of a plan announced in March to reduce, a lot of, debt. The company is not out of the woods yet. Sasol is trying to raise as much as $5 billion through further asset sales and might have to consider a rights issue. I think we have to stay tuned, unfortunately for further chapters of this story.

At last: As anyone who has attended one of my Asian or Indian conferences knows, the question of Indian LAB capacity is a vexing one – that is why isn’t there more capacity for a good, growing surfactant intermediate in one of its important markets?  India continues to import LAB despite a healthy domestic demand and insufficient domestic production capacity. ICIS finally reported this month that State-run Indian Oil Corporation (IOC) is including a capacity increase of its existing linear alkylbenzene (LAB) plant in its refinery expansion project at Gujarat by 2022.  “We plan to increase [the capacity] by 20,000 tonnes/year,” said a source close to the company. The country’s largest refiner is reviewing its refinery expansion plants because of a gradual rise in the use of cleaner fuels and changing demand patterns in Asia’s third largest economy, IOC Chairman S M Vaidya said.  The nameplate capacity of IOC’s current LAB plant in Vadodara stands at 140,000 tonnes/year, and supports the Indian domestic market with three other local suppliers. So the increase is not huge but it gives me an excuse to play this song by the great Etta James…

Our monthly look at the detergent alcohols market with Lucas Hall of ICIS - US Q4 fatty alcohols contracts were assessed mostly higher, tracking higher feedstock costs across the oil palm complex. Slower demand as the market enters the Q4 low season somewhat offset feedstock cost pressures.  Feedstock costs across the oil palm complex have plateaued amid the Golden Week Holiday in China in early October. However, the market remains volatile and overall bullish amid ongoing supply concerns, with renewed coronavirus-related lockdowns and other movement restrictions across parts of southeast Asia and Europe prompting wider uncertainty in the market.

At the same time, demand has seasonally slowed as the market enters Q4. Demand across the core cleaning sector has come off from the second-quarter boom amid the onset of the pandemic, with most major surfactants producers largely satisfied on volumes and citing less demand for incremental volumes. The demand recovery in industrial end markets has started to pick up as the US economy continues to reopen, but overall demand is expected to remain lower than pre-pandemic levels through the end of the year. Demand is typically slower during the Q4 destocking season.

Mid-cuts: Q4 natural C12-14 mid-cut alcohol contracts were mostly heard in the mid-to-upper 60 cents/lb delivered (DEL) US Gulf (USG) range.  Natural mid-cut contracts outside the US Gulf were mostly heard at the equivalent of the upper 60s to low 70s DEL USG range.  Synthetic C12-C15 contracts were mostly heard toward the top end of the range.

 Long chains  C16-18 blended alcohol contracts were heard in the 79-84 cents/lb DEL USG range.  Single-cut C16 contracts were heard in the low-to-upper middle 80 cents/lb DEL USG range.  Single-cut C18 contracts were heard in the low-to-upper middle 80 cents/lb DEL USG range.

 

Single-cut alcohols are tighter than blended cuts, leading to a slight premium over the blended C16-18 cut. The market is snug to tight amid tighter production in southeast Asia and the ongoing outage at Sasol's Lake Charles plant.

Meanwhile, over in Europe, the fatty alcohols fourth-quarter contract price range narrowed this week amid heavy fluctuations in feedstock palm kernel oil (PKO) over recent months.  Fatty alcohols fourth quarter prices moved up €40/tonne on the low end while remaining stable at the high end, with values now at €1,120-1,200/tonne FD (free delivered) NWE (northwest Europe).

PKO prices increased mind-month, following a slight decrease in values earlier.

PKO values have fluctuated heavily in recent months, leading to some contract discussions being slightly delayed as players adopted a wait-and-see approach. The majority of contracts have now settled.  Fatty alcohols availability remains healthy, despite several ongoing planned maintenances in the region. One plant has now returned to production following a planned shutdown.  Downstream surfactants demand remains steady, with interest in end-use detergent applications remaining healthy.

And finally, the great Stepan Chemical continues to keep civilization civilized with it’s surfactants while posting another record quarter of financial results. As reported by ICIS, Stepan's Q3 operating income in its surfactants segment more than doubled, driven by demand for cleaning, disinfection and personal wash products during the coronavirus pandemic. The strong performance in surfactants more than offset declines in Stepan's polymers and specialty products segments.

Segment performance, Q3 ended 30 September 2020:

(in ‘000 $)	Q3 2020	Change from Q3 2019
Surfactants
Sales:	333,839	11%
Operating income:	41,151	109%
Polymers
Sales:	116,682	-14%
Operating income:	22,387	-4%
Specialty products
Sales:	13,959	-17%
Operating income:	1,593	-30%

Key Points from the Stepan Q3 Report:
- Surfactants volume increased 8%, and selling prices were up 7%.

- Polymer operating income fell due to a 5% decline in global polymer sales volume.

- North American rigid polyol sales volume declined 8%, reflecting construction project delays and cancellations due to the pandemic. Lower demand within the phthalic anhydride (PA) business also contributed to the sales volume decline.

- Specialty products operating income fell, primarily due to lower margins within the  medium chain triglycerides (MCT) product line and customer order patterns within the food and flavour business.

Overall Q3 results:

(in ‘000 $)	Q3 2020	Change from Q3 2019
Sales	464,480	3%
Operating income	42,395	52%
Net income	33,168	28%

Stepan’s Outlook:
Surfactant volumes in the consumer product end markets should remain strong as a result of heightened demand for disinfection, cleaning and personal wash products, CEO Quinn Stepan said.  Although global demand for rigid polyols has slightly recovered, the business will likely continue to be challenged short-term as re-roofing and new construction projects have been deferred or canceled, the CEO said. However, the long-term prospects for rigid polyols remain attractive as energy conservation efforts and more stringent building codes should increase demand, he added.

One last thing. Eddie Van Halen died last month. Van Halen's first album came out in 1978 and I remember, fondly, hearing the following, tracks 2 and 3 on the radio back then. It was a breath of fresh air at a time when Abba topped the UK charts.

By the way, talking of keep civilization civilized, if you are wondering what happened to the uncensored version of my opening remarks to the September digital surfactants conference, they are on YouTube at a private link (that is you can’t search for it and it doesn’t show up on my channel). As a reader of this blog, you can see it below.

See you on November 10^th. Gotta Register!