Surfactants Quarterly Review Q2 - 2013
As we usually do on a quarterly basis, I have summarized key news from the surfactants market, aided substantially by the news team at ICIS. A number of links in the article point to ICIS articles (most need a subscription). As always, your inputs and critiques are welcome. For more up to the minute surfactant information and networking, I will see you at the 2nd ICIS European Surfactants Conference in Brussels, September 12th and 13th.
The first quarter ended with some concerns about EO supply, notably in Europe where a heavy slate of planned EO plant turnarounds was scheduled for the second and third quarters of 2013. In Europe, there has been a general trend in recent years towards market consolidation in EO, involving capacity losses, acquisitions and a focus on captive demand rather than merchant demand, for economic reasons. However, in October 2012 a source at Shell Chemicals said that the company was considering whether to expand EO production capacity at its Moerdijk site in the Netherlands. The proposed expansion would include an increase in high-purity EO production capacity, the source said. Shell's Moerdijk facility currently has a nameplate EO equivalent (EOE) capacity of 305 KMT/yr. Aside from Shell's proposed expansion at Moerdijk, no new capacity is planned in Europe. The gap between ethylene prices in Europe and the US means that producers of ethylene derivatives are struggling to maintain competitiveness.
In April, Solvay, underlined its commitment to surfactants with two new capacity addition announcements. First the company announced that it will build a specialty surfactant plant at an industrial park in Genthin, near Berlin in Germany. The unit is scheduled to be operational by the first quarter of 2014.
Second, Solvay noted investment in a large-scale alkoxylation facility in Singapore to serve the fast-growing Asian market in home and personal care, coatings, industrial, agrochemicals and oil & gas. Expected to start operations by 2015, the plant will be connected to Shell's new high purity ethylene oxide (HPEO) unit in the integrated petrochemical hub of Jurong Island.
The Shell Singapore new production facilities were announced in April also, including a high-purity ethylene oxide (HPEO) purification column and two world-scale ethoxylation units. The company is also proceeding with upgrading works at its polyols production facility as announced in February and expects the projects to be completed next year. The new production units will add to Shell's existing HPEO capacity, which is currently at 65 KMT/yr and alcohol ethoxylates capacity of 40 KMT/yr. The HPEO purification column being built will have an initial capacity of 140 KMT/yr , while the two ethoxylation units will have a combined capacity of 140 KMT/yr.
According to Shell’s EVP Graham van’t Hoff, "The demand for alcohol ethoxylates in Asia is expected to increase at approximately 6-7% annually over the next five years. The key driver for this is the move by consumers from laundry powder and soap bars to liquid detergent and liquid soaps, especially in major markets like China, India and Southeast Asia," Feedstock for the new HPEO plant will come from Shell's EO/monoethylene glycol (MEG) plant on Jurong Island that is integrated with the company's ethylene cracker through to its refinery in nearby Bukom Island.
In a move with tangential importances for surfactants, Clariant signed a deal in April, with Ecolab to acquire several of the cleaning services firm's deep-water assets in the Gulf of Mexico for an undisclosed fee. Ecolab had to divest the assets as a prerequisite by the US Department of Justice (DOJ) for the approval of its acquisition of US specialty chemicals producer Champion Technologies. The assets include Champion Technologies' oil and gas production chemicals.
Also in April, it was announced that BASF's new chemicals production site at Dahej, India, is on track to begin production in early 2014. The cost of the project - on the west coast of India in Gujarat and being developed by local subsidiary BASF India - is estimated at around Indian rupees (Rs) 10bn, ($183.12m). The project, which broke ground a year ago, represents BASF's largest single investment in India. The care chemicals facility at the new Dahej site will produce surfactants largely for home and personal care. These surfactants will also add value to formulation technology applications including agrochemicals, textiles and emulsion polymerisation. With BASF’s global growth strategy for its care chemicals business, the Dahej site adds to BASF’s production footprint in one of the fastest growing emerging markets.
Toward the end of April, Stepan announced Q1 net profit down 14.7% at $19.0m on weak construction demand which hit its polymers chemicals businesses. Sales were down 1.9% at $457m with polymer segment sales volumes down 7% and weaker surfactant margins. Surfactant sales were down 2.1% at $340m while volumes were 5% higher with growth coming from consumer products. Higher margin functional surfactants used in agriculture saw volumes rise by 26% year-on-year. Surfactant segment gross profit was down 4% at $51.6m. The company expects better surfactants margins as the year progresses and improved polymer volumes in the second quarter.
May saw an interesting joint announcement from our friends, Solazyme, and AkzoNobel regarding use of algal oils for surfactants and coatings The companies entered into an agreement to begin joint product development of tailored algal oils in the second half of 2013 and to commercially sell near-term product supply in 2014. Commercial supply of algal oil will come from Solazyme’s joint venture with US agribusiness Bunge, a 100 KMT/yr renewable oils plant in Brazil that is expected to start up in the fourth quarter of 2014. Solazyme and Bunge plan to expand capacity to 300 KMT/yr by 2016.
