Expandable polystyrene (EPS) and polystyrene (PS)

HOUSTON (ICIS)–Milton strengthened on Monday into a powerful Category 4 hurricane, and it is expected to continue strengthening before making landfall by midweek near Tampa, Florida, a major fertilizer hub that was drenched by an earlier major hurricane. That earlier hurricane, Helene, made landfall on September 26 far to the north of Tampa. However, Tampa still saw storm surges of 6-10 feet (1.8-3.0 meters), according to AccuWeather, a meteorology firm. Tampa and other ports along Florida's Gulf Coast had shut down because of Helene. AccuWeather estimates that Hurricane Helene caused $225 billion to $250 billion of damage and economic loss in Florida and the southeastern US. As of September 30, fertilizer companies were assessing the damage caused by Hurricane Helene. A week later, they will now prepare for another major hurricane that will pose a greater risk. AccuWeather is warning that, due to Milton, the Tampa Bay region could be hit by a storm surge of 10-15 feet, wind gusts of 120-140 miles/hour (193-225 miles/hour) and more than 2 feet (60 cm) of rain. "Milton may be a historic, once-in-a-lifetime storm for Floridians," said Jon Porter, AccuWeather chief meteorologist. "Milton has the potential to become one of Florida's most damaging and costly hurricanes." For Tampa, the magnitude of Milton's storm surge will depend on its path, according to AccuWeather. If it makes landfall south of Tampa, it will cause dangerous, but not extreme, storm surges. If landfall is north of Tampa, parts of the Bay could suffer from storm surges of 20 feet, AccuWeather said. FERTILIZER HUB, PHOSPHATES AT RISKTampa is an important hub for the US fertilizer industry, hosting corporate offices, trading, product storage, shipping and other logistical operations. Near Tampa is Florida's phosphate mining operations in Bone Valley, which covers parts of Hardee, Hillsborough, Manatee and Polk counties. In all, Florida has 27 phosphate mines, of which nine are active, according to the Florida Department of Environmental Protection. For chemicals, there is some epoxy resin, phenolic resin and unsaturated polyester resin production in Lakeland and Kathleen, Florida. Both are near Tampa. Milton will make landfall far from Pensacola, Florida, which has plants that make nylon and thermoset resins. PORT TAMPA BAY REMAINS OPENPort Tampa Bay remains open to inbound and outbound vessel traffic, but it has set Port Condition X-RAY. That means gale force winds that could disrupt maritime operations could occur in the next 48 hours. SeaPort Manatee, a deepwater port on Tampa Bay, also set Port Condition X-Ray. It handled bulk, breakbulk and container traffic. RAIL STILL RECOVERING FROM HELENEOn October 4, railroad company CSX warned customers to expect delays despite progress in restoring power and clearing trees. Disruptions to operations are concentrated in the Carolinas. Railroad company Norfolk Southern said it has already started monitoring Hurricane Milton, although its lines are operating as scheduled. POTENTIAL FOR DISRUPTION TO GULF OILHurricane Helene disrupted US oil and gas production in the Gulf of Mexico even though it passed through the eastern portion of the body of water. Hurricane Milton could have the same potential as it approaches the US. RECONSTRUCTION DEMAND FOR CHEMSFor hurricanes in general, reconstruction can translate to increased demand for many chemicals and polymers. The white pigment titanium dioxide (TiO2) is used in paints. Solvents used in paints and coatings include butyl acetate (butac), butyl acrylate (butyl-A), ethyl acetate (etac), glycol ethers, methyl ethyl ketone (MEK) and isopropanol (IPA). Blends of aliphatic and aromatic solvents are also used to make paints and coatings. For polymers, expandable polystyrene (EPS) and polyurethane (PU) foam are used in insulation. Polyurethanes are made of methylene diphenyl diisocyanate (MDI), toluene diisocyanate (TDI) and polyols. High density polyethylene (HDPE) is used in pipe. Polyvinyl chloride (PVC) is used to make cladding, window frames, wires and cables, flooring and roofing membranes. Unsaturated polyester resins (UPR) are used to make coatings and composites. Vinyl acetate monomer (VAM) is used to make paints and adhesives. Thumbnail shows the forecasts path of Hurricane Milton. Image by the National Hurricane Center.

