Market outlook: Indorama Ventures Ltd employs hybrid model for global growth

Joseph Chang

09-Jun-2016

IVL’s PHP Fibers plant in Obernburg, Germany, where it produces polyester and nylon 6,6 yarns for automotive and other applications

Indorama Ventures Ltd

IVL’s Wellman International site in Dublin produces specialised polyester fibres from recycled PET bottles

Indorama Ventures Ltd


With a successful mergers and acquisitions (M&A) track record spanning essentials and specialty chemicals and polymers worldwide, Thailand-based Indorama Ventures Ltd (IVL) is now focusing on key value-added sectors to build out its capabilities in polyester, polyethylene (PE), polypropylene (PP), polylactic acid (PLA), nylon 6,6 and composite fibres.

“Our strategy is to grow in three key areas – hygiene, automotive and industrial applications. These are three key pillars in creating our hybrid model of essentials and specialties,” said Uday Gill, CEO of the fibres business for IVL.

Gill spoke to ICIS on the sidelines of the Asia Petrochemical Industry Conference (APIC) 2016 held on 19-20 May.

When formulating its vision and M&A strategy, IVL considered two models. The first was the “essentials model” of growing in commodities, becoming a low-cost leader through scale.

“It’s a model that shows revenue, but you face perpetual overcapacity and lower margins challenged by volatility – in both feedstocks and selling prices. A lot of companies followed this standalone model but did not succeed,” said Gill.

The second option was to grow in specialty research and development (R&D) driven, innovative businesses. But even success in this area is elusive for many, as companies have to invest large sums up front in R&D and wait years for commercialisation.

“It’s easy to invent, but more difficult to place product in the market,” said Gill.

IVL chose to create a combination of both worlds – an essentials business powered by vertical integration to feedstocks which is “low cost and that can compete with the best in the world”, and a high-value-added (HVA) specialties business driven by technology.

So while IVL opportunistically acquired and organically built essentials fibres and intermediates businesses – mostly polyethylene terephthalate (PET) as well as upstream intermediates purified terephthalic acid (PTA) and monoethylene glycol (MEG) – it then also went after innovative specialty companies. “Instead of reinventing the wheel through R&D, we looked for innovative companies. Most of these were standalone companies that faced the challenge of R&D and high overhead costs,” said Gill.

HISTORY OF HVA ACQUISITIONS

IVL has an impressive history of acquiring and integrating such companies. The following deals are all in the fibres business.

It bought Germany-based polyester fibres producer Trevira in July 2011. Trevira’s CS flame retardant fabrics have 80% market share on global cruise ships (curtains, drapes, upholstery), Gill noted. Trevira, a legacy business of Hoechst Celanese, also produces advanced fibres made from polylactic acid (PLA) that are used in shale oil and gas hydraulic fracturing (fracking). Those fibres are used in an emulsion to fill cracks produced in the fracking process, and then biodegrade over time, said Gill.

Also in 2011, IVL acquired INVISTA’s PET and polyester staple fibres (PSF) assets in the US and Mexico. Based in Spartanburg, South Carolina, US, and renamed Auriga Polymers, it produces highly specialised PET products used in medical supplies such as blood tubes, films and nonwovens, as well as industrial applications such as materials to seal cracks in municipal pipes in situ (without removing the pipes), in addition to beverage bottles. The Spartanburg plant is also a former Hoechst Celanese asset.

Another technology-driven deal for IVL was the acquisition of US-based FiberVisions in 2012. The former Hercules business is the dominant worldwide producer of PP, PE and polyester nonwoven fibres used in baby and adult diapers, as well as other hygiene products such as wipes.

IVL bought Wellman’s European PET recycling operations in late 2011. One of Europe’s largest PET recyclers, it produces products for hygiene, filtration products, roofing materials and battery separators. Entering the automotive space, IVL acquired Germany’s PHP Fibers in 2014. PHP is the second largest vehicle airbag yarn maker in the world with 25% market share behind INVISTA. Its nylon 6,6 yarns are also used in tyre cords, while its polyester fibres are used in seatbelts, sail cloth and mechanical rubber goods (MRG) such as hoses.

