This week's world news

The world this week

02 August 2010 00:01  [Source: ICB]

BASF Q2 NET PROFITS LEAP ON 30% SALES GROWTH
BASF's second-quarter net profits leapt to €1.18bn ($1.53bn) from €343m in the same period a year earlier on much higher sales of chemicals, plastics and performance products. Chemicals sales were up by 64%, plastics sales jumped by 48% and performance products sales grew by 29%, helping to push group sales 30% higher to €16.21bn. BASF saw higher demand compared to the weak 2009 second quarter, and said that earnings strength in the chemical business had "improved sustainably." Second-quarter 2010 earnings before interest and tax before special items were up by 94% year on year at €2.21bn. Chairman Jurgen Hambrecht said he expects the economic recovery to continue at a moderate pace in the second half of 2010.

EU SANCTIONS COULD HURT IRAN'S PETCHEM SECTOR
The EU has adopted economic sanctions against Iran, which, sources believe, could severely affect the country's exports of petrochemicals as well as its imports from Europe of specialty polymers, catalysts, spare parts and machinery. The EU measures, which could result in a clampdown on financial transactions between the EU and Iran, complement the tougher sanctions imposed by the UN last month in a bid to halt the country's nuclear program. "Iran imports from Europe a lot of catalysts, additives and specialty polymers, which are not produced in the country," said a source close to one Iranian producer. "So the EU curbs will severely affect Iranian petrochemical trade and manufacturing activity." Europe is also a major source of machinery and spare parts for petrochemical plants in Iran.

INEOS SEES ITS Q2 EBITDA DOUBLE TO €496M
INEOS's second-quarter earnings before interest, tax, depreciation and amortization (EBITDA) more than doubled to €496m ($644m), excluding refinery inventory holding losses, on the back of stronger demand for chemicals and plastics, the Swiss-headquartered company said last week. Combined replacement cost (RC) EBITDA for refining and historical cost (HC) EBITDA for chemicals was €239m in the second quarter of 2009 and €474m in the first quarter of 2010. Replacement-cost accounting in refining helps iron out losses and gains made against shifting oil prices. INEOS said it uses RC/HC EBITDA to measure its compliance with the financial covenants under its senior banking facility.

AS INEOS OXIDE EYES NEW ETHYLENE TERMINAL
INEOS Oxide has confirmed plans to build and operate a new 1m tonne/year deep-sea ethylene terminal at its Zwijndrecht facilities in Belgium. This is scheduled to start up in 2012. Once complete, the new terminal will be connected directly to INEOS's ethylene consuming facilities in the Antwerp/Rotterdam area and into Europe via the ARG ethylene pipeline linking Antwerp to Cologne and the Ruhr industrial areas. It did not reveal the cost.

EXPLOSION KILLS FIVE AT IDLED NANJING PLANT
At least five people have been killed and 28 seriously injured by an explosion at an idled plastics factory in Nanjing, China, according to state-run Xinhua News Agency last Wednesday. Xinhua said that about 100 more people, mostly passers-by, needed treatment at hospitals after flammable gas exploded. The propylene pipeline, located at the abandoned Nanjing No. 4 Plastic Factory, was broken by workers doing demolition work, causing a leakage, the State Administration of Work Safety said. A nearby car starting up had ignited the propylene. The land was to be used for property development.

CEE PETCHEMS MUST FOCUS ON NICHE PRODUCTS
Central and Eastern Europe's (CEE's) petrochemical companies must meet the challenge of switching to the production of value-added niche products as Middle Eastern producers intensify competition in commodity petrochemicals over the next two years, Austria's Raiffeisen Centrobank said last week. Polish group PKN Orlen and Czech subsidiary Unipetrol were among companies set to "face severe low-cost competition from the Middle East," said Raiffeisen analyst Philipp Chladek. Several low-cost petrochemical plants coming online in the region would soon be competing with their older, smaller, less cost-efficient commodity-grade polyethylene (PE) and polypropylene (PP) plants, Chladek said.

HIGHER PRICES FOR EUROPEAN PLASTICIZERS
European plasticizer buyers hoping for a summer respite to high prices and prevailing market tightness are now bracing for the opposite, according to market sources. After last week's force majeure declaration from BASF, market supply is set to contract even further, and all varieties of plasticizer are likely to get more expensive. "The market is so short that if one supplier is out, the other suppliers cannot replace them," one plasticizer buyer said. "Some companies will be very much in trouble." This year - marked by low stocks, consolidated dioctyl phthalate production and a series of unplanned production outages - has already been tough for buyers, nearly all of whom have been on allocation for several months.

