Surfactants Monthly – October 2021
Great month for surfactants. We had our European and Asian Surfactants Conference – a huge success. And we were able to announce that the the next conference will be live and in person 9 - 11th of May of 2022 in Jersey City, NJ. Stay tuned and we’ll get further information to all registered blog readers.
So – let’s see. There’s a lot going on with Sasol these days, which we heard about at the conference and which they also talked about at their capital markets day. Check out the details at the end of the post. You’ll also notice, as you read through the news, that there is a lot of talk about inflation and supply chain disruptions. Shortages, high prices, stuff like that. Even Stepan’s mighty surfactant machine experienced problems this year as they discussed on their earnings call (see below).
Hmm.. we went back to Manhattan for the first dinner / play / night-over since the pandemic. One thing struck me – the aroma of the city. It’s changed from what it was a couple of years ago. Today the prevalent aroma is one of marijuana and urine. Pot and piss, you may want to crudely say. The city is a piss-pot, where people without a pot to piss in are pissing, wherever they like, or can or, perhaps more accurately, must. How come? I don’t know. I did learn that you can avoid the piss-aroma by taking a hotel room way up on the 20th floor – but evidently the pot-aroma still rises well above street level. We did not find pot escape height on this visit. So why all the crudity in this family blog? I hope I haven’t offended any readers, but the experience got me thinking – mostly in one syllable words. I guess first: Is there a correlation? That is between the piss and the pot? I am not aware of one. Is alfresco micturition purely the purview of the piss-poor partaker of pot? I doubt it. I understand that pot can drive both snacking and hair loss but have not heard that uncontrollable urination is a side-effect of this particular drug. The outdoor urination to my untrained eye seemed to be function of homelessness. Was homelessness also causing the pot-smoking or the other way around or are they independent phenomena? I’m guessing independent although a THC infused night on a subway grating has to be little more pleasant that one spent stone cold sober, I guess.
Crime? Didn't see any honestly. Nor were we accosted by anything other than the aforementioned aromas. But the smells themselves sent a message Someone remarked that today’s NYC experience is more akin to the 70’s than the 2000’s and that has a certain sense to it. Inflation, shortages, the smell of anarchy – it’s the New York of The Warriors rather than of, say, Sex and the City. And of course those who remember that 1979 movie classic will recall that public bathrooms were never the safest of places so maybe outside relief is the most sensible choice.
Am I ready to write off the city for a few years until the next crimebusting mayor takes charge, as he or she surely will? Not quite yet. Maybe this time it’s different. With so much pot in the air, the violent extremes of the Warriors years may just not be possible. And the urine? Well, I’m told that with a smouldering great spliff wedged between your teeth it’s hard to smell much of anything. On second thoughts, maybe we’ll stick to the Jersey Shore. What’s the worst you could encounter there?
For those readers still with me.. thank you. And here now is the news you came for.
Not only did Melissa Hurley of ICIS make an outstanding presentation during our virtual European and Asian Surfactants Conference, she penned an outstanding analysis of the European ethylene oxide situation: At the beginning of October, European ethylene oxide (EO) market players were in the early stages of negotiating contract terms and adder fees for 2022, ahead of this year's virtual European Petrochemical Association (EPCA) event, Melissa reported. Apparently, high ethylene prices are a bone of contention, especially for non-integrated players, due to the adverse impact on seller margins. The EO price includes a conversion fee over the cost of ethylene, which is negotiated at the beginning of the calendar year. Formulas can also vary in terms of ethylene cost pass-through and some contracts are agreed on a multiyear basis.
In 2021, production costs are also high due to the record high gas prices, having a detrimental impact on energy prices and cost of production. The EO manufacturing process is very energy intensive so this is an important factor to consider.
Over the past ten months, the relentless rise in ethylene prices has led to a 24% rise in average EO formula contract prices.
The only decrease in feedstock costs was last month and it provided little relief in September. In October, ethylene resumed its upward trend due to the rally in crude and naphtha prices. This shows a marked difference to the conditions of 2020, a year plagued by lockdowns and demand reductions, particularly in the first half of the year. During 2020, EO contracts decreased by 11.3% on average, according to ICIS data. Lower annual adder fees were agreed in January 2021 due to the structurally relaxed supply situation despite short-term unplanned production issues experienced at the start of the year. So far for 2022, there have been indications of a bullish approach to the adder fee talks but negotiations are still in the early stages. Despite the importance of utility and production costs, supply remains key.
