Surfactants Quarterly – Q1 2013
With World Surfactants III (that is the 3rd ICIS World Surfactant Conference, in NYC) only just over a month away, I thought this would be a good point at which to review our markets over Q1 2013. In summary, we have seen the strengthening of some trends, sprinkled with a few surprises. A hat-tip is due to ICIS for a good portion of the news used in this summary, but responsibility for views, opinions and even the occasional error, rests entirely with me. As a heads-up, I have noted in this review, some exclusive conference content available at the upcoming World Surfactants III in NY, that relates to the subject matter discussed. If you would rather skim over this shameless commercial plugging, I have helpfully highlighted these comments in italics.
Q1 2013 in surfactant feedstocks started as 2012 ended, with much hand-wringing over the projected growth of fatty alcohol production capacity in Asia. 5 projects underway are expected to boost Asian production by over 500,000 MT/yr or over 30% by the end of this year. Utilization was projected to decrease along with prices and of course they did. None of this should be surprising. Fatty Alcohols are a commodity chemical and this is what commodities do; they move in capacity and pricing cycles. The schedule of Asian start-ups as reported at the beginning of the year, by ICIS is noted in the following table.
| Company | Capacity KMT/yr
|
Location |
| Musim Mas | 100 | Medan, Indonesia |
| Wilmar | 144 | Gresik, Indonesia |
| China Sanjiang Fine Chemicals | 135 | Zhapu, Zhejiang province, China |
| Kuala Lumpur Kepong | 100 | Klang, Malaysia |
| Pilipinas Kao | 40 | Jasaan, Philippines |
|
Total |
519 |
Of course the pricing trend in fatty alcohols has been assisted by the downward trend in PKO (Palm Kernel Oil) pricing with the Q2 fatty alcohol settlements recently announced by ICIS, confirming that we are still on the downward trend in the cycle.
Offsetting, to some extent, for surfactant manufacturers, the fatty alcohol trend, is the EO (ethylene oxide) trend, pricing for which continues to march upward on a contract and spot basis. The underlying driver for this is clearly supply and demand rather than ethylene pricing to which much EO is either explicitly or implicitly indexed. The imperative of being either on an EO pipeline or producing some very high value specialties continues to confront ethoxylators.
In other EO News; China Sanjiang Fine Chemicals (also a fatty alcohol producer – see above) announced late February, that it started commercial operations at its ethylene oxide unit, with a nameplate capacity of 100,000 MT/year, at Jiaxing in Zhejiang province, The company owns three 60,000 MT/year EO units at the same site. They also have a joint 100,000 MT/year EO unit at the same site with (Korean Co.) Lotte Chemical,. Sanjiang takes half of the plant’s output, adding 50,000 MT/year into its total nameplate capacity. Sanjiang’s total EO nameplate capacity is therefore increased to 330,000 MT/year with the new EO unit. For context, this puts the company, probably top 5, definitely top 10 in EO capacity globally. And they are a fatty alcohol producer. If you are in the surfactants business, you need to get to know this company.
Other big feedstock developments involve linear alpha olefins. Mid February, Shell Chemical announced that it is considering the addition of a fourth world-scale linear alpha olefin unit at its Geismar, Louisiana, petrochemical facility. The unit, which would complement three existing linear alpha olefin units at the Geismar facility, is intended to help meet growing global demand for products such as polyethylene (PE) co-monomers, lubricants and lubricant additives, surfactants and offshore drilling fluids. The use of LAO in the production of AOS (alpha olefin sulfonates) is well established in North America although AOS never fulfilled its initial promise of becoming a workhorse surfactant on the scale of, say, LAS or AES. Nonetheless, expanded availability of cost effective LAO is expected to drive AOS consumption, especially in HI&I (Household, Industrial & Institutional) surfactants. Of course, the proposed unit would take ethylene feedstock from Shell crackers in the US at Deer Park, Texas, and Norco, Louisiana. Such feedstock enjoys cost-advantaged status as the result of drawing upon shale-gas derived ethane, another area in which Shell has announced major investments.
