Surfactants Battle Tight Raw Material Supply

24 January 2005 00:01  [Source: ICB Americas]

High feedstock costs and tight supplies for raw materials were major issues for surfactant producers in 2004, but will the bumpy ride continue in 2005? Patricia Van Arnum reports.

Hoping for less volatility in raw material prices this year, surfactant producers are still in recovery from 2004, which saw, in certain segments, unprecedented price increases in raw material costs. High energy and feedstock costs, combined with already tight supply conditions for certain raw materials, caused a ripple effect throughout the surfactants supply chain. Overall improvement in the economy helped to stimulate demand, although producers remain cautious for 2005.

“In general, raw material prices have obviously increased and very well may again in 2005, which is shaping the market,” says Tony Latella, business director, consumer specialties in the performance chemicals group at BASF. “Beyond price increases, the market has seen tightness and even shortages in surfactant raw materials such as fatty alcohols, alkylphenol and ethylene oxide, and even derivatives like alkylphenol ethoxylates.”

One area that is just beginning to recover from the price swings in raw material costs is linear alkylbenzene (LAB), the precursor to the surfactant linear alkylbenzene sulfonate (LAS) . “The LAB market on a global basis has been pretty volatile, together with the volatility of the raw materials,” says Mark Quintyn, commercial director, global business, Petresa, a major producer of LAB. “The LAB business has been faced with an unprecedented situation, under pressure of escalating crude oil and benzene prices.”

Although there was some recent easing in late 2004 and early 2005 for the pricing of kerosene, n-paraffins and benzene, the raw materials for LAB, LAB prices remain high. Crude oil is a feedstock for kerosene, which is used to make n-parrafins. Crude oil prices (West Texas intermediate) for the first quarter of 2005 are projected at roughly $43 per barrel, roughly $8 per barrel higher than in the first quarter of 2004. Benzene reached a record-high of $3.95 in September before moderating to $2.64 per gallon for January 2005 contracts.

As a result, LAB prices climbed in 2004, and upward pricing pressure remains thus far in 2005. “It has been an unprecedented situation,” says Neil Burns, vice president of marketing with Pilot Chemical Company, a producer of LAS. “I have been in the business for many years, and I have never seen anything like this.”

In North America, LAB prices climbed 35 percent in 2004 from 45 cents per pound in early 2004 to over 60 cents by the end of 2004. In Asia, prices increased 38 percent from $800 to $850 per metric ton in early 2004 to $1,300 per metric ton at the end of 2004. And in Europe, LAB prices spiked 22 percent from €850 in early 2004 to €1,040 at the end of 2004.

More price increases for LAB were announced this month for first quarter 2005 deliveries. LAB prices increased to between 60 cents and 65 cents per pound in North America; to $1,300 per metric ton in Asia; to €1,060 in Europe; and to between $1,350 and $1,400 per pound in Latin America.

The escalation in LAB pricing, pressured by raw material costs, has occurred despite a long position for LAB, a situation expected to continue in 2005. In 2004, industry-wide operating rates for LAB were below 80 percent, and industry sources say the supply-demand fundamentals are not expected to improve in the near term.

“Indeed, LAB encounter[ed] overcapacity in 2004 [and will] as well as in 2005,” says Mr. Quintyn. “The industrial environment is not favoring new investments in LAB or LABSA (linear alkyl benzene sulfonic acid) at this point in time, and most probably for the next three to five years, [we will] see the overcapacity situation,” he says.

Global worldwide capacity of installed LAB capacity is estimated at 3.135 million metric tons, which is expected to rise slightly to 3.3 million metric tons in 2005. In terms of current capacity, North America accounts for 525,000 metric tons, Europe (650,000 metric tons), Latin America (360,000 metric tons) and Asia (1.6 million metric tons).

On the demand side, global LAB demand in 2004 was estimated at only 2.1 million metric tons, and little to no growth is expected this year. North America accounts for 420,000 metric tons, Latin America (270,000 metric tons), Europe (410,000 metric tons) and Asia (1.0 million metric tons).

“Because of the escalating LAB market conditions, under pressure from increasing raw material prices, we expect similar demand figures for 2005 as in 2004,” says Petresa’s Mr. Quintyn. “Indeed, we do not expect significant growth in LAB consumption in 2005.”

Downstream, however, demand for LAS is strong. “The LAS market was very strong in 2004,” says Pilot’s Mr. Burns. “We had a very weak quarter at the end of 2003, but we started to see the market pick up in early 2004. This continued throughout 2004 because of the general health of the economy. For example, our business to distributors, which sell to the large industrial formulators, was up 20 percent year-over-year. This is a function of overall economic activity.”

The same can be said of the alcohol sulfates and alcohol ether sulfates, which are derived from synthetic and natural detergent-range (C12-C16) alcohols. “Because of the overall strength in the economy, we are seeing good demand from both the alcohol sulfates and alcohol ether sulfates,” says Mr. Burns. Last year, Pilot completed a 20 percent increase in its sulfonation capacity as its plant in Cincinnati, Ohio. The company continues to debottleneck to meet ongoing demand.

Combined, the alcohol ether sulfates and alcohol sulfates make up over 60 percent of the North American (US and Canada) market for surfactants for household/cleaning uses, with LAS constituting over one quarter. North American consumption for alcohol ether sulfates was 1.08 billion in 2003, making it the largest segment for surfactants used in household cleaning products in North America (excluding Mexico) at 36.2 percent, according to Menlo Park, Calif.-based SRI Consulting. North American (US and Canada) consumption for alcohol sulfates was 260 million pounds in 2003 or 12.2 percent of the household surfactants market. LAS demand in 2003 was 700 million pounds, representing 27.5 percent of the market for surfactants used in household laundry detergents in the US and Canada, notes SRI.