07-Oct-2024

SAO PAULO (ICIS)–Here are some of the stories from ICIS Latin America for the week ended on 4 October. NEWS Brazil’s manufacturing expands healthily again in September on stronger demandBrazil’s manufacturing sectors posted a significant improvement in September on the back of an increase in production, stronger job creation, and accelerated sales growth, analysts at S&P Global said on Tuesday. Mexico’s manufacturing contraction deepens in September as perfect storm gathers paceMexico’s petrochemicals intensive manufacturing sectors deepened their contraction during September as a perfect storm of lower orders, lower output and lower employment levels is forming, analysts at S&P Global said on Wednesday. Colombia manufacturing falls further into contraction in SeptemberThe manufacturing sector in Colombia fell further into contraction territory in September on the back of weak demand which dented factory output, analysts at S&P Global said. Chile’s manufacturing starts Q4 in good form, central bank forecasts healthier growthChile’s economy has had several ups and downs in the past 12 months, including flirting with a recession, but the petrochemicals-intensive manufacturing sectors and macroeconomics point to healthier growth in Q4 and into 2025. INSIGHT: Brazil’s booming economy creates problems of its own – but chemicals absent from bonanzaBrazil's economy has beaten the odds in 2024, and GDP growth is expected to top 3% for the year, although this success is coming accompanied by a series of challenges – not least inflation and interest rates, which remain high. INSIGHT: Optimism over Mexico’s Sheinbaum tempered by fears of executive over-reachClaudia Sheinbaum’s historic swearing-in this week as the first female Mexican president and the optimism it infused could quickly turn sour if her party Morena continues approving one-party, structural reforms thanks to the ‘supermajority’ of two thirds of seats in parliament. Agribusiness titan Bunge concludes sale of its share in BP Bunge Bioenergia in BrazilGlobal agribusiness titan Bunge announced it has completed the previously announced sale of its 50% share in BP Bunge Bioenergia to BP, which now owns 100% of the business. Verde AgriTech successfully renegotiates loans with their creditors in BrazilFertilizer producer Verde AgriTech has announced a successful renegotiation with the banks holding 73% of its outstanding loans. Brazil’s Innova BOPP capacity to nearly double with Polo Films acquisitionChemicals producer Innova is to increase its production capacities for biaxially oriented polypropylene (BOPP) film by 86% to 130,000 tonnes/year if its planned acquisition of Polo Films goes ahead as planned. Colombia’s central bank cuts rates by 50 basis points to 10.25%Colombia’s Banco de la Republica decided late on Monday to cut its benchmark interest rate by 50 basis points to 10.25% in a split decision among members of its monetary policy committee. PRICING Mexico PP domestic prices fall tracking propyleneDomestic polypropylene (PP) prices dropped in Mexico tracking lower propylene costs. In other Latin American countries prices were assessed unchanged. Mexico domestic PE prices fall on ample supply, soft demandDomestic polyethylene (PE) prices fell in Mexico on ample supply and soft demand while being unchanged in other Latin American countries.