Chevron Phillips another US producer of LAO’s , is studying a 20% increase in capacity at its Cedar Bayou, TX LAO plant. Chevron is another major investor in the shale gas value chain up to and include new ethylene cracker capacity.
In other LAO news, Dow has partnered with Idemitsu (an existing LAO producer) and Mitsui around an ethylene offtake agreement to support linear alpha olefin production. Idemitsu and Mitsui are exploring the creation of a JV to build a 330 KMT/yr LAO plant in the Gulf Coast area of the US. The LAO plant is expected to take ethylene from the newly expanded (by 1.5 Million MT) Dow cracker capacity. A final investment decision will be made in 2014, with LAO production starting up in 2016.
Looking further out, Japanese chemical producer Mitsubishi Chemical has made an agreement with Qatar Petroleum and Shell Chemicals to license its production technology of oxo-alcohols at a new petrochemical project in Qatar.. The Al-Karaana Petrochemicals Complex, which has yet to be built in Ras Laffan Industrial City, will also include a naphtha cracker, mono-ethylene glycol (MEG) and linear alpha-olefins plants, and will utilize feedstocks derived from natural gas.
LAB (linear alkylbenzene) continues to dominate the surfactant value chain both as a workhorse surfactant platform and as a benchmark for cost / performance against which all other feedstocks are measured. In mid- March, Indian Oil announced plans to expand its LAB plant at Vadodara in Gujarat state by 42,000 MT/year in 2015-2016. The company expects demand for LAB in India to grow at 6-7% annually in the coming years, as rural consumption of consumer products containing surfactants increases. Following the expansion, Indian Oil's LAB capacity will increase to 162,000 MT/year. According to ICIS, India has an installed LAB capacity of 530,000 MT/year. Consumption of LAB totaled 500,000 MT/year in 2012, however, low operating rates at some Indian plants as well as exports of around 60,000 MT/year, resulted in a deficit of 140,000 MT/year, which was met by imports, ( a 40% increase over the previous year). Other LAB producers in India include Reliance Industries, Nirma and Tamil Nadu Petroproducts Ltd.
In other LAB news which came over the wire on April 3, so not strictly speaking Q1 news, but really quite intriguing for me: Qatar's new sales and marketing firm, Muntajat, has assumed sole responsibility for marketing LAB and heavy alkyl benzene (HAB) produced by SEEF. SEEF produces the products at its complex adjacent to the Qatar Petroleum Refinery in Mesaieed.. The plant has an annual capacity of 80,000 MT/yr of normal paraffin, 100,000 MT/yr of LAB and 36,000 MT/yr of benzene. The LAB complex can also produce 3,500 tonnes/year of HAB as a by-product. HAB is often used as a sulfonation feedstock for applications in oilfield and lubricants. Muntajat was established by the Qatari government in 2012, part of a move to consolidate the marketing and distribution of the country's chemicals. Already, Muntajat has taken over the marketing and sales of methanol, methyl tertiary butyl ether (MTBE), urea and ammonia from the country’s large, gas-based producers.
Muntajat currently handles marketing, sales and logistics for nearly 70% of Qatar's petrochemicals and fertilizers. By the end of April, Muntajat will be handling 80% of the country’s chemicals and fertilizers output, with only polymers outstanding. Something else to note; our friend Bob Chouffot, formerly of Shell’s HODer Business is now running Muntajat’s marketing and strategy. Look for Muntajat to be an increasingly large and visible factor in the surfactant supply chain in coming years.
