July 2010 Archives

US ethane-based petrochemical producers such as Dow Chemical, LyondellBasell
and Westlake Chemical will enjoy a long term feedstock advantage over Asian and West European naphtha exposed manufacturers such as BASF, Hanwha and Honam Petrochemical, according to US-headquartered analysts Alembic.

New methods of extracting shale gas mean that the US should have enough natural gas to supply the US chemical industry for at least the next 90 years. According to Alembic, US producers will remain advantaged so long as oil prices remain above $70/bbl.

The report also suggests that US producers are now on a par with mixed-feed Middle East producers. With this in mind, could it be time for US producers to consider planning major expansions, even a new cracker for North America? The picture for naphtha-dependent Europe is more bleak. Ineos is planning a new facility for importing ethylene to Europe. Could it be planning to buy cheap Middle East ethylene and closing its European crackers?

The European Bank for Reconstruction and Development is injecting cash into RusVinyl, the 330,000 tonnes/year world scale PVC plant located at Kstovo, Nizhniy Novgorod region, Russian Federation. Why it's doing this is an interesting question. Is the project running out of finance? The EBRD has also approved an 11 year E150m loan with a three year grace period to RusVinyl.

Earlier press reports suggested the project was indeed running out of cash, with projects costs escalating to $1.2bn from $944m and the start of construction held back from 2009 to 2010.

This is an interesting project because it is one of few potentially successful examples of joint venture cooperation between the Russian chemical sector and Western groups. RusVinyl is 50% owned by Sibur and 50% by Solvin, itself a JV between Belgium's Solvay (75%) and Germany's BASF. 

The terms of this loan will be detailed in an agreement between EBRD and RusVinyl, which is scheduled to be signed in the autumn of 2010.

According to Solvay, the Russian authorities are giving great importance to RusVinyl, which is included in the Development Strategy for the chemical and petrochemical industry of Russia of the Ministry of Industry and Trade of the Russian Federation for the period up to 2015. The investment also received the priority status of the Investment Council of the Nizhniy Novgorod region in Russia.

Spolchemie CEO Francois Vleugels (pictured) has been extremely busy. He told me this week he is planning to split the company into several independent operating units with the aim or attracting financial partners, divestment, and even closure of uneconomic divisions.

The troubled firm expects its lenders to approve a restructuring plan by the end of July which involves an extension to standstill agreements on loans to the end of January 2011 in return for meeting operational targets and a restructuring plan.

If the plan is approved, the core epoxy resins, epichlorohydrin and BPA business will form the core unit. Inorganics, focussed on chlorine production another. Potassium permangnate production will form another group: "This may be closed. It is the only producer in Europe but will require investment to continue."

"We have got six months to create a permananent, positive solution for Spolchemie with a focus on technologies which act independently." He said partnerships could be in the form of marketing cooperations or financial partnerships. "We will consider closing some units and divesting some but not the core epichlorhydrine, epoxy resin and polyester divisions."

Then, just an hour ago, a press release arrived telling us that Vleugels has set up a joint venture with Sun Chemical, a subsidiary of specialty chemical group DIC Japan, for the manufacture of alkyd and varnish resins.

Under the agreement, around 8,000 tonnes/year of production of these products will move from DIC Performance Resins in Vienna to Spolchemie's Usti nad Labem during the third quarter of 2010. The DIC plant will close with the loss of 200 jobs.

The first batches of DIC product will be produced in Usti nad Labem in July 2010 and all relevant business will be taken over by Spolchemie, who will market the products directly.

Spolchemie suffered badly during the downturn and was forced to turn all its assets over to lenders in 2009, lay off a fifth of its 900 staff and implement a rescue plan under new leadership.

EU competition authorities said today that they have cleared chemical distributor Univar's acquisition of Eurochem's - also known as Quaron - Belgian and Dutch activities, but have refered the purchase of the French business to the French competition authority.

Could this result in Univar being forced to sell off the Quaron activities in France? The EU's statement (edited version below) certainly seems to make it quite clear that competition will be severely curtailed in France as a result of the deal.

The Commission found that Univar's acquisition of the Belgian and Dutch activities of Eurochem would not significantly impede effective competition in the European Economic Area (EEA).

At the same time, the Commission has referred the part of the proposed acquisition relating to Eurochem's activities in France to the French competition authority at its request. After a preliminary investigation, the Commission found that this part of the proposed transaction would threaten to significantly affect competition in the distribution of chemicals in France. Those aspects will now be examined by the French competition authority under national law.

On 5 February 2010, Univar and Eurochem, also known as Quaron, concluded an agreement according to which Univar would acquire all shares of Eurochem.

Univar, which is controlled by CVC Capital Partners, and Eurochem are both active in the distribution of commodities and specialities chemicals. CVC also controls Taminco and Evonik, which both produce and supply certain chemicals.

France asked the Commission to refer the part of the concentration concerning the French markets for the distribution of chemicals to the French competition authority, claiming that the proposed transaction would threaten to significantly affect competition in France.

