Tough start up at Spain’s CEPSA Chinese phenol plant – exec

Interview article by Jonathan Lopez

LONDON (ICIS)–CEPSA’s start up of its Shanghai phenol/acetone plant in China took place at a “very difficult” moment for the country’s construction sector, a key end user, although the Spanish energy major has noticed an improvement in the last few months, its director for petrochemicals said on Thursday.

Jose Manuel Martinez added CEPSA will now focus, following the divestment of its polyesters assets in Spain to Thai petrochemical major Indorama in April, on improving the integration of its chemical production with its refineries and trying to expand in markets where it already has a relevant position.

“We started up [the Shanghai plant] in a very difficult moment. Together with overcapacity, demand [from the construction industry, main end user of phenol/acetone] was not good – at the beginning of 2015, the market was at its worst in the last 20 years. It was tough,” said Martinez.

However, he said the “housing bubble” in China is showing signs of recovery, although despite observing better prices than in 2015, the situation in that market “is still not the one” CEPSA would like to see.

The company’s plants in Shanghai have production capacities of 250,000 tonnes/year for phenol/acetone and 350,000 tonnes/year for cumene.

“[For phenol/acetone] 2016 is going to be tough while we expect the situation to improve slightly in 2017,” said Martinez.

“Luckily our polycarbonates operations are doing well, as we also take advantage of having big European clients at the same site like Covestro or Evonik, resulting in more than 50% of our sales going to pipeline.”

Although he would not disclose how much Thai petrochemical major Indorama paid for CEPSA’s polymers assets in Spain and Canada, Martinez said it was a “fair” price for both players.

In April, the Spanish energy major agreed the sale of its 220,000 tonnes/year purified isophthalic acid (PIA) plant in Cadiz, Spain, together with a 175,000 tonnes/year polyethylene terephthalate (PET) facility and a 325,000 tonnes/year purified terephthalic acid (PTA) plant.

In June 2015 CEPSA also divested to Indorama its 550,000 tonnes/year PTA plant in Montreal, Canada. PTA is a building block for PET.

“The assets included the PTA and PET plants but also one of the biggest PIA plants in the world, together with the CEPSA’s technology and savoir faire in that area, which made the transaction interesting for Indorama and allowed them to pay them what CEPSA thought was fair.”

Martinez added that a pre-condition to sell both the Spanish and Canadian assets was to keep levels of employment intact for at least three years. With the sale, CEPSA transferred to Indorama 382 workers – 149 in Canada, 221 at the Cadiz plants and 12 marketing and administration employees in Madrid.

Despite market talk about potential job positions overlapping following Indorama’s acquisition, Martinez disagreed and even said Indorama might need a larger headcount to operate in Spain. 

“There won’t be overlapping. Our PTA and PET businesses were very integrated into CEPSA Corporation while Indorama doesn’t have a team for PTA and PET in the Iberian Peninsula, so they might even need to hire more people to do the services which were provided before by CEPSA Corporation,” he said.

Martinez added CEPSA Quimica is now committed to improve the integration with its refineries and improve its market position in those markets it already has a “relevant” market position, mentioning phenol/acetone and surfactants.

With more than 50% of its sales outside Spain already, the executive said CEPSA wants to be a “global producer” in those markets in which it already has expertise, although he added the firm’s operations in Spain are thriving as the country leaves behind eight years of financial crisis.

“Spain is by far better than one or two years ago, even with the current political situation. In many of the markets we operate in we had seen declines of up to 30% in sales since the pre-crisis peak [in 2007]. Now we are increasing sales in almost every market we serve.”

The Spanish current political situation means that an inconclusive general election which took place on 20 December will have to be repeated on 26 June. In a country accustomed to bipartisanism, new entries in Parliament meant a coalition government had to be formed – but the main four political parties have been unable to reach an agreement.

“The current political situation might be putting some investment decisions on hold, although we are not noticing much in our businesses, with the recovery so far strong, and stable. Frankly speaking, it’s difficult to see whether something will change in the elections [in terms of electoral results]. The politicians will have to agree on a government, and I’m sure they’ll do so.”

Martinez added a depreciated euro as a consequence of the European Central Bank (ECB) quantitative easing started in January 2015 and extended in March 2016 is “good for us” as its products are cheaper abroad while the low crude oil prices help some of CEPSA’s business lines while others are hurt.

“For surfactants, for instance, a cheap crude oil helps a lot, but for [crude oil] exploration and production [it’s not good]. However, as an integrated company, [profits at] refining and marketing can compensate [losses elsewhere],” he concluded.