September 2009 Archives

BY SPECIAL GUEST COLUMNIST ALBERT HEUSER, PRESIDENT OF BASF'S PETROCHEMICALS DIVISION

The global economic crisis continues to cause a difficult business environment. The petrochemical industry is coping with this crisis in a very agile and flexible way, and indications are that the situation is stabilizing at a low level. But there are still many unresolved issues.

To manage challenges in the long run, it is important to invest in optimization as well as in innovation. Strengthened cooperation between companies as well as efficient Verbund structures within each firm are as important as optimization of logistics and infrastructure.

The key to future success is new technologies and products. New eco-efficient products can lead to significant energy savings as well as mitigate CO2 and other greenhouse gases. The chemical industry is clearly part of the solution to climate change.

Therefore, the primary objective of relevant EU policies should be to safeguard industry competitiveness. We need a global climate policy with fair burden sharing that results in a harmonized global carbon framework with one single price for carbon for all. The EU Emissions Trading Scheme (ETS) must not lead to global market distortions.

If we follow consequent strategies and the relevant policies frame the necessary legal conditions, I am confident that the European petrochemical industry will stay very competitive. This is important for our benefit as well as our strong and innovative customer base.

Many across the global chemical industry are pinning their hopes on China as a driver for recovery in demand for chemicals. Indeed, in recent months, we have been encouraged by some startlingly good import and export figures from the country.
High-density polyethylene (HDPE) imports nearly doubled in the first half of the year, while low and linear low density polyethylene (LDPE and LLDPE) jumped by around a half. Domestic chemical demand also appears to have rocketed.
This week, we analyze the causes of this apparent recovery and ask if it signifies a real turnaround.
Realizing that export markets were collapsing, the Chinese government has put in place enormous stimulus plans. The automotive programs, for example, resulted in sales of locally made cars rocketing 36% year on year in June. Huge amounts of cheap credit have also fueled growth. The question remains, though - how strong is real, underlying domestic demand?
China is pushing hard into specialties as it tries to diversify its economy. This will provide raw materials for products to satisfy the nation's burgeoning middle class. The figures are startling: between 2005 and 2020, China will add around 500m consumers who have an annual income of at least $10,000 (€6,800). That market is an opportunity not to be missed.

Once again, we are pleased to present the ICIS Top 100 Chemical Companies, ranked by 2008 sales. The results, spanning the global chemical industry, reflect a strong start to the year, followed by a collapse in the third and fourth quarters, triggered by the widespread financial and economic crisis that began in the US.

German major BASF led the pack, as it did in 2007, with $87.8bn in sales in 2008, while US-based ExxonMobil eclipsed Dow Chemical for the number two spot with $58.1bn in sales versus Dow's $57.5bn - third in the rankings.

The crisis certainly made its mark on the 2008 figures, most notably on net profit. For the sake of comparison, this time we included both 2008 and 2007 stats for both operating and net profit rather than percentage changes - just because there were so many companies in the red.

Out of the ICIS Top 100 Companies, 23 posted net losses in 2008. Overall profits tumbled 53% year on year for the group.

The crisis continues to hit the chemical market, and 2009 will likely show further earnings declines.

But the last throes of the M&A upcycle with multibillion dollar deals announced in 2008 that closed in 2009 will propel Dow Chemical upwards again, following its acquisition of US specialty chemicals giant Rohm and Haas. BASF will further pad its leading spot with its buyout of Swiss specialty firm Ciba.

While big deals like this have been put on ice, an M&A recovery could well be in the making as confidence returns and the financing market slowly recovers.

A big thanks to Lara McNamee and the ICIS data & analytics team led by Paul Ray for putting together the ICIS Top 100 rankings.

You can download a PDF of the ICIS Top 100 table on ICIS connect at http://www.icis.com/icisconnect/groups/icis-top-100-chemical-companies/default.aspx

We are also delighted to launch the ICIS Education & Recruitment Campaign. Led by Andy Brice, this campaign is aimed at highlighting the challenges as well as the industry's efforts in fostering interest in joining the chemical industry among students.

It is a critical issue vital to the future of our industry, and we truly appreciate the public support of so many distinguished industry organizations, including the American Chemistry Council (ACC), Society of Chemical Manufacturers & Affiliates (SOCMA), European Association of Chemical Distributors (FECC), National Association of Chemical Distributors (NACD), Chemical Heritage Foundation (CHF), Chemical Educational Foundation (CEF), National Skills Academy, Chemical Business Association (CBA), Association of Petrochemicals Producers in Europe (APPE), Societe de Chimie Industrielle and Singapore Chemical Industry Council (SCIC).

We welcome you to check out the ICIS Education & Recruitment Blog and send us your comments!

   BY SPECIAL GUEST COLUMNIST ARTURO GARCIA

Is there a real future for Mexico's petrochemical industry? We still have no answer, or at least we keep trying to justify that "with no answer" we still have an opportunity. But when will this opportunity materialize?

Because of its great economic impact downstream, we need to battle the enemy before us - that is, the lack of political will. There is a critical decision at hand to allow private companies to access ethane feedstock at a competitive price in a long-term supply contract.

It is one that is under President Calderon's decision-making faculties, and must be made with a long-term view that appreciates the enormous benefits that arise in Mexico from an economic standpoint.

The Phoenix Project, Mexico's planned multibillion-dollar joint venture cracker and derivatives complex, failed even with the full support of former President Vicente Fox, just because there was an alternative value for ethane as a fuel.

The issue of whether to sell ethane at a competitive price in a long-term supply contract to partners in the Phoenix project versus selling it as a fuel became a dogmatic struggle between economists, entrepreneurs, and politicians.

Unfortunately, short term vision and the lack of recognition of the great benefits that projects like this would bring to Mexican economy, prevailed.

Today we again have an opportunity, as low natural gas prices, at least in the3 medium-term, provide a great deal of competitiveness.

Yes, NAFTA region and its ethane-based crackers, are becoming competitive again - even enough to consider expansions or new crackers such as the one being planned in Mexico.

Mexico's Ethylene XXI Project aims to build a 1m tonne/year grassroots cracker wholly-owned by private companies. Hopefully this time, our government will make the right decision to promote projects like this, finally recognizing that we have the obligation to create value through petrochemicals for the benefit of Mexican citizens.

Arturo Garcia (pictured above), based in Mexico City, is CEO of Mexican plastics distributor Resinas TB and former executive director of Mexico's Phoenix project.