US CHEMICAL FIRMS SLAM HOUSE REFORM BILL
US chemical sector officials and general manufacturing leaders have warned that a new chemical control bill introduced in the House of Representatives would smother innovation and shift production and jobs overseas. The Toxic Chemicals Safety Act will modernize the Toxic Substances Control Act, which has governed chemicals in US commerce for 34 years, according to its proponents. Bobby Rush (Democrat-Illinois) said the bill "both protects consumers while respecting the right of private industry to innovate." However, chemical trade groups warned that the bill would stifle chemical innovation, compromise trade secrets, force more US manufacturing overseas and create a patchwork of federal and state regulations.

BAYER'S Q2 FALLS, BUT MATERIALSCIENCE ROCKETS
German chemical group Bayer's second-quarter net income fell by 1.3% year on year to €525m ($682m), despite improved sales, due to special charges of €255m related partly to litigations at its HealthCare and CropScience segments. Sales rose by 14.6% to €9.18bn, mainly due to the recovery of its Bayer MaterialScience segment (BMS), as well as positive currency effects. MaterialScience's sales rose by 46.9% year on year to €2.69bn due to significantly higher demand from all customer industries as well as on higher selling prices in Asia-Pacific and Europe. "MaterialScience has left the crisis behind and saw business expand more strongly than expected. Volumes have returned to the precrisis level," said management board chairman Werner Wenning.

HUNTSMAN TO SLASH JOBS AT TEXTILES BUSINESS
US-based Huntsman will cut 118 jobs in its textile effects division in Switzerland by the end of 2011 to further improve its competitiveness. Of the 118 positions to go, 33 jobs will be eliminated through attrition, voluntary early retirement and related options. Speaking of the cuts, Swiss union Angestellte Schweiz said it was worried about chemical production in Basel. If increasing job cuts in the regional industry could not be stopped, Basel will face an uncertain future as a site for chemicals production, it said.

SOLUTIA IS SEARCHING FOR FURTHER ACQUISITIONS
US specialty chemical producer Solutia is searching for more acquisitions to complement its portfolio and increase its exposure to emerging markets. Jeffry Quinn, Solutia chief executive, said the company is considering firms it could merge into its existing subsidiaries and would increase its earnings per share. Future acquisitions would resemble those that Solutia has already completed, such as Novomatrix and Etimex Solar, Quinn said.

RIL POSTS 32% RISE IN Q1 NET PROFIT - HIGHEST EVER
India's Reliance Industries Ltd. (RIL) posted a 32% year-on-year rise in its first-quarter net profit at Indian rupees (Rs) 48.5bn ($1.03bn) - its highest-ever quarterly net profit - thanks to improved margins, higher operating rates and increased gas output. Total sales for the quarter jumped by 88% from the 2009 first quarter to Rs610bn. Quarterly revenue in its petrochemicals segment increased by almost 19% year on year to Rs139bn because of higher volumes and prices. The segment's earnings before interest and tax (EBIT) fell by 2.6% from the same quarter last year to Rs20.5bn, Reliance added.

CHINA'S JIALONG PETCHEM PLANS PTA EXPANSION
China's Jialong Petrochemical Fibre plans to expand the capacity of its purified terephthalic acid (PTA) unit in Quanzhou, Fujian province, to 1.7m tonnes/year amid expectations of rising demand. The new plant was expected to cost about yuan (CNY) 4bn ($590m) and would boost the unit's capacity from the current 600,000 tonnes/year.

CHINA'S JUNE PETCHEM IMPORTS FALL ON DEMAND
China's petrochemical imports continued their downtrend in June, reflecting the cooling down of the country's economy and slower pace of industrial growth, according to analysts. "Last month, the domestic demand for petrochemicals was very soft, with a cooling second-quarter economy and an easing of industrial production growth," said Wang Qiang, an analyst with Shanghai-based Xiang Cai Securities. China's ethylene imports dropped by 44% year on year in June, to 52,768 tonnes, while propylene imports dipped by 23% to 129,185 tonnes, according to the data from China Customs. June benzene imports plummeted by 70% to 12,146 tonnes, while imports of toluene decreased by 37% to 57,622.

