Sabic secures its place in European petrochemicals

03 April 2002 16:07  [Source: ICIS news]

Sabic will expect to get a lot from its Euro2.25bn ($1.96bn) investment in DSM Petrochemicals (DPC).

It is not just the physical assets that are important. As Sabic vice chairman and managing director, Mohamed Al-Mady, stressed today, Sabic is buying marketing, sales and technology support. DPC will add significant polymers marketing and sales potential in northwest Europe and a useful polyethylene (PE) technology portfolio. In more ways than one, the opportunity to buy the DSM petrochemicals businesses as a package was one that was not to be missed.

The deal represents a major step forward for Sabic, which will pay DSM Euro1bn over net asset value for DPC, Sabic’s advisors, JP Morgan Chase say. Sabic is paying about one times sales (Euro2.4bn in 2001), a good deal for DSM in the current petrochemicals business climate. However, payment will be in two equal tranches, the first on completion, the second in four and a half years' time when clearly the petrochemical business is expected to be healthier and generating a lot more cash.

DPC has relatively modern assets at Gelsenkirchen in Germany but most of its plants in The Netherlands and Germany have been operating for some time. Indeed one of the main reasons behind DSM’s decision to divest petrochemicals was the clear limit to growth for the physical assets, two ethylene crackers and various PE and polypropylene (PP) plants (details in the table below taken from Nexant Chem Systems' soon to be launched on-line service). The ethylene plants are efficient and lie towards the lower end of the European cracker cost curve. The DPC low density and high density PE plants are relatively cost competitive and are used to make high performance grades.

DSM has run its plants and the business well and focused on higher value products across the board so Sabic will be able to add some value to customers in its ability to supply commodity polyethylenes into the European market. Saudi Arabian government controlled Sabic is buying an excellent polymers distribution chain which, although limited geographically, is centred on the most important market for these materials in Europe. The DSM plants border Germany, France and The Netherlands and sit on the ARG feedstock pipeline network.

Al-Mady made a great deal today of the fact that this is the first major move by Sabic outside the Kingdom and that DSM Petrochemicals represents a significant strategic fit for his company. The deal will lift Sabic PE production capacity by 43% and its PP production capacity by 122% but will probably be most significant in the terms of the ‘soft’ capabilities and skills it brings to the Middle East’s largest petrochemicals producer. Sabic has often stressed its need for additional people skills and the agreement with DSM will bring with it the acknowledged and considerable potential of its 2300 employees. In sales alone, for instance, the 85 or so Sabic employees in Europe – who sell everything from methanol and MTBE (methyl tertiary butyl ether) to plastics, will be supplemented by additional 154 DSM polymer people.

The acquisition will change the physical profile of Sabic in that its proportion of sales in Europe will rise from 9% of the total to 22%. Adding DPC sales to Sabic’s brings the total to Euro11.32m, lifting the company well up the global petrochemicals and plastics league table. The enlarged Sabic PE business will be number three in the world (from number six) and Sabic will rise to number four in PP from number 11.

Last week at the NPRA International Petrochemicals Conference (IPC) meeting in San Antonio, president of Sabic’s basic chemicals group and director general of strategic planning in Riyadh, Nasser Al-Sayyari spoke about the intention of the company to expand geographically and to broaden its ownership base, largely through joint ventures. Today in Amsterdam, Al-Mady stressed the fact that it is Sabic’s intention to continue to expand production capacity in the Kingdom, in neighbouring countries in the Gulf Co-operation Council and further afield. He re-iterated the fact that the company is evaluating other opportunities around the world and did not rule out continued interest in the Polimeri Europa assets belonging to Italian state oil company Eni and its chemicals subsidiary EniChem. Various hurdles to the successful completion of that deal that have yet to be overcome.

DSM capacities for olefins/polyolefins in all regions ‘000t
Western Europe
	Germany	Gelsenkirchen
			HDPE		160
			LLDPE		300
			Polypropylene		350
	Netherlands	Geleen
			Ethylene		1200
			Propylene		643
			HDPE		285
			LDPE		565
			LLDPE		140
			Polypropylene		550
South East Asia
	Malaysia
	Petlin (1)	Kerteh	LDPE		255
(1) 20% DSM, 40% SASOL, 40% Petronas
Source: Chemsystems Online

 

By: Nigel Davis
+44 20 8652 3214

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