News focus: Brenntag Europe strategy aims for US shale advantage

10 January 2014 09:47 Source:ICIS Chemical Business

Increasing volumes of chemicals flowing from North America offer big opportunities for European distributors

Germany’s Brenntag is adapting its growth strategy to take full advantage of the US shale gas revolution, as producers there seek to sell increasing volumes of competitively priced chemicals onto the European market through distribution channels.

The world’s largest distributor is expanding its network of storage hubs at key European locations to handle what it predicts will be a big influx of chemicals from North America and the Middle East over the next few years, especially once new projects come onstream in 2015 and 2016.

The company has built storage hubs at key locations in Europe including Rotterdam where in the fourth quarter of 2013 it added new capacity for imported industrial chemicals, particularly solvents and glycols. In its industrial segment, Brenntag focuses on solvents, acids, the chlor-alkali chain and dry packaged goods such as basic salts.

According to Karsten Beckmann, CEO for Europe, “This is being driven by shale gas [and other cheap feedstocks] and we see more and more product coming from these regions via the major ports. We plan to add more tank capacity in the mid-term to take advantage of this trend.”

He says that Brenntag is already handling increasing volumes of imports: “The first shipment came in December from the US. We expect substantially bigger flows of product to arrive from the US by the end of 2015 and into 2016 when their projects come onstream. By then the US will play an even bigger role.”

Brenntag is seeking to give its core, global suppliers an advantage by allowing them to channel larger quantities into the European market.

“Our suppliers want to sell by the shipload and we have significant demand from our 100,000 customers in Europe so we can take whole shiploads.”

GROWTH IN SPECIALTIES
The company is also trying to grow in specialties, which account for around 35% of its ­business. It is investing in technical competence by adding application labs to grow its network of 25 in Europe. It is also adding blending capabilities as an extra service for its customers.

Beckmann said: “We expect to see stronger growth in specialities, especially in the core industries we manage globally such as food, pharma, personal care, coatings and construction, and water treatment. Oil and gas is also a global focus: we bought the lubricants business Multisol two years ago. It’s now well-established and growing strongly.”

According to Clare Waters, Brenntag’s newly appointed chief operating officer for ­Europe, key account business is a major growth area. “We’d like to reduce their total costs of ownership. We look at the total cost of doing business, not just selling product to them. We’re trying to reduce their costs by taking ­complexity out of their supply chain.”

The company wants customers to outsource more of their supply chain, especially for small to medium sized products.

Beckmann adds: “We can reduce their inventory needs by storing product in our warehouses and doing just-in-time deliveries. Brenntag resources can sit within customer businesses. We can run an open book and agree targets such as cutting the total cost of procurement by 5-7%.”

Waters added: “There are strong opportunities to develop this further – it is a key area for us.”

The company is also upgrading its sales management systems to strengthen market intelligence and have invested in a European CRM (customer relationship management) system which gives suppliers real time information on market developments from its 30,000 monthly customer visits.

M&A STRATEGY
According to Beckmann, consolidation in Europe is being driven by difficult market conditions there. “It is a fragmented market where we have no more than 10-11.5% market share as the leader. So we want to do selective acquisitions to complete our network.”

He sees emerging markets as a key focus with Turkey’s €3.5bn distribution market as a top priority. In the long term there are also significant opportunities in Africa and the Middle East. Brenntag budgets €200-250m/year globally for acquisitions.

Commenting on the macroeconomic situation, Beckmann said: “In Europe we had a difficult first quarter but saw significant improvements quarter to quarter. Consumers have been holding back for some time but now we see the first signs of a return to growth in southern Europe and auto sales are improving. We are confident of a tailwind into 2014.”

By Will Beacham