07-Oct-2024

SINGAPORE (ICIS)–Vietnam’s economy expanded by 7.4% year on year in the third quarter despite hefty losses from Typhoon Yagi, with growth marking its strongest in two years on robust exports. Yagi causes $3.3 billion in economic losses Jan-Sept GDP average growth at 6.82% Exports grow at double-digit annual rate The third-quarter GDP print represents an acceleration from the revised 7.09% year-on-year expansion in Q2, despite taking huge economic hit from Typhoon Yagi, which wrought havoc in Vietnam’s northern regions in September. For the first nine months of 2024, the economy posted an average annualized growth of 6.82%. Yagi, which was Asia's strongest storm to date – killed 345 people in Vietnam, with total economic damage to the country estimated at around $3.3 billion, the General Statistics Office (GSO) said on 6 October. The agriculture, forestry and the fishery sectors were especially affected by Yagi, the GSO said. In September, the country’s manufacturing activity indicated a contraction, with its purchasing managers ‘s index (PMI) falling to 47.3, way below the expansion threshold of 50 and down by 52.4 in August, according to a survey by financial information services provider S&P Global. “Typhoon Yagi had a major impact on the Vietnamese manufacturing sector during September, with heavy rain and flooding leading to temporary business closures and delays across production lines and supply chains,” S&P Global said on 1 October. Vietnam is the fourth-biggest economy in southeast Asia and is a net importer of petrochemicals. Operations at its major petrochemical complexes were unscathed as their locations were not in Yagi’s path. Long Son Petrochemical is in the southern province of Ba Ria-Vung Tau; while the Dung Quat petrochemical complex is in the central Quang Ngai province; and the Nghi Son petrochemical complex is in the north-central Thanh Hoa province. EXPORTS DRIVE UP GDP GROWTH Vietnam, like most Asian economies, count exports as a major pillar of growth, which is being threatened by overall weakness in the global economy. But the country’s overall exports managed to post a double-digit annualized growth of 10.7% in the third quarter. For the first nine months of this year, Vietnam’s exports rose by 15.4% year on year to $299.6 billion while imports grew at a faster rate of by 17.3% at $278.8 billion, indicating robust domestic activity. The US is Vietnam’s biggest market, accounting for a third of the southeast Asian country’s exports for the period. Its biggest source of imports was China, whose share of the total was around 38% in the first nine months of 2024. The International Monetary Fund (IMF) forecasts Vietnam's economic growth is projected to recover to 6.1% in 2024, "supported by continued strong external demand, resilient foreign direct investment, and accommodative policies". The forecast is higher than the previous year’s GDP growth of 5.05% and was near the low end of the Vietnamese government’s target of 6.0-6.5%. However, Vietnam's export-driven economy remains vulnerable to a global growth slowdown, persistent geopolitical tensions, and escalating trade disputes, the IMF warned. Focus article by Nurluqman Suratman Thumbnail image: An aerial drone photo shows a steel bridge collapsed in Phu Tho Province of northern Vietnam, 9 September 2024. (Xinhua/Shutterstock)

07-Oct-2024

SAO PAULO (ICIS)–Brazil’s manufacturing sectors posted a significant improvement in September on the back of an increase in production, stronger job creation, and accelerated sales growth, analysts at S&P Global said on Tuesday. The capital goods sub-sector, which had been a weak point in August, emerged as the best performer in terms of sales and output growth in September. Brazil manufacturing September August July June May April March February January December 2023 November October PMI index 53.2 50.4 54.0 52.5 52.1 55.9 53.6 54.1 52.8 48.4 49.4 48.6 Source: S&P Global Manufacturing jobs expanded markedly, fueled by tech investment, demand resilience, and an increased need for skilled workers, and the pace of job creation was quicker than in August. Additionally, firms increased their input purchases, extending the current expansion streak to nine months. However, the sector faced some challenges. Supplier pressures escalated, with lead times lengthening to the greatest extent in over two years. This was attributed to slow international logistics, congestion at Asian ports, and shortages of key inputs among distributors. Price pressures remained historically high, with both input costs and output charges rising at one of the fastest rates seen in over two years. The increase in input costs was linked to currency depreciation, rising transportation costs, and demand exceeding supply. Despite these pressures, manufacturers maintained a positive outlook. About 62% of surveyed firms expressed optimism about output growth in the coming year, although overall sentiment slipped to a six-month low. International demand provided some support, with new export orders rising marginally. Companies reported gains from various regions including Africa, Asia, Latin America and Europe. While the September data was encouraging, it is worth noting that the average PMI reading for the third quarter was the lowest in 2024 so far, indicating some volatility in the sector's performance. Overall, the report paints a picture of a manufacturing sector that is growing and creating jobs, but also grappling with supply chain issues and inflationary pressures. "A significant factor in this resurgence was a marked improvement in sales, particularly within the capital goods sector which had previously shown weakness,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