Consumers will also be looking at the expected supply balances for the fourth quarter and beginning to look at next year's cracker maintenance schedule. "[Adder talks] It's more based on availability", added a market source. EO supply is mainly as expected, with a couple of planned turnarounds happening at the end of the third, beginning of the fourth quarter. Clariant's EO partial maintenance at Gendorf continues in October. The exact dates of the turnaround are unknown. A turnaround at BASF's Antwerp EO/EG facility is expected to take place in the fourth quarter. The exact dates are unconfirmed by the company, but market sources indicate November. Future investments in Antwerp and for Clariant are so far unclear and there have been no official updates on when these are expected. BASF planned to add 400,000 tonnes/y in 2022 to its production by building a second manufacturing unit at the Antwerp site, which will also be able to process purified ethylene oxide. Clariant previously announced plans to increase EO capacity in Gendorf, Germany with an increase of high purified ethylene oxide (HPEO) in 2018. There were no further details of the expansion officially published.
Meanwhile on the other side of the surfactant molecule, ICIS’s Sam Wright reports that The European fatty alcohols Q4 contract price range widened amid fluctuations in feedstock prices through the third quarter, combined with tightness, which worsened as the fourth quarter approached. Prices decreased by €75/tonne on the low end and increased €20/tonne on the high end to €1,650-1,850/tonne FD (free delivered) NWE (northwest Europe).
There were some lower prices seen in the market compared with the third quarter resulting from fluctuations in palm kernel oil (PKO) prices during the quarter. Shortages also worsened as the third quarter progressed, leading to higher prices settled approaching the fourth quarter. Logistical issues surrounding shipping delays from Asia continue to cause problems for the European market. Given the issues over exporting material from Asia currently, some players are preferring to send cargoes to local markets such as China. This has led to a decrease in imports into Europe for the fourth quarter. At the same time, demand for downstream alcohol ethoxylates has been very strong. There is a shortage in this market as well, caused at least partly by the constraints in the fatty alcohols market.
Over in the US, Lucas Hall reported on the fatty alcohols market. US Q4 fatty alcohols contracts were assessed mixed from Q3. Freely-negotiated contracts for mid-cut alcohols decreased now that demand into consumer cleaning markets has stabilised from the panic-buying seen in the early days of the pandemic. Multiple surfactants producers had carryover volumes from Q3. decreasing their demand for Q4. However, rising feedstock costs across the oil palm complex in recent days against the backdrop of tightening supply globally is causing the market to reverse direction, increasing demand for spot volumes and putting upward pressure on the market. Demand has also increased in Mexico with increased ethylene oxide (EO) in the country in the last several weeks.
Shell remains on force majeure into October because of lingering feedstock constraints following Hurricane Ida in late August but has increased its allocation levels from September. Freely-negotiated contracts for heavy chain alcohols settled at a sharp increase, tracking tight supply, strong demand and bullish shipping container freight costs. The ICIS US C16-18 fatty alcohols quarterly price assessment is assessed on a bulk basis or bulk equivalent basis. Because few suppliers have bulk storage capabilities in the US, bullish container freight costs prompted a wide range of prices this quarter. A limited number of suppliers have tank storage capacity in the US to process and store heavy chain alcohols in bulk. Mid-cut alcohols are less susceptible to these disruptions, as they are largely shipped in bulk.
Q4 contract price ranges*
| Product | Price (cents/lb) | INCO | Location |
| C12-C15 | 97-112 | DEL | USG |
| C16 | lower 110s-140s | DEL | USG |
| C18 | lower 110s-140s | DEL | USG |
| C16-18 | 114-134 | DEL | USG |
Prices for petrochemical alcohols were heard at both ends of the above ranges amid the ongoing force majeure at Shell's US Geismar, Louisiana, site. In the wider market, multiple producers have switched their contract terms from a DEL (delivered) to a FOB (free on board) plus freight basis because of volatile and bullish freight markets. Spot prices have been heard at least 5-7 cents/lb above Q4 contract levels.