The Commission's investigation confirmed that the proposed transaction would lead to significant overlaps in the distribution markets in France. For commodities, a majority of stakeholders raised concerns that the transaction could negatively affect competition in particular in Western France.

It would lead to a reduction of national players from three to two and would remove a significant competitive constraint on Univar and its main competitor Brenntag. At a national level, the merger would increase the symmetry between Brenntag and the merged entity, which could be an indication that coordinated effects might result from the merger. Following a market test of the remedies offered by the parties, the Commission concluded that they were not sufficient to remedy these concerns and bring into question its decision to refer the case to France.

A report from Bloomberg suggests that Ukraine's government may increase natural gas prices by 50% as it bows to IMF pressure. Urea prices could rise, according to an analyst at Alembic, because Ukraine is the marginal producer of urea and therefore the price setter. This could benefit urea producers globally including Sabic, Industries Qatar, Orascom Construction, SAFCO, CF Industries and Yara.  

Alembic says: "According to our estimates the marginal cost of urea production currently sits at around USD280 per ton - above current trough-ish prices of USD250 per ton which already implied an upside potential to pricing. If this natural gas price is implemented we could easily see urea prices rally above USD300 per ton."

Ukraine promised to raise its utility tariffs and prices paid by households to unblock for a new $14.9 billion loan program with the IMF. The nation's National Commission for Energy Regulation decided  to double from Aug. 1 the price paid for gas.

Image credit: http://www.sxc.hu/photo/920856

The botched privatization of parts of Poland's chemical industry has been well documented by this blog. As a general pattern, the assets are touted for sale and attract little interest and low offers from domestic and international players and investors. Next, the government rejects the offer, and the process grinds to a halt.

Now the country's deputy treasury minister, Adam Leszkiewicz, says that privatization remains the only option for the development of Poland's chemical industry, despite the failed efforts this year to sell off companies, according to ICIS news.

"Privatization is still the only alternative for the Polish chemical sector and we are determined to continue...let me emphasise that privatisation is our priority, because it gives real opportunities for growth," he said.

We will have to wait and see whether Adam and his colleagues at the ministry take a more realistic view of valuations.

Take a look at ZAK's marketing video which gives a good overview of the Polish company's product portfolio. Has anyone found other English language videos from CEE/Russian chemical companies? Let me know and I'll put them on the blog.
 

Russia's economy and chemical industry were hit hard by the downturn, as oil and gas prices plummeted, the main generator of wealth for this country. Oil prices, though faltering slightly at present, have recovered well and with it the economy.
Figures I've obtained from Andrew Sparshott at consultancy Cirec show much basic chemical production for products such as ethylene, benzene and styrene picked up in the first five months of this year compared to 2009.
Russia's chemical industry has undergone some modernisation but requires substantial further investment to show its true potential. With such vast quantities of natural gas and oil the country should be one of the world's major exporters of polymers and chemicals. At present it imports a lot and only exports in substantial quantities when its domestic market is sufferering.

Russian Chem Production

The somewhat farcical Poland chemicals privatization really is limping along and looks set to grind to a halt altogether. The latest bad news is that German distributor Brenntag has opted not to pursue its interest in acquiring the chemical distributor subsidiary Cheman from Polish chemical group Ciech.

Brenntag's due diligence must have thrown up some horrors because after competing it, the company said it did not see enough value in the deal.

Ciech is seeking the disposal of its non-core subsidiaries, such as Cheman, in order to pay down its debt and prepare for a possible re-launch of its so far unsuccessful privatization attempts, according to ICIS news.

The Polish company said it remained open to fresh bids for Cheman, which has the capacity to distribute more than 1,000 chemical products, including soda ash and toluene di-isocyanate (TDI).

A quick search on this blog will recount the slow and painful demise of the privatization process.

A report by MEED's Peter Salisbury suggests that ExxonMobil may be pulling out of the next cracker project at Ras Laffan in Qatar. The report doesn't state the reason for Exxon's change of heart about the $6bn project.

If the report is correct, I imagine Total, Shell, Honam and possibly others would be very keen to express their interest in the project. I was in Qatar with Total last November when the four companies were still awaiting a decision from the Qataris. Total CEO, Francois Cornelis, met with the Qataris then to help push the company's bid forward.

As Peter points out, "if Exxon decides to walk away from the project, it will be the fourth time in 2010 that a major international oil, gas or petrochemicals company has dropped a scheme in the region.

In April, the US' ConocoPhillips ended its involvement in a $10bn-plus refinery project with Saudi Aramco and a $10bn sour gas development with Abu Dhabi National Oil Company despite both schemes reaching the bid stage for engineering, procurement and construction (EPC) contracts.

In June, the UK's BG Group decided to abandon its Block 60 exploration and production block in Oman, shortly before it was scheduled to tender contracts to build permanent production facilities at the field."

Above, right, is an image of the new Ras Laffan cracker which is currently ramping up production. Credit - Total