New Solvay makes plans for oversupplied PVC and polyamide markets

15 February 2013 09:41  [Source: ICB]

Belgian group Solvay has ruled out a quick sale of its assets as its plans to deal with overcapacity and poor market conditions in Europe's polyvinyl chloride (PVC) market.

With Europe's economic crisis hitting demand amid an oversupplied and fragmented PVC market, Solvay is making plans to help alleviate unsatisfactory conditions that have hit the profitability of its PVC operations, said CEO Jean-Pierre Clamadieu.

Solvay CEO Jen-Pierre Clamadieu Belga/PA

Belga/PA

CEO Jean-Pierre Clamadieu rules out "quick and dirty" PVC exit

Speaking to ICIS after the announcement of a new company structure for the merged Solvay/Rhodia group in January, Clamadieu said the company has a good cost position in PVC in Europe in terms of its industrial footprint, having invested to transform all but one plant to membrane technology.

"But it is a very difficult market with overcapacity and a lot of players. The challenge there is, how can we directly or indirectly contribute to some kind of restructuring in this market?"

Solvay is working on various scenarios, but, said Clamadieu, it is difficult to forecast when the plan will come to a conclusion. "We have very good plants in a lousy market with too many players and overcapacity. The picture is not that pretty."

Over the cycle, PVC has been a cash contributor for Solvay and even today it is not losing money, he said, adding: "It's clear from the [financial] results that we're far from earning our cost of capital for this business. Profitability has been affected by the European situation - it's a challenge. As long as a business is not bleeding cash you have some time to find a solution."

Clamadieu said that because of the quality of the assets, "I can say that a 'quick and dirty exit' is not what we want to do." He said French group Arkema had a weak competitive position so it made "plenty of sense" for it to sell its PVC business. Arkema sold its PVC business to KEM ONE in July 2012.

"PVC over the cycle is a significant cash contributor to Solvay and it has value. So the action plan can't be 'quick and dirty' - it's probably more complex than that to put a plan in place."

Meanwhile, the group is also taking action to tackle problems in the global polyamide market. Clamadieu said the market is oversupplied but differs to PVC because it is ­already consolidated with only three nylon 6,6 players globally and five plants producing adiponitrile (ADN).

"Over the last years there has always been a plant having some technical issues so we had the feeling we were in a well-balanced market. Now they are all working well, the markets are not very dynamic and there is overcapacity."

He said Solvay is also at a disadvantage in Europe because natural gas, a key feedstock for the polyamide chain, is so much cheaper in the US. On top of that one of Solvay's ­competitors in the US is using C3 technology whereas Solvay relies on the C4 route which has become more expensive in recent years.

"We work very hard to improve our competitive position by improving plant efficiency and our cost base. It's tough because we are fighting headwinds in terms of raw materials and energy but we're working on that."

He said the company is looking at different technologies such as catalysts. "But it is co-owned with INVISTA which adds a degree of complexity because we have to agree what we want to do," he added.

Asked about PVC and polyamides' position in the corporate structure he added:

"We need in a group cash generating businesses, to have a strong position in all our businesses, and that means that in PVC and polyamide we need to achieve a step change."

STICKING TO PROFIT TARGETS

Solvay is sticking to ambitious medium-term growth targets even though market conditions in its home territory of Europe remain difficult.

The current challenging European market conditions are being offset by recovery in the US and stronger performance in Asia and, together with operational improvement and organic growth, mean that the company can still attain growth targets set in 2011, according to Clamadieu. In 2011, Solvay set the ­target to increase earnings before interest, tax, depreciation and amortisation (EBITDA) from €2bn/year ($2.7bn/year) to €3bn/year through 2016.

"There is no reason to change the target today. The economic conditions of 2015/16 are probably more important to achieve these targets than those of today."

He said the target will be achieved through innovation, capacity increases and operational improvement.

"Even in tough economic conditions, we can work on all these levels, and in these conditions, we're placing even more emphasis on operational improvement."

SODA ASH PLAN

In December 2012 Solvay unveiled plans to rationalise soda ash capacity in southern Europe. Solvay has three soda ash plants in Italy, Spain and Portugal.

Clamadieu declined to give more details about the plan ahead of an announcement later in 2013.

Commenting on economic performance outside Europe, he said: "Asia seems to be going back into quite a dynamic economic situation. North America is quite good also, though Latin America is a little bit soft. I was at the Detroit Motor Show yesterday, and they are talking about 5-6-7% or maybe 10% growth expected in US auto industry this year."

Clamadieu said that if conditions worsen in Europe, he would put more emphasis on operational improvements. "We have always had a strong emphasis on cash and that will continue. We will continue to announce specific adjustments in specific businesses because of the economic situation."

NEW CORPORATE STRUCTURE

In January Solvay unveiled a new corporate logo and unveiled plans to complete the integration of France's Rhodia by phasing out the use of its brand altogether, except in Brazil where Rhodia has a strong identity.

The merged group will be divided into five operating divisions: consumer chemicals, advanced materials, performance chemicals, functional polymers and corporate businesses and services.

In terms of growth and M&A focus, the company will be focused on two divisions. According to Clamadieu: "We want to grow very significantly in Consumer Chemicals and Advanced Materials. That's where we're putting our resources to grow. In terms of ­geography we are going east - we enjoy a good base in China (Rhodia legacy) plus Thailand (Solvay legacy) and Korea (we are both here). We are also moving step by step to increase our exposure to India."

Solvay structure

Consumer chemicals contains three divisions. US-headquartered Solvay Novecare is based around specialty surfactants, polymers, amines, solvents, guar and phosphorus derivatives for the agrochemicals, coatings, home & personal care, industrial manufacturing, and oil & gas industries.

It has already been on a spending spree, snapping up US surfactants for personal care manufacturer McIntyre Group, Chinese amines and surfactants producer Feixiang Chemicals, and Sunshield Chemicals, an Indian surfactants producer.

Novecare claims to be the number one globally in specialty surfactants and polymers, phosphorus chemistry, guar and derivatives and a leader in amines.

Aroma Performance, its second division, claims to be the world's largest producer of diphenols and derivatives, and also produces flavours and building blocks for the pharmaceutical, agro and electronics markets, plus monomer stabilisers for petrochemicals.

The third, Coatis, is a Latin American producer of phenol and solvents.

The Advanced Materials business offers Specialty Polymers, Silica, Rare Earths Systems (where it claims a 20% global market share), and Special Chemicals which is strong in fluorine.

According to Clamadieu: "Innovation is very important. In these businesses we are very focused on this and with very good results. Look at the growth characteristics of Novacare and specialty polymers - innovation was a very important driver for both."


By: Will Beacham
+44 20 8652 3214



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