INSIGHT: Paying for GE Plastics charms

18 May 2007 16:19  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--The current shuffling of players and assets in the petrochemicals pack has add a further dynamic to the landscape in the battle of who builds what and where over the coming years.

The ambitions of new giants – like SABIC, Reliance and Sinopec – can be certain to thwart some of the best laid plans of the world’s current top players.

If SABIC takes GE Plastics, as some sources suggest on Friday, key assets, markets and, perhaps most importantly, technologies, will pass into the hands of one of the world’s most ambitious petrochemicals players.

Saudi Arabia wants to flesh out its chemical industry to further capitalise on clear feedstock advantages. SABIC would be prepared to pay a premium – and if it does pay $11bn for GE Plastics the premium could be something like $1bn plus – for access to new higher margin market segments – in engineering plastics and polycarbonate.

At the same time it would capture the technology it needs to add vitally important new capacity in the Kingdom, specifically at its Kayan Petrochemicals joint venture.

Technology has always been key in the petrochemical business although not always so widely recognised as such. The holder of process technology has a greater ability than those who do not to build competitive advantage.

SABIC wants to add polycarbonate capacity in Saudi Arabia but so do companies like Saudi Aramco and its potential partner in the big Ras Tanura project, Dow Chemical. Petrochemicals battles in the years to come will be fought along technology as well as feedstock, market access and financial lines, as has always been the case.

GE Plastics would be a real prize for SABIC of that there is no doubt. But the deal is not done yet and it remains to be seen whether any substantial objections might be raised, possibly on security grounds.

The acquisition would be a prize too for the other apparent remaining contender Basell and its owner Access industries.

The ambitions of Access Industries owner Len Blavatnik have been a talking point for the past week.

Blavatnik has won the right to buy an 8.3% stake in the largest merchant seller of ethylene in the US, Lyondell. The purchase would be made through his firm AI Investments.

The ratings agency Standard & Poor’s has suggested that Blavatnik may be interested in acquiring the rest of Lyondell. It could keep the Equistar petrochemicals business and possibly sell Lyondell’s refinery arm to help finance the deal.

Putting Basell and Lyondell together in the US makes a lot of sense, providing integration for both businesses.

Basell is the world’s largest producer of polypropylene (PP) and a big polyethylene (PE) producer, although it has no PE plants or crackers in North America.

Lyondell does not make PP but is long on propylene in the US. It is North America’s second largest ethylene and third largest PE maker.

Leveraging that sort of feedstock and, in Basell’s case, technology downstream is the right way to go.

GE Plastics would not add further integration to current Basell product lines. But it would add important technologies for making higher added value materials and access to the sort of end-use markets, such as automobiles, where customer relationships increasingly are key. And it would add important feedstock links.

It is not east to break into important downstream polymer markets like automotive, electronics and construction. It has not been easy for some time to acquire the sort of upstream integration that serves this industry so well.

If Basell won GE Plastics and acquired Lyondell it could create a player integrated from the refinery through to engineering thermoplastics. As commentators have noted, it could give GE plastics access to benzene and styrene from Lyondell.

But Len Blavatnik and Basell have a tough fight on their hands for the US based plastics maker. SABIC wants a foothold in the US. It wants access to downstream markets and to all important technologies. Some say it will pay what it takes to achieve its goals.

By: Nigel Davis
+44 20 8652 3214

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