UK'S CRODA SWINGS TO A FIRST-HALF 2010 NET PROFIT
UK specialty chemical company Croda swung to a net profit of £63.9m ($98.8m, €76.1m) for the first half of 2010 from a net loss of £8.9m in the same period last year after achieving record results across all divisions. Group sales for the six months to were up by 27.6% year on year to £516.1m, as Croda saw strong sales growth and record turnover in both its consumer care and industrial specialities divisions. "Record results in both consumer care and industrial specialties, with all business areas and all major geographies contributing to the increased profits, demonstrate Croda's resilience and strong market position," Croda's chairman Martin Flower said.

US HOUSE MOVES TO CUT ETHANOL SUBSIDY BY 20%
The key House tax-writing committee has proposed a 20% cut in the federal tax credit for corn-based ethanol, reducing the subsidy to 36 cents/gal from its current 45 cents/gal. House Ways and Means Committee Chairman Sander Levin (Democrat, Michigan) issued his 100-page discussion draft of a manufacturing and energy bill that includes a one-year extension to the end of 2011 - at the reduced rate - of the ethanol subsidy. But the proposed bill would maintain, also for one year, the existing tariff of 54 cents per gallon on foreign ethanol, an import duty that limits US use of Brazil's sugarcane-based ethanol.

US FERRO SWINGS TO $7.6M Q2 PROFIT ON SALES
US-based polymer additives and specialty plastics producer Ferro swung to a second-quarter profit of $7.6m (€5.9m) from an $11.8m loss during the same period last year on a 36% jump in net sales. Sales for the quarter ended 30 June jumped to $543.4m from the same quarter last year as customer demand continues to recover from the global economic downturn. Income increased in all segments except pharmaceuticals. A combination of higher sales volumes and reduced manufacturing costs and other expense reductions resulted in increased income for specialty plastics and polymer additives.

RAW MATERIAL HIKES THREATEN COATINGS
Price hikes and shortages for raw materials are creating a "massively challenging" environment for the coatings and sealants industry, US-based RPM International said last week. Speaking on a conference call for fiscal fourth-quarter earnings, CEO Frank Sullivan said typical raw material hikes were in the mid-single digits, percentage-wise, for the company. However, isolated cases were significantly higher. "In some instances, price increases were 10-15% and some double or triple that," Sullivan said. "Starting this spring, a number of critical raw materials for the entire industry saw significant increases.

US JUNE CHEMICAL OUTPUT FALLS FROM MAY
June chemical production slipped month over month in all US regions amid a lowered economic outlook for the remainder of 2010, according to the American Chemistry Council (ACC). The US production index slipped by 0.5% in June, the ACC said, following a 0.4% drop in May. The decline was led by lower production of organic chemicals, plastic resins, pharmaceuticals, consumer products, synthetic rubber, manmade fibers, pesticides, adhesives, coatings and other specialties. "Overall industrial output slowed to a crawl during the month of June as the boost from inventory restocking along the supply chain has played out," the ACC explained.

EXPORT DEMAND FOR US CHLOR-ALKALIS STILL HIGH
Export demand for North American chlor-alkali derivatives will remain strong through the third quarter, offsetting domestic chlorine and caustic soda demand that remains below historical levels, the chief executive of US producer Olin said last week. Chief executive Joseph Rupp noted during a second-quarter earnings conference call that his company saw significant improvements in chlorine and caustic shipments in the second quarter, a trend that would likely continue over the near term. "It depends on what happens with everyone's ability to continue to export in the vinyls market," Rupp said. "If that continues, we'll run at a higher rate."

ASHLAND PRESSES PRICE HIKES FOR MARGINS
US-based chemical producer and distributor Ashland will continue increasing prices as it works to catch up with rising raw material costs and restore margins, the chief executive of the company said. "We continue to implement price increases across all of our commercial units to offset our increased raw material costs," Jame O'Brien told analysts during Ashland's fiscal 2010 third-quarter results conference call. During the quarter, rising raw materials - up sequentially by 6% from the fiscal second quarter - partially offset year-over-year improvements from a 16% increase in sales and a 12% increase in volumes. "While in the short term, the lag between cost increases and full implementation of price increases compresses margins, when raw material costs ultimately stabilize, our pricing actions should enable us to fully recover our increased costs."