If the economics of feedstocks and the impact on surfactant markets is of interest to you, then World Surfactants III in NY, May 16-17th, will have some material of relevance: A paper from RSPO looks at sustainable palm oil production. Joel Houston of Colin Houston Associates will analyze the LAB and synthetic alcohol markets. Doug Rightler of EOD, Inc. returns for a comprehensive analysis of the EO value chain. ICIS Pricing delivers, for the first time, a comprehensive pricing review in all the areas that ICIS covers that impact surfactants, including the recently published LAB/LAS report. As an interesting bridge between new and old technology, Nexant will analyze and benchmark the economics of today’s workhorses with the emerging new feedstocks based on bio-renewables. To add further objective and analytical heft, Lux Research will present their “state of the union” on bio-renewables.
Further downstream, Solvay announced some organizational changes at the beginning of the year, with, of course the Novecare division (most of which came with the Rhodia acquisition) being of most relevance to the surfactant industry. Solvay now has five operating segments: Consumer Chemicals, Advanced Materials, Performance Chemicals, Functional Polymers, and Corporate Business and Services. The Consumer Chemicals segment serves the consumer products markets, and includes Aroma Performance, a producer of diphenols and derivatives, and Coatis, a Latin American producer of Phenol and Solvents. The business unit will also include Solvay’s Novecare business, which produces specialty surfactants, polymers, amines, solvents, guar and phosphorus derivatives for the agrochemicals, coatings, home & personal care, industrial manufacturing, and oil & gas industries.
In related Solvay news; the Novecare business unit, in Q1 finalized plans to increase its global derivatised guar production by 40% with the completion of expansions in the US and China.. Derivatised guar is a polymer produced from a bean grown mainly in India, from which guar gum, a polysaccharide, is extracted. It is used in various applications including agrochemicals, cosmetics, and oil and gas extraction. The expanded Vernon, TX derivatised guar facility will serve Solvay's customers in the North American oil and gas market, while the increased capacity at the group’s Zhangjiagang site in Jiangsu province, China, will supply its home and personal care customers to meet growing regional demand for high-end hair care products.
The keynote address at World Surfactants III will be given by Solvay Novecare and will analyze the strategic challenges and the initiatives taken in response to them, by this leading global surfactants company.
Also downstream; in a strategically unsurprising move, which may, nonetheless feature in some business school accounting case studies, Polish surfactants producer PCC Exol signed an agreement to acquire US-based specialty chemical additives developer PCC Chemax in late January.
PCC Exol will pay its parent group, Germany-based chemicals, energy and logistics group PCC, zloty (Zl) 39.4m ($12.6m, €9.4m) for 100% of the Piedmont, South Carolina-based firm. Preliminary financials showed PCC Chemax had a net profit of $1.1m on sales revenues of $26.1m in 2012. PCC Chemax, founded in 1973 as Chemax, sells products for applications including polymer additives, metalworking, metal cleaning, textile additives and corrosion protection. PCC Exol, headquartered in Brzeg Dolny, southwestern Poland, is a manufacturer of anionic (40 KMT/yr capacity), non-ionic (60 KMT/yr capacity) and amphoteric surfactants.
Stepan continued to thrive as evidenced by its Q4 2012 earnings announcement which came toward the end of February. Stepan can be considered a bellwether of the surfactant industry (particularly re North America), as it is the only publicly quoted company (NYSE: SCL) whose results are driven primarily by surfactants. Other major surfactant companies are either business units “buried” within much larger parents (e.g. BASF) or are privately owned (e.g. Pilot Chemical). In summary, for Q4, net income rose 17% year on year to $15.4m (€11.6m). The improvement in net income was largely driven by lower raw materials costs and a better product mix in surfactants, Stepan’s largest business segment, the company said.
In other Stepan news, in it’s earning call, the company noted that it is looking to further expand its surfactants production capacity in Brazil. They may either build a second plant in Brazil, or expand the existing facility at Vespasiano, near Belo Horizonte. The announcement underscores a trend of companies investing in this growing, innovative, but still quite concentrated market for surfactants and related consumer product ingredients.