Also in automotive, IVL purchased Performance Fibers’ Asia business in 2015. A legacy Honeywell business, it is the largest producer of tyre cord fabric in China, said Gill. These fabrics are made from polyester rather than nylon.

Today IVL has a major presence in what it calls the most consolidated businesses in specialty fibres – automotive airbags (only four producers), premium (bicomponent) hygiene (six major producers), and tyre cord fabrics (10 dominant producers), Gill pointed out.

“Outside China, we have been able to consolidate businesses in the US, Europe and Asia,” he said.

In non-specialty fibre areas, IVL is also in highly consolidated businesses such as purified isophthalic acid, gained through its CEPSA acquisition in Spain, in 2016. Purified isophthalic acid is used as a PET copolymer and also in unsaturated polyester resins (UPR) and coatings resins.

With its BP Amoco Chemical acquisition in the US 2016, IVL picked up along with PET intermediate PTA (and not a consolidated sector), naphthalene dicarboxylate (NDC) – a specialty chemical used in polymers and films for smartphone screens. It is the world’s sole commercial producer of NDC.

Whether IVL’s next major push will be in these types of specialised businesses in China is speculation – something Gill would not comment on.

IVL has been able to leverage its acquired technology worldwide, introducing new products and often adding HVA capacity at acquired plant sites. In its fibres business, 21% of revenues comes from products introduced in the last five years. “We continuously look for new opportunities in automotive, hygiene and the industrial space. We believe that’s the way to grow,” said Gill.


CAPACITY EXPANSIONS

Brownfield expansions are a major part of IVL’s overall strategy. First it drives operational efficiencies at acquired sites by modernising utilities, installing automation and consolidating raw material sourcing, transportation and logistics. Then it selectively expands capacity where demand warrants. IVL is on track to add capacity of hygiene fibres made from PET and PE at two locations in Thailand and China.

Expansions of 16,000 tonnes/year of capacity each will take place at its existing plants in Rayong, Thailand, and Suzhou, China, with the Thailand expansion complete by mid-2016 and the China project done by the first quarter of 2018, said Gill. These bicomponent fibers, used in hygiene products such as baby and adult diapers and wipes, can be made from a blend of PET and PE, as well as PP and PE, he noted.

IVL also plans to expand polyester tyre cord fabric capacity at its Kaiping, China, facility. It will expand its 50,000 tonne/year polyester tyre cord fabrics plant in Kaiping by 17,500 tonnes/year by the first quarter of 2018.

Despite widespread concerns about a slowing China economy, “the auto business in China is growing very well”, said Gill.

In addition, the auto tyre market is 70% replacement and 30% OEM (original equipment manufacturer) and is thus not impacted as much by any slowdown in the overall auto markets, he said. The plant in Kaiping is part of IVL’s Performance Fibers business.

Less on the specialty fibres side but indicative of the company’s constant quest to move to higher value, it will add 80,000 tonnes/year of polyester staple fibre (PSF) capacity at its facility in Purwakarta, Indonesia, by the first quarter of 2017.

The PSF capacity will be added to IVL’s existing 300,000 tonne/year PET plant at the site, said Gill. There is currently an 80,000 tonne/year polyester chip plant at the site. Once the new PSF plant is up and running, IVL will feed more PET into producing PSF while reducing chip output. PSF is primarily used in making textiles.


MULTIPLE LOCATIONS VS HUB-AND-SPOKE

And IVL is well positioned with multiple plant locations in Thailand, Indonesia, China, Turkey, Germany, Spain, Ireland, France, Denmark, the US and Mexico, he said.

“The hub-and-spoke model of China producing everything and exporting to the world will not sustain. We see new manufacturing centres emerging in the consumer sector with brands moving towards local production and away from China. In the not-too-distant future, Asian countries will actually export textiles and other fibres to China, as China gets more high tech and affluent” he added.

READ MORE

Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?