Mass Balance (RSPO) Premiums widened to 7.0-13.5 cents/lb over standard balance material from 7.0-13.0 cents/lb the previous week. Supply of mass balance (MB) material continues to tighten following the US ban on palm oil from Malaysian palm oil giants Sime Darby Plantation Berhad and FGV Holdings Berhad in 2020 against the backdrop of ongoing pandemic-related disruptions throughout southeast Asia. In addition to the ban on Sime Darby and FGV, in the August-September period US Customs and Border Protection (CBP) denied entry to at least two Malaysian-origin vessels carrying oleochemicals from another producer. While these disruptions did not hugely impact US fatty alcohols markets, they have raised concerns among market participants of expanding scrutiny against Malaysian-origin material as RSPO MB markets continue to tighten. Rising premiums are making coconut-based material competitive with MB material, in turn increasing demand for coconut-based fatty alcohols, especially given the bullish container freight market.
Coconut-based alcohols do not fall under the same environmental scrutiny as palm-based material [true - but give it time], making them a viable alternative to MB material when pricing becomes competitive in sectors where sustainability labelling is common, like personal care and cosmetics. In the meantime, market players in Malaysia are working to reorganise their supply chain to avoid further disruptions, given the latest CBP action.
The other big hydrophobe, LAB, made news in India this month. Interest in the linear alkylbenzene (LAB) import market in India perked up, following the recent announcement of a 6-month delay of the Bureau of Indian Standards (BIS) deadline of mandatory certification requirement on imports. The BIS in April this year announced that various chemicals and polymers have 180 days to meet the deadline for the implementation of mandatory certification requirement on imports. The deadline has since been pushed back another 180 days from 8 October for LAB and some other chemicals. Suppliers in Asia and the Middle East have shunned the Indian market in recent weeks as the deadline loomed, with most not having been certified. However, sellers interest has been rekindled this week with some preparing to make offers to the subcontinent. “With the deadline now pushed back, sellers will likely refocus sales to India,” said a trader in Asia. However, with competition on the Indian import front likely to heat up, some participants anticipate some downward pressure on the market. Already, a Middle-Eastern producer has fired the first salvo with a lower offer to India this week, prompting sellers to potentially recalibrate quotations lower to compete. “Buyers are looking for lower prices as more sellers are likely to emerge near term,” said an end-user in India.
While sellers in Asia welcome an alternative outlet in India, given the lukewarm demand in other markets such as Southeast (SE) Asia; some raise concerns that intensifying competition into India and a potential weaker market as a result, could have a spill-over effect in Asia. “Lower prices in India could weigh on sentiment across Asia, as demand here is average,” said another trader in Asia. Demand has been slow in SE Asia due to surge in pandemic cases and restrictions in Q3. There are general expectations for improving demand following tapering off of cases and gradual reopening of economies but thus far, no significant jump in demand has been seen.
Meanwhile for LAB in Asia: The Asian linear alkyl benzene (LAB) market was largely steady week while some sellers continue to pivot to the India market. Sellers noted that the subcontinent has become another viable outlet for their cargoes as southeast Asia continues to see lukewarm demand. Previously, some sellers have kept away from India as they could not meet the certification deadline. While selling competition to India is expected to increase, selling indications have been quite wide with one Middle Eastern seller quoting lower prices to engage buyers, while a separate seller was eyeing $100/tonne higher than the former on the back of firm raw material costs. Selling indications came in from the high $1,700s/tonne CIF India to the high $1,800s/tonne CIF India, ICIS data showed. “The selling numbers are quite far apart as some customers prefer one source over another,” said a trader in India. Asian sellers are also monitoring the India market closely and are expected to make quotations in the near term.
In southeast Asia, offers of LAB parcels were also heard in a wide range depending on origins. Quotations ranged from the high $1,700s/tonne CIF SE Asia to the high $1,800s/tonne CIF SE Asia.
Buyers remain unhurried and bought on a need-to basis. Ongoing and upcoming scheduled maintenance in northeast Asia in the fourth quarter is expected to tighten availability to some degree, while relaxation of pandemic restrictions could potentially lift demand also. “The SE Asia market remains stable for now but demand could pick up subsequently,” said a trader in Asia. Chinese suppliers continue to focus on the domestic market, as output has been curtailed by earlier plant incidents, as well as ongoing turnarounds.
