FocusBASF sale talk gives market long-term view

17 April 2008 15:23  [Source: ICIS news]

By Peter Salisbury

Profitable business can emerge from BASF styrenics saleLONDON (ICIS news)--Players discussing the sale of BASF’s styrenics division have described the current economic climate and general market weakness as possible issues for buyers, but see potential for a profitable business to emerge, they said on Thursday.

Sources close to BASF and their purported suitors were unsurprisingly tight-lipped on the sale, with a source close to negotiations simply saying that “things are moving according to plan”.

Since BASF announced the sale of selected parts of its styrenics division last July, a number of buyers have been mooted, with recent consensus being that Basell, which completed its acquisition of Lyondell industries in early 2008, becoming LyondellBasell in the process, was the clear frontrunner, as it had been since August of last year, according to a report in the Deutschland Financial Times.

Some players in the European styrene market had also championed SABIC (Saudi Basic Industries Corp) as the “most likely candidate” from the sidelines of the 33rd National Petrochemical & Refiners Association (NPRA) meeting earlier this year.

Players were not sure, however, how the Middle East major would find a fit as it lacked European benzene production.

Another potential buyer had been the North American-European joint venture INEOS Nova. The latter's CEO recently described the styrene market as a “horrible business”, saying that it was affecting the company’s share price, but adding that it was worth hanging on to.

With the styrene market described by a senior analyst as “at its absolute worst” and LyondellBasell’s chemicals division president conceding earlier this month that the company had some $23bn of debt, some of which was “floating” and needed “to be converted into bonds”, players were still unsure of who might come out on top.

“I don’t think there is anything new in styrene,” International Echem chairman Paul Hodges told ICIS news on Wednesday. “It has been a complete disaster on a profitability basis for quite some time now.”

A source at a major producer agreed: “Demand will be the final arbiter. Styrene will recover if and when demand recovers. Polystyrene has been hit, US demand is down and Asian demand is not good at the moment.

“From the supply side we know what is going to happen. Demand is more guesswork. At the moment it’s a question of nice price, shame about the margin. It’s a very tough environment.”

The source went on to say that hopes for styrene’s future were pegged to a new “wealth generation” of consumers in Asia, adding however that “the more recessionary information we see, the worse it looks”.

Hodges agreed that LyondellBasell was the main player being discussed for the acquisition, and was interested to see how such a deal would pan out.

“It would be an interesting play from Basell because the styrenics market is at its absolute worst,” he said.

“It is competing with HDPE (high density polyethylene) and PP (polypropylene). But EPS (expandable polystyrene) is doing well because of its energy efficiency and margins on styrene are relatively better than they have been in a while. There has been a decline in benzene values relative to styrene.”

With LyondellBasell now the largest producer of polyolefins in the world, holding the keys to a competitive polymer could allow a producer such as LyondellBasell to offer a range of products at attractive discounts, he explained.

Another financial analyst agreed that LyondellBasell’s existing business, which includes benzene production, could be a good fit for BASF’s styrenics, as the market overview it would allow in the polymers sector could aid existing “margin volatility”.

Meanwhile, Hodges said, with talk of the US gasoline market, which has traditionally led spot aromatics values, losing ground over the next year, there was the possibility that reformate in Europe could become more freely available at lower prices, in turn reducing benzene costs and allowing for styrene to recover some margin and profitability.

This did not, he hastened to add, mean that Europe could become a new production centre: “Anybody who invested in new European capacity should be certified.”

Several European traders still saw SABIC as the favourite buyer as it had ready finance and a desire to move into commodity and specialty petrochemicals, although the fit was more problematic.

“The issue for SABIC is that its core business is in Saudi Arabia and hence gas based, so they have no benzene supply,” Hodges said.

Another producer source, meanwhile, said that regardless of cost advantages SABIC might have in the Middle East “production costs in Europe will remain the same over here so I see no real advantage to their investing here”.

One thing was certain on the sale, the financial analyst source said: both seller and buyer would be hoping for a “speedy sale” given the ongoing undercurrents of economic downturn.

Citigroup had estimated the sale’s potential value at €1.6bn on BASF’s initial announcement, but in February the company had assessed the value of the division at €615m.

BASF was yet to give indication as to the final price or date of the sale, although a deal was expected by the end of the first half of 2008.

($1 = €0.63)

Bookmark Paul Hodges' Chemicals and the Economy Blog. For more on styrenics visit ICIS chemical intelligence

By: Peter Salisbury
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