FocusReliance-LyondellBasell merged entity to dominate Asian PP

24 November 2009 09:41  [Source: ICIS news]

By Chow Bee Lin

SINGAPORE (ICIS news)--The proposed buyout of LyondellBasell by Reliance Industries could change the landscape of Asia’s polypropylene (PP) market as the new entity's dominance would be pervasive in commodity PP such as injection and yarn grades, sources said on Tuesday.

A Reliance-LyondellBasell merged entity is estimated to have a combined PP capacity of around 9.38m tonnes/year, accounting for about 20% of the global capacity.

Reliance would become a very important supplier in the region if it acquires LyondellBasell, due to the sheer size of the combined PP capacities, Asian traders said. With a lion share of the market, the merged entity would likely be in a position to command price leadership in commodity PP, they added.

“Reliance will be the world’s biggest PP producer if it acquires LyondellBasell. So our top priority now is to maintain a close working relationship with the producer,” one of the traders said.

Other competitors were less concerned about the influence of such a giant on the market.

“The enormity of a Reliance-LyondellBasell collaboration is mind boggling, but it’s nothing to be afraid of because the market is segmented. Reliance won’t be able to replace existing suppliers in the premium markets, not even after it acquires LyondellBasell,” a northeast Asian PP producer said, referring to premium grades such as random copolymers and automotive grades.

However, some market players said it was probably too early to dismiss the merged entity’s influence on the premium markets, as Reliance was expected to take an active interest in that segment, leveraging on LyondellBasell’s strength in those products.

“LyondellBasell has a wide range of high value products. It depends on Reliance’s strategy after the acquisition,” a southeast Asian PP producer said.

But Reliance was expected to face a great deal of challenges after acquiring LyondellBasell, including debt financing and management issues.

“The acquisition will increase Reliance’s share of the global PP market, but it’ll be interesting to see how it’ll structure and finance the debts of LyondellBasell,” an Asian corporate research analyst said.

“(The success of the acquisition) will depend on how it can gain synergies from the acquisition. LyondellBasell’s PP plants are all over the place,” the analyst added.

“The proposed acquisition is like a small fish eating a bigger fish. Reliance will have to work on getting the buy-in of LyondellBasell’s existing staff,” the northeast Asian PP producer said.

LyondellBasell’s acquisition would catapult Reliance into the second spot as the biggest petrochemical player in the world, in terms of sales, pushing US firm ExxonMobil to the third place, with Germany’s BASF retaining its lead position, an industry source said.

According to the list of the 100 largest chemical companies world wide at the end of their 2008 financial years as reported in ICIS Chemical Business, BASF is the world’s largest petrochemical company in terms of sales, followed by ExxonMobil and Dow Chemical.

“The acquisition will change the landscape of the global petrochemical industry, with three companies driving the global petrochemical sector from different regions – BASF in Europe, ExxonMobil in the US and Reliance in Asia,” the industry source added.

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By: Chow Bee Lin
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