Evonik (the current umbrella for some of the former Degussa, Goldschmidt and Huls businesses) continues to invest in surfactants. In March the company announced that in Jilin, north China, it is building new plants for hydrogen peroxide and organic surfactants, which should come on stream by year-end 2013. Also, like Stepan, Evonik is investing in Brazil to build plants for its amino acid Biolys and for cosmetic raw materials.
Brazil and more generally, Latin America, continues to be a topic of discussion at the World Surfactant Series. World III in May features a presentation from Natura on the topic of surfactants in the cosmetics industry. Natural is becoming quite a well known name globally, but not many people still really know the company in-depth.
Another old-line company which continues to build aggressively in surfactants, in emerging markets is AkzoNobel. In late March, Akzo announced that it will invest €65m ($84m) to increase capacity at its surface chemistry manufacturing sites in Boxing of Shandong and Ningbo of Zhejiang in China. More than half the money is being invested in the Boxing facility, which AkzoNobel acquired when it took over Boxing Oleochemicals in January 2012. A large portion of this is going toward building a multipurpose reactor to expand local production capacity for amines. In Ningbo, a new alkoxylation unit will be built. Simultaneously, Akzo announced its exit from the merchant fatty acid business in Boxing, closing down two out of three fatty acid plants at the site. This move mirrors that of many other Western firms (such as Croda, and Cognis) who have divested fatty acid assets in favor of investment in downstream value added derivatives.
Interestingly, this re-arrangement of the ownership of various pieces of the value chain was addressed in last years ICIS Conference series in a set of papers and comments that I delivered in New York, Budapest and Singapore. This analysis of vertical integration (and dis-integration) went under the title of “Attack of the 50 ft Surfactant Company” in Budapest. However the theme for 2013’s ICIS Surfactant conferences will be the response to volatility. Do today’s managers in the surfactant industry have things easier or harder than those 20 – 30 years ago? And what should we do about it? (I actually have a snappy title for this theme also, but I’m holding onto it until May.) My opening remarks at World Surfactants III in May will introduce this topic and we will develop it throughout the year in Brussels in September and Singapore in November.
Finally, in a move which may not mean much outside of Dubai, but which nonetheless caught my eye, Sasol has sold its Dubai based LAS business to a local chemicals group, Al Nahda International. The plant is small (15KMT/yr) and sales are regional. Sasol’s position in surfactants is not affected by this divestiture, in my view.
Of course developments in surfactants do not happen independently of the consumer and industrial markets for them. In the first quarter, much has happened in the laundry market for example, with the emergence of mono-dose and the revelation in the Wall Street Journal that P&G benefitted from the introduction of the extremely successful Tide Pods, arguably at the expense of the rest of the industry. Competitors complained (to journalists). Welcome to creative destruction guys; maybe you missed that class – so here’s a condensed version (courtesy of UCSB).
More generally, in the mind of the consumer and therefore in the mind of the CPG company, ingredients loom large. “What’s in there?” and “Is it good for me and my family?” are questions being asked literally millions of times per day in supermarkets and corner shops. The market has responded with an increasing focus on ingredient disclosure and, in some cases, commitments to eliminate or replace. This trend results in some interesting paradoxes where, for example, MES can be positioned as green and “better” than LAS as it based on palm oil, while at the same time it is condemned by some sectors for the very same reliance on mono-culture palm plantations.
At World Surfactants III, RSPO again may be relied upon to mount a robust defense of palm. Mintel and Good Housekeeping will represent the voice of the consumer and its impact on the formulation of products. Method, fresh from its combination with Ecover will give their take on how they manage “what’s in there”. And in a rare public speaking engagement, J&J will relate some advances in personal care products and the surfactants which comprise them.
I hope you found this review helpful. If you did, let me know and I may consider making it a regular letter. If you see room for improvement or would like to contribute your own inputs – of an editorial or reporting nature, please drop me a line.