01-Oct-2024

LONDON (ICIS)–Manufacturing output in the eurozone fell at its steepest rate this year in September to hit a nine-month low. Key measures of factory strength such as production, new orders, employment and procurement activity all declined at quicker rates, according to purchasing managers’ index (PMI) data on Tuesday. The HCOB (Hamburg Commercial Bank) eurozone manufacturing PMI fell to 45.0 in September from 45.8 in August, while manufacturing output declined to 44.9, also from 45.8 in the previous month. Both were at a nine-month low, said S&P Global which compiles the indexes. A figure above 50 indicates growth, and below 50 contraction. “Lower output volumes were a response to the prevailing demand environment, which deteriorated further during September,” the market intelligence group said in a statement. Growth in Spain and Greece was offset by weakness elsewhere, particularly in the eurozone’s largest manufacturing sector Germany, which recorded its most pronounced worsening of factory conditions for 12 months. Countries ranked by PMI: September Spain 53.0 4-month high Greece 50.3 12-month low Ireland 49.4 3-month low Italy 48.3 2-month low Netherlands 48.2 2-month high France 44.6 3-month high Austria 42.8 6-month low Germany 40.6 12-month low “While handling the global manufacturing downturn surprisingly well, Spain just does not have enough weight to lift the rest of the eurozone with it,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. “The worsening industrial slump in Germany, for example, is too big for Spain’s momentum in September to make much of a difference.” In the UK, the picture was brighter as solid expansion in the sector continued in September. Although the manufacturing PMI declined to 51.5 from August’s 26-month high of 52.5, it has remained above 50 for five successive months. The main drivers of September expansion were the consumer and intermediate goods sectors, both of which recorded stronger increases in output and new business.

01-Oct-2024

HOUSTON (ICIS)–More than 4 million outages were reported in the southeastern US on Friday after Hurricane Helene made landfall as a powerful Category 4 storm in northwestern Florida. The southeastern US does not have a lot of chemical production. But such widespread power outages, in addition to disruptions caused by flooding, will lower demand for plastics and chemicals more broadly. The power outages are concentrated in the US states of South Carolina, Georgia, Florida and North Carolina, according to the website poweroutage.us. Among the few chemical plants near Helene's landfall site are a crude sulphate turpentine refinery and a crude tall oil (CTO) refinery that Kraton owns in Panama City, Florida. Tall oil is a feedstock fatty acids, renewable diesel and sustainable aviation fuel (SAF). Kraton has not returned requests for comment in regard to its preparations for Helene. Since Helene made landfall, it has weakened into a tropical storm, with maximum sustained wind speeds of 45 miles/hour (75 km/hour), according to the National Hurricane Center. The following map shows its projected path. Source: National Hurricane Center PORT CLOSURESInbound and outbound traffic at Port Tampa Bay ceased ahead of the storm, and the port's shipping channels were closed. Tampa is an important hub for the US fertilizer industry, hosting corporate offices, trading, product storage, shipping and other logistical operations. Other port closures include Panama City, St Joe, St Petersburg, Manatee and Key West on Florida's west coast, as well as Fernandina, Jacksonville and Canaveral on Florida's east coast. ENERGY DISRUPTIONS The following table shows the disruptions to US Gulf production that were caused by Helene, according to the Bureau of Safety and Environmental Enforcement (BSEE). Total % of US Gulf Oil, bbl/day 441,923 25.25% Gas, million cubic feet/day 363.39 19.81% Source: BSEE Total % of US Gulf Platforms evacuated 27 7.28% Rigs evacuated 1 20% Source: BSEE The Gulf of Mexico accounts for 14% of US production of crude oil and 5% of total dry gas production, according to the Energy Information Administration (EIA). RAIL DISRUPTIONS Railroad company CSX planned to close its TRANSFLO terminals in Tampa and Tampa Port on Thursday. Railroad company Norfolk Southern said that customers with shipments moving through the southeast and mid-Atlantic should prepare for delays. RECONSTRUCTION AND CHEM DEMANDHurricane Helene's current path could put $5.64 billion worth of housing at risk to storm surge flooding, an insurance data company said on Wednesday. Nearly 25,000 residential properties in the Tallahassee and Homosassa Springs metropolitan areas are at risk, said CoreLogic. “Helene has the potential to become a once-in-a-generation storm,” said Jon Porter, chief meteorologist for the meteorology firm AccuWeather. It estimates that most of Florida and much of the southeastern US will be exposed to winds reaching 40-60 miles/hour. AccuWeather expects that most of Florida and all of the states of Georgia, South Carolina and North Carolina are at risk for tornados. For hurricanes in general, reconstruction can translate to increased demand for many chemicals and polymers. The white pigment titanium dioxide (TiO2) is used in paints. Solvents used in paints and coatings include butyl acetate (butac), butyl acrylate (butyl-A), ethyl acetate (etac), glycol ethers, methyl ethyl ketone (MEK) and isopropanol (IPA). Blends of aliphatic and aromatic solvents are also used to make paints and coatings. For polymers, expandable polystyrene (EPS) and polyurethane (PU) foam are used in insulation. Polyurethanes are made of methylene diphenyl diisocyanate (MDI), toluene diisocyanate (TDI) and polyols. High density polyethylene (HDPE) is used in pipe. Polyvinyl chloride (PVC) is used to make cladding, window frames, wires and cables, flooring and roofing membranes. Unsaturated polyester resins (UPR) are used to make coatings and composites. Vinyl acetate monomer (VAM) is used to make paints and adhesives. Thumbnail shows Helene before it made landfall. Image by National Hurricane Center.

