Surfactants Outlook - 2014
For the first time, we have been persuaded to put forward an “Outlook” for surfactants in the coming year. All projections and predictions are, by definition, wrong as soon as they are made. What I provide here are some ideas about what could happen that I recommend you bear in mind as you plan and execute your business in the next 12 months. In some cases, I have been vague about the identity of companies that are mentioned. If you read closely enough and you are in the business already, you will likely guess who I am talking about. This post contains absolutely no confidential or inside information; just reading the tea-leaves, joining the dots and admittedly adding 2 and 2 to get 5. If you’d like to call me out in person for something I say here, I will see you at our 4th ICIS World Surfactants Conference in NYC, May 15 – 16th, 2014. You will also have an opportunity there to spend time face-to- face with practitioners far more expert than I am in their surfactants fields.
First the easy one: Huntsman will sell its European surfactant business, comprising sulfonation and ethoxylation plants. This has been announced and that is why it is an easy prediction. They will take the money and invest it in something that makes them a better return than what a non-integrated converter makes in an over-supplied commodity market when they are not a low cost producer. Who will buy the business? Clearly the opposite of Huntsman; that is a vertically integrated manufacturer that has a credible claim on being a low cost producer. There are a handful of them around and most are HQ’d in Southeast Asia. I won’t name the company I favor, but you know them already. Furthermore, the next steps for this company are further downstream and further West. Companies like Huntsman will therefore play to their strengths, which are to be found, in the case of Huntsman, on the US Gulf Coast, plugged firmly into an advantaged ethylene supply.
Here’s another easy one: The last of the major non-pipeline supplied ethoxylators in North America will set up a pipeline integrated EO supply. Not Solvay; that has already been announced. The completion of this move will set the clock ticking on the other stragglers, although there remains money to be made on high value specialty ethoxylation even when you are slap in the middle of the country and served by a railroad that would much rather be hauling cabbage or livestock or anything other than a highly explosive gas.
One more easy one: Oil and gas Chemicals will continue to be hot. Following Ecolab’s announcement of the acquisition of Nalco in July 2011 (followed by the acquisition of Champion), their stock shot up to outperform the Dow by 3X since then. Expect additional M&A in this field (pun intended) by companies like Sealed Air (new owners of Diversey) and surfactant companies looking to de-emphasize detergents and personal; Huntsman, Stepan, Sasol and BASF spring to mind.
Other non-detergent surfactant businesses will attract surfactant companies. These markets include, food, agriculture, emulsion polymerization and industrial lubricants. Small to mid-sized companies with a strong position in these markets may find it an opportune time to sell to their larger competitors. M&A will be a key factor here as getting into these markets, is easier said than done and, regardless, takes time.
We expect at least one merger between two of the Southeast Asian plantation based companies; one of whom has a significant and growing downstream presence in surfactants. The resulting giant will be active in investment in North America, particularly in ethoxylation and maybe also sulfonation. New projects are favored, although an acquisition in the US is not out of the question.
Europe continues to attract surfactant investment and something has to give. So we will see some significant surfactant and feedstock capacity being take off-stream by at least one of the old-line surfactant manufacturers in the field. This action will at least support a somewhat improved asset utilization rate in the industry as a whole. However, gross margins will at best hold level for the year.
Big chemical companies will continue to be flush with cash and therefore keen to do deals. Much of this money will be spent in areas relating to surfactants. We expect at least 2 or 3 private companies to be acquired in each of North America and Europe. Most by companies from Asia and a large Middle-Eastern acquirer who continues to move downstream into specialties where possible.
Thanks again for indulging these speculations. One final “prediction” I can make and that is we will have an outstanding time meeting, talking and networking at the 4th ICIS World Surfactants Conference in NYC, May 15 – 16th, 2014. I’ll see you there.