Prices for fatty alcohols in Asia have risen on the back of surging cost of feedstock palm kernel oil (PKO), prevailing tight supply and strong buying interest for spot cargoes – ICIS reported. Spot offers for mid-cut C12-14 blended and long-chain C16-18 blended grades spiked by about $200/tonne this week on costs pressures, and as a supply crunch coupled with rising demand followed the return of Chinese players from a week-long holiday in early October. Several fatty alcohol plants in southeast Asia and China were either recently shut for maintenance or running at reduced rates, tightening supplies at a time when buying interest for prompt cargoes intensified amid the upward trajectory of the feedstock PKO price. “Enquiries from China have picked up due to the current short supply. Generally, sentiment is bullish and Chinese spot buyers are keen to lock in some grades due to supply security concerns,” a regional producer said.
“The $150-200/tonne surge in the feedstock PKO price to more than $1,800/tonnne amid the current tight market has lifted offers for C12-14 and C16-18 blends by around $200-300/tonne this week due to eroded margins and costs pressures,” another supplier said.
Some buyers are holding back and cutting down on their spot volumes to wait for a clearer market picture. Meanwhile, some fast-moving consumer goods (FMCG) companies worried about supply security are looking at locking in their first-quarter 2022 supplies amid expectations that demand will pick up with the global economy opening up, market sources said. “We are sold out for the year due to contractual commitments and have closed our books for the year. We have no spot [cargoes] available,” another regional producer said. Demand from the downstream tourism, hospitality, home personal care, and food and beverage sectors are expected to spike when the regional economies in Asia open up by the end of this year. Adding to the upward price pressure on the fatty alcohols market are logisticial issues, including high container freight rates, limited vessel space, delayed shipments and demurrage.
It will come as no surprise, then, that ICIS reported that Asia’s fatty alcohol ethoxylates (FAE) market is likely to face upward pressure in the near term on Chinese demand amid soaring feedstock ethylene oxide (EO) and fatty alcohols prices. Chinese spot appetite for FAE imports has increased following the National Day holiday on 1-7 October. Regional producers in southeast Asia have increased their spot offers by $100-150/tonne due to eroded margins from rising feedstock costs.
“We have no choice but raise our offers by at least $100/tonne for November shipments to China due to the surge in the feedstock fatty alcohols costs,” a regional producer said. Fatty alcohols C12-14 blend prices surged by $170/tonne to $2,210/tonne FOB (free on board) southeast (SE) Asia in the week ended 13 October, ICIS data showed. In the Chinese domestic market, limited supplies and rising domestic prices had prompted enquiries for imports. “Chinese domestic feedstock EO prices and FAE prices have gone up sharply by about yuan (CNY) 800-1,000/tonne in the past week because of limited local supplies. Plants were shut or were running at reduced rates due to the dual control policy, so demand for FAE imports has strengthened,” a trader said. “Transportation and delivery costs are expected to go up in China due to difficult road conditions and logistics issues during the cold winter season, so this will also add upward pressure on prices,” another trader said.
Several feedstock fatty alcohol and ethylene oxide (EO) plants in China were shut or were running at reduced rates following the implementation of the dual control policy. The dual control policy places tighter limits on energy consumption and intensity in parts of China to enable the nation to reach a 'carbon peak' in 2030 and carbon neutral by 2060.
Blog favorite, Stepan made a lot of news this month. First up – the announcement that Stepan plans to invest $220m to build a new alkoxylation plant at its site in Pasadena, Texas. The new plant will provide a flexible capacity of 75,000 tonnes/year, capable of both ethoxylation and propoxylation, and better position the company to serve growing global demand in its surfactant and polymer businesses. The plant is expected to come online in late 2023. When operational it will bring Stepan's alkoxylation network to three plants and position the company with a footprint in the globally strategic US Gulf Coast. Nice. Of course, readers will remember that this has been the plan since the acquisition of the Pasadena site from (then) Sun and the simultaneous shelving of the Geismar, EO pipeline project.