Prospects in the alcohol market continued to dim, or brighten, depending on whether you are a seller or buyer of fatty alcohols, respectively. According to an ICIS article, reporting findings from our friends at Colin Houston Associates (CAHA), supplies of detergent range alcohols are expected grow at twice the rate of demand from through 2015, forcing the existing industry footprint to adjust. Consumption of higher alcohols increased by 4.5% per year from 2005-2012 because of new supplies reaching markets after large additions of oleo-based alcohol capacity from 2005-2010. In addition, according to CAHA, purified ethylene oxide [PEO] capacity expansions are not keeping up with the new oleo-alcohol capacity, hindering the growth of ethoxylated products in the short term. While surplus alcohols are being exported to Western markets currently, trade barriers and new technologies could disrupt the trend, CAHA said. A wave of new detergent alcohols capacity will come on line in the next 18 months, expanding the 2.5m MT detergent alcohols market by another 1m MT – and potentially more. More than 60% of the new capacity will be located in Malaysia and Indonesia.
In further fatty alcohols news and underscoring the CAHA analysis, Wilmar’s fatty alcohols plant in Rotterdam was slated to face only minimal delays and will be up and running by the end of the third quarter. The 120 KMT/yr plant is owned by Wilmar and is in Huntsman's 85 hectare chemical site in Rozenburg in Rotterdam. The plant will supply natural alcohols to US surfactant producer Huntsman, as well as the European merchant market.
In more fatty alcohol news toward the end of the quarter, A slightly firmer US market perspective in the mid-cut C12-14 to C12-16 alcohols has some buyers talking a Q3 rollover and several sellers aiming for a price increase. Buyer perspectives in late May focused on ease in securing material. However, the slightly firmer market has led several sellers to push for an increase in prices heading into the third quarter. One supplier said it was definitely seeking to raise prices because mid-cut alcohol inventories in Asia are snug after various production units had Q1 and Q2 downtime.
In news from the outer, higher growth, edges of the EU, Polish surfactants producer PCC Exol intends to build sales in Turkey and throughout the Middle East and Africa (MEA) through a newly-established Istanbul-based subsidiary, the company said in May. The subsidiary, PCC Exol Chemical Industry and Commerce, will target Turkish and MEA buyers of surfactants, such as the detergent, textile, paint, adhesive and varnish industries, it added. PCC Exol, headquartered in Brzeg Dolny, southwestern Poland, and owned by Germany's PCC chemicals, energy and logistics group, has plants which can produce 40 KMT/yr of anionic surfactants and 60 KMT/yr of non-ionic surfactants. The company is looking to move into major production of high-margin amphoteric surfactants production, with an eye to supplying output to makers of quality personal care products.
No review of surfactants in the second quarter would be complete wtithout some report from the 3rd ICIS World Surfactants Conference. Keynote presenter, Solvay Novecare vice president John Foley said that knowing your customer and your customers customer was key to the strategic growth of Solvay Novecare’s business. “Our strategy starts with the customer – it’s about the connection and intimacy with our customer," he said. "We can’t ask them what business they are in, because it means we don’t know and we’re by then too late.” Talking about “economic transformation”, Foley expects to see Solvay Novecare to grow at multiples of GDP, which he said will come from new opportunities and making sure the company’s technology will be well positioned.
Understanding complex value chains stands as one of the main challenges for chemical producers, a principal at Berger Strategy Consultants, said at the conference. Gillian Morris gave the example of a large commodity producer struggling with a low margin, low volume and low price product.
“The product was a pain and the company tried to exit the business by rising its price by 25% in one quarter and the customer came back. So the next quarter it raised its prices again by another 25% - so that’s a 50% increase in six months. “In the next quarter they moved up again by 20% and then the customer started to ask questions because their customers wanted to know what was going on in the market…. This company had no clue why the product was of such value to the customer.”
In trademark, hard hitting style, Doug Rightler riveted the conference with news such as that China is building 10 ethylene oxide (EO) plants in this year alone. “EO must be used in concrete production in China – we are seeing a massive investment caused by the Chinese government saying you must use this," said Doug. “Forecasting for the next 30 years, the numbers for this market are momentous," he said. “The Chinese are putting in 10 [EO] plants just this year. In Europe and the US, it takes five years. But the big uncertainty is EG [ethylene glycol]. China could grow so much, it could end up flooding its own market,” he said. Globally, EO demand is related to GDP growth, he said. "China has still got a long way to go [in terms of growth], also India. Not to mention the African continent – the market hasn’t even kicked off there."
While Rightler spoke about China being a fast-growing region of purified EO, he was concerned that no investments were being made for pure EO in the US.
“Pure EO producers are running at 90% of capacity and it [the EO market] will get tighter and tighter. EO prices in the US are rising regardless of the price of ethylene," he said. Prices are rising even though the US has become the most cost-competitive region in terms feedstock since the evolution of shale gas, he said. “The Middle East is running out of cheap ethane, and they won’t be coming here [the US] anymore. China is where everything it's at – the rest of the world has stopped.”
Rounding out the quarter, Kao Indonesia Chemicals announced that it has completed construction of its new yen (Y) 4bn ($40m) plus surfactants plant in Karawang, Indonesia. The new plant with an undisclosed capacity is expected to start operation in August 2013, the firm said in a statement. The plant will produce surfactants and industrial chemicals and help lift Kao Indonesia Chemicals’ surfactants capacity, which includes facilities located in Tambun, Indonesia, 1.5 times, Kao said, without disclosing current capacity. All of the Tambun facilities will eventually be transferred to the Karawang site by the end of December 2014, Kao said.
Don’t forget, the highlight of the surfactant calendar next quarter is the 2nd ICIS European Surfactants Conference in Brussels, September 12th and 13th!