DEADLINE CLOSES FOR POLAND FERTILIZER BIDS
Zaklady Azotowe Pulawy (ZAP), Poland's largest fertilizer producer, has received four preliminary bids for a 50.67% stake in it, the country's treasury ministry says. Investors submitted two preliminary bids for a 59.41% stake in Zaklady Chemiczne Police (ZChP), Poland's second-largest fertilizer maker and a producer of titanium dioxide (TiO2), added treasury ministry spokesman Maciej Wewior. The deadline for preliminary bids has now expired, while the ministry has set a date of August 30 to decide which of the bidders would be invited to make binding offers. If satisfactory binding bids could not be obtained, privatization officials may consider offering the companies through a call for shares on the Warsaw Stock Exchange.

SPOLCHEMIE TO RESTRUCTURE CORE...
Troubled Czech Republic-based company Spolchemie plans to split its core businesses into several independent operating units, with the aim of attracting financial partners, divesting or even closing down unprofitable divisions. Spolchemie expected its lenders to approve a restructuring plan by the end of July, which involves extending standstill agreements on loans to the end of January 2011 in return for meeting the plan's operational targets, CEO Francois Vleugels said. If the restructuring plan is approved, the core epoxy resins, epichlorohydrin (ECH) and bisphenol A (BPA) business will form the main operating unit. Inorganics, focused on chlorine production, would be another.

...AS IT AGREES JV WITH DIC SUBSIDIARY SUN CHEMICAL
Spolchemie has set up a joint venture with Sun Chemical, a subsidiary of specialty chemical group DIC Corp, for the manufacture of alkyd and varnish resins. Under the agreement, around 8,000 tonnes/year of production of the products will move from DIC's performance resins business in Vienna, Austria, to Spolchemie's facility at Usti nad Labem, Czech Republic, during the third quarter of 2010. The first batches of DIC material will be produced from Usti nad Labem in July 2010 and all relevant business will be taken over by Spolchemie, which will market the products directly.

AKZONOBEL Q2 NET PROFIT SURGES 76% TO €273M
Dutch coatings group AkzoNobel posted a 76% year-on-year surge in its second-quarter net profit to €273m ($350m) as sales improved in all its core businesses. Overall sales for the April-June period increased by 13% year on year to €3.9bn, with earnings before interest, tax, depreciation and amortisation (EBITDA) jumping 21% to €614m. "Our second-quarter results show a further increase of revenue and profitability across each of AkzoNobel's business areas, evidencing that we are benefiting from the recovery and our ongoing restructuring," said AkzoNobel CEO Hans Wijers. The company's decorative paints unit had an 8% increase in revenue to €1.4bn.

HUNTSMAN EYES DOUBLING OF SHANGHAI MDI CAPACITY
Huntsman Polyurethanes Shanghai (HPS) expects to complete the expansion of its methylene-diphenyl-diisocyanate (MDI) facility in Shanghai, China to 480,000 tonnes/year before 2014, a company source says. The company plans to construct a 240,000 tonne/year plant near its existing MDI line of the same capacity at Shanghai Chemical Industry Park. The project was currently "under assessment" and the final nod may take some time, the source said. It would take one to two years to complete the construction of the plant after a go-ahead is given. "Our target [of completing construction] is before 2014," he said. HPS is a 70:30 joint venture between Huntsman and China's Shanghai Chlor-Alkali Chemical (SCAC).

COLOMBIA-VENEZUELA TRADE TO HALT - SOURCES
All formal commerce between Colombia and Venezuela will stop following Venezuela's decision to break off diplomatic relations with its neighbouring country, market participants in Venezuela have said. Commercial traffic has already been hampered by trade and currency restrictions, but Venezuela president Hugo Chavez's orders to break with Colombia would likely eliminate all business between the two countries, sources said. Chavez made the announcement during a visit of Argentinean ex-soccer star Diego Maradona to Caracas, according to South America media reports. "Venezuela gave Colombian diplomats 72 hours to leave the country and to close the embassy in Caracas," a local source said.

EU COAL PROPOSAL COULD HIT EVONIK - UNION BOSS
An EU proposal that Germany end its subsidised hard-coal production by 2014 - four years earlier than planned - could affect strategies at specialty chemical major Evonik, a German chemical union leader said last week. Germany's plan to phase out subsidised coal production by 2018 is directly linked to Evonik and its majority owner, RAG-Stiftung, a coal foundation charged with overseeing the phase-out. Proceeds from an eventual initial public offering of Evonik were meant to help pay for environmental costs associated with the phase-out.

By: Will Beacham
+44 20 8652 3214

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