As always, Stepan’s quarterly earnings announcement makes informative reading. The company’s Q3 sales rose 30% year on year while gross profit and operating income fell as cost of sales jumped 39% because of the ongoing supply chain disruptions.
| Stepan, three months ended 30 September | |||
| (in thousand $) | Q3 2021 | Q3 2020 | % change |
| Net sales | 602,688 | 464,480 | 30% |
| Cost of sales | 510,792 | 367,423 | 39% |
| Gross profit | 91,896 | 97,057 | -5% |
| Operating income | 40,213 | 42,395 | -5% |
| Net income | 36,920 | 33,168 | 11% |
- Surfactant operating income fell 16% largely due to North American supply chain disruptions, higher planned maintenance costs, and the non-recurrence of an insurance recovery recognised in Q3 2020, related to the 2020 Millsdale, Illinois plant power outage
- A 6% decline in Stepan’s global surfactant sales volume, mostly related to the company’s consumer products business, was offset by improved margins, product and customer mix.
- Polymer operating income dropped 12% mostly due to the non-recurrence of the Millsdale insurance recovery, as well as compensation received from the Chinese government in Q3 2020 related to the government-mandated shutdown of a joint venture in 2012.
- The company’s global Polymer sales volume rose 27% largely due to the acquisition of INVISTA's aromatic polyester polyol business in Q1 2021.
- In the Specialty Product business results were up due to higher volume and improved margins.
- Net income rose year on year as Stepan’s Q3 2021 provision for income taxes was much lower than in Q3 2020.
Looking at Q4 and beyond, Stepan believes that its Surfactant volumes in the North American consumer product end markets will continue to be challenged by raw material and transportation availability, said CEO F Quinn Stepan. While Stepan believes industrial and institutional cleaning volume will grow versus prior year in Q4, it does not believe that this will compensate for lower consumer consumption of cleaning, disinfection and personal wash products, he said.
However, demand for surfactants within the agricultural and oilfield markets is expected to exceed prior year demand, the CEO said. Meanwhile, Stepan’s Polymer business is expected to grow, due to the ongoing recovery from pandemic-related delays and cancellations of re-roofing and new construction projects and the INVISTA acquisition. “We continue to believe the long-term prospects for rigid polyols remain attractive as energy conservation efforts and more stringent building codes are expected to continue,” Stepan said.
Stepan’s Specialty Product business results will improve slightly year-on-year in Q4.
“Despite supply chain disruptions continuing to impact the company, we remain optimistic about delivering full year earnings growth," the CEO added.
The company made additional comments on inflation during the earnings call. Stepan expects additional inflation in Q4, the CFO said. Luis Rojo, vice president and CFO, cited current oil prices around $83/bbl that could pressure production and transportation costs, though perhaps at a slower rate than in previous quarters. "In a high-inflation environment, of course, you always have a lag between pricing and cost," he said. In Q3, Stepan saw significant impact to its polymers margins due to raw material availability and escalating costs, said Scott Behrens, president and COO. The company announced price increases in October for CASE polyols and surfactants, to continue recovering margins, Rojo said. "Inflation is still out there but we, of course, are planning to recover our margins on a gradual basis."
ICIS went on to elaborate on the comments Stepan made regarding the oilfield and agriculture markets. Demand for surfactants within the agricultural and oilfield markets is expected to exceed prior-year demand, US-based Stepan said in its Q3 earnings call.
With crude oil prices in the $80s/bbl and natural gas prices expected to be 27% higher than last winter, oilfield activity has increased throughout 2021, increasing demand for commodities such as surfactants and triethylene glycol (TEG). In agricultural applications, high commodity prices and a favourable currency impact on exports are driving increased planted areas of major crops in Brazil, the company said. In North America, high commodity prices for corn and soybeans, as well as increased planted acreage for the 2021 growing season, drove strong crop protection sales, Stepan said.