A tightening market for detergent-range alcohols is having an impact on downstream surfactants, such as alcohol ether sulfates and alcohol sulfates. “There is tightness in the detergent-range alcohol market,” says Pilot’s Mr. Burns.

The tight supply conditions have been caused by increased demand and a reduction of detergent-range alcohol capacity over the past several years. For example, in 2002, BP Chemicals permanently closed its 60,000 metric ton-per year alcohol plant in Pasadena, Tex., and in 2002, Shell Chemicals, the largest synthetic alcohol producer, idled 100,000 tons of detergent-range alcohol capacity at Geismar, La.

Although several producers of natural fatty alcohols announced expansions last year, producers of synthetic detergent-range alcohols are standing pat for now. Shell Chemicals says its 100,000 metric tons of idled capacity at Geismar remain down, and the company does not have plans at this time to bring the plant back on line in 2005. And Sasol, which brought on its 120,000 metric ton-per-year C12 to C15 alcohol plant in Secunda, South Africa, in 2002, says it has no immediate plans to increase detergent-range alcohol capacity.

Shell, Sasol, Cognis, Kao and Procter & Gamble Chemicals are the largest producers of detergent-range alcohols on a global basis, accounting for roughly 80 percent of global capacity, according to SRI Consulting. Sasol, which makes both synthetic and natural-based detergent alcohols, is the largest global producer of detergent-range alcohols, followed by Shell, which makes only synthetic alcohol. Cognis, P&G and Kao produce only natural alcohols.

In addition to being a precursor to alcohol sulfates and alcohol ether sulfates, detergent-range alcohols are used to make linear alcohol ethoxylates, surfactants used in cleaning, detergent and cosmetic applications. Last year, Cognis, P&G and Kao all announced fatty alcohol-related deals in Asia.

P&G is bringing forward plans to add nearly 180,000 metric tons of alcohol capacity through 2006, according to Norm Ellard, director of sales for P&G Chemicals. The largest portion comes from a $1 billion long-term agreement with PT Domas Agrointi Prima (PTDAP) for supply of fatty alcohol, fatty acids and glycerine. Sawit Mas will operate two alcohol units, one coming on stream early this year, and the second in 2006. P&G Chemicals will take the entire output from the plant, which gives P&G an additional 140,000 metric tons of alcohol capacity (40,000 metric tons in 2005 and 100,000 metric tons in 2006). This is in addition to another 40,000 metric tons of alcohol capacity being added to P&G’s global fatty alcohol network.

P&G will likely use some of this increased alcohol supply for a tertiary amine expansion planned for Asia. P&G also increased its tertiary amine capacity at its Kansas City, Kan., plant by 10,000 metric tons last year to bring it to a total of 60,000 metric tons. Tertiary amines are used in both dishwashing liquid and personal care products. Also, P&G signed a multi-year agreement with Optimal Chemicals (Malaysia) Sdn. Bhd. last year for supply of ethoxylated alcohols.

Last month, Kao announced that it is investing ¥6.9 billion ($67.6 million) into Pilipinas Kao Inc. in the Philippines for new fatty alcohol facilities with annual capacity of 100,000 tons. The project is scheduled to be completed in the summer 2006. The existing facilities will be scrapped. The Philippines is one of two locations for Kao’s fatty alcohol production, the other being Malaysia, where the company expanded production in 2002 to over 200,000 tons.

“Facilities in both countries are operating due to dormant and closed facilities at several companies as well as the recent upswing in demand mainly in Southeast Asia and China,” says the company. Kao also invested ¥1.2 billion to expand its production of tertiary amines and alcohol derivatives, with 140,000 tons of capacity at Kao Chemicals GmbH in Germany. Commercial production was scheduled to start last month.

Last month Cognis formed a 50-50 joint venture with Thai Olefins Public Company for fatty alcohol ethoxylates under which the companies will build a new $20 million, 50,000 ton-per-year plat at Rayong, Thailand. The plant will start operation in October 2006 and primarily serve customers in the home and personal care markets in Asia.

And PT Ecogreen Oleochemicals is building a new 60,000 ton-per-year fatty alcohol plant at Batam, south of Singapore. The new plant will increase the company’s fatty alcohol capacity to 180,000 tons by 2006.

Aside from a tight detergent-range alcohol market, ethylene oxide, also a raw material to make linear alcohol ethoxylates, is tight because of strong demand for ethylene glycol and other derivatives. The situation will likely persist until the next large plant comes on stream in early 2005. Sabic subsidiary Jubail United Petrochemical is presently completing its 1.4 billion pound EG plant with more than 1 billion pounds of EO capacity at Al Jubail, Saudi Arabia. Because of the tightness in the EO market, the ethoxylated surfactants market is also becoming more snug as EO producers favor the value derived from the ethylene glycol market than in ethoxylated surfactants.

However, surfactant producers say margins are still pressured, and the short-term market conditions do not necessarily justify a change in strategy. For example, Huntsman is proceeding with its surfactant rationalization plans, which were announced last year. The company plans to close its 100 million pound-per year surfactant facility in Guelph, Ontario, Canada, by the third quarter of 2005. Huntsman is also is the process of closing its surfactants facility in Whitehaven, UK. The closure is part of a reorganization of the company’s European surfactants business.

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