We don’t normally report what exactly goes at our conferences, because, you know – you gotta be there! However, ICIS wrote a piece on the great Norm Ellard's overview of oleochemicals, so I figured it was OK to excerpt it here: The global oleochemicals market is facing major supply-side and cost issues that will continue to affect the industry as it grapples with logistical challenges stemming from the COVID-19 pandemic, Norm Ellard the president of trading firm IP Specialties Asia noted – at the conference. “Force majeure is now a way of life [in the oleochemicals industry], nothing is immune,” he told delegates at the ICIS European & Asian Surfactants Conference. “We have enforced lower running rates due to COVID, we have lack of people [manpower]. In the plants raw materials even basic building blocks like ethylene has been tight, and now even hydrogen has been tight,” he said. The energy shutdowns due to high costs such as in China are also impacting production and supply, Ellard said. “We are finding out that the cost is king approach has not served us well in today’s market as we go through these supply crunches,” he said. Getting the material to the market remains a major challenge, with ports being shut due to COVID-19.
“We are finding out that the real essential services are truck drivers, ship captains, air pilots,” Ellard said, adding that some 13% of the world’s cargo shipping capacity is now tied up in delays. On the cost side, the oleochemicals space is facing raw material prices at record highs, or highs not seen for many years, he said. “Suddenly logistic costs are now a significant part of the cost of goods. We used to [be] able to ship a container from Asia to the US for $2,000-3,000, now in some cases we are getting estimates of $18,000-20,000,” Ellard said. Supply chain issues have now overshadowed the importance of being a low-cost producer, with having the ability to ship on time to the customer at reasonable costs being more crucial, he said. Southeast Asia, for instance, has lost its advantage to be a global supplier of oleochemicals to the world unless they shipped by bulk, Ellard said. “But the irony is that there is where most of the production [oleochemicals] is,” he added.
Finally: As readers know, we like to spend time on YouTube plumbing the back catalogues of, mainly, heavy rock bands. This month, however, it’s worth pointing out that there are some great videos on there featuring Sasol and in particular, Fleetwood Groebler and Brad Griffiths, both friends of the blog. The event was Sasol’s Capital Markets Day – for which there is a webpage that you should check out here. https://www.sasolcapitalmarketsday.com/content.aspx#a There are links to the slide presentations and the videos.
But over to YouTube. First up, let’s hear from Fleetwood, who is now CEO of Sasol.
Next up – homing in on the chemicals business and in particular the surfactants and feedstocks area – Brad Griffiths.
I also wanted to highlight this one from Marius Brand that covers Sasol’s Fischer Tropsch technology and the formation of a new Sasol business unit, Eco-FT - formed as of the day of the capital markets event. Interesting.
That, then is the end of the news and so now to some music. What seems relevant? The 70’s and early 80’s of course. Our tribute to the New York City of the Warriors
Nothing says New York like the Ramones at CBGB’s
or Blondie at CBGB’s
Or.. who remembers that great New York heavy rock band, Riot? This was a truly great band. Their album Narita - a classic with not a bad song on it. How are they not better known? Not sure - but see last month's blog re Metallica..
So… I'm still not done with the urine and the marijuana. The marijuana I get. It’s pretty much legal and folks want to toke so, even though they are not “15 feet away from the building” like the hapless Marlboro men, it’s somewhat socially acceptable, I suppose. The urine though: Let’s stick with the homeless theory. If you live on the street, chances are that your bodily functions will need to be performed on or in the street. What struck me as ironic though during our weekend – as a person with a house and also a hotel room, I was able to use the restroom anywhere I wanted. I who had the least immediate need had by far the greatest access. Why? I honestly think it’s because I wear nice jackets (Paul Stuart or Charles Tyrwhitt, if you’re curious). I can and do walk into anywhere (even those places that have “restrooms for customers only”), ask where is the restroom and use it. No-one dares challenge or worse yet, evict, the man in the nice jacket. Now, I imagine that on becoming homeless, one of the first things to go is the jacket, if you even had one in the first place. So restroom access becomes a little trickier. I’m not being flippant. This is a problem. Human dignity is being depleted in our cities. Citizens are being classified and separated from each other in many ways. Restroom access is merely one of them.
Singapore is a big city and this sort of thing doesn't seem to happen there. Should New York become like Singapore. Maybe. If its residents would like to. Although they may find that some pesky amendments to the US constitution prevent some Singaporean measures being applied in the big apple. I have no answers. Just thinking and sharing those thoughts. What do you think ?