27-Sep-2024

HOUSTON (ICIS)–A quarter of US oil production in the Gulf of Mexico remains shut in as Helene becomes close to becoming a major hurricane. The following table shows the disruptions to US Gulf production that were caused by Helene, according to the Bureau of Safety and Environmental Enforcement (BSEE). Total % of US Gulf Oil, bbl/day 441,923 25.25% Gas, million cubic feet/day 363.39 19.81% Source: BSEE Total % of US Gulf Platforms evacuated 27 7.28% Rigs evacuated 1 20% Source: BSEE Hurricane Helene has maximum sustained wind speeds of nearly 110 miles/hour (175 km/hour), which is 1 mile/hour below becoming a major hurricane. It is on track to make landfall in the Big Bend, a sparsely populated region of northwestern Florida. The following map shows the forecasted path of Helene. Source: National Hurricane Center FLORIDA CHEMS AT RISKHelene could threaten Panama City, Florida, where Kraton operates a crude sulphate turpentine refinery and a crude tall oil (CTO) refinery. Tall oil is a feedstock for the production of fatty acids, renewable diesel and sustainable aviation fuel (SAF). Helene's path is too far east to threaten Pensacola, which is home to some nylon and thermoset resin plants. Helene is moving on the opposite side of Texas and Louisiana in the Gulf of Mexico. Those two states are home to most of the refineries, petrochemical plants and LNG capacity of the US. Operations at those plants will not be threatened by Helene. Helene will not make landfall near Tampa Bay, an important hub for the US fertilizer industry. Tampa hosts corporate offices, trading, product storage, shipping and other logistical operations. Nonetheless, Helene will disrupt operations at the port of Tampa Bay. PORTS CLOSED TO TRAFFIC ALONG EASTERN GULF COASTInbound and outbound traffic has ceased among numerous ports along Florida's Gulf Coast, including Port Tampa Bay, an important entrepot. Tampa is in the region that could see a peak storm surge of 5-8 feet (1.5-2.4 meters), as shown in the following map. Source: National Hurricane Center The following table shows some of the other ports in Florida that are closed. Panama City, Florida Port St Joe, Florida St Petersburg, Florida Manatee, Florida Source: US Coast Guard The following ports are open with restrictions. Pensacola, Florida Mobile, Alabama Source: US Coast Guard RAIL DISRUPTIONS Railroad company CSX plans to close its TRANSFLO terminals in Tampa and Tampa Port on Thursday. Railroad company Norfolk Southern said that customers with shipments moving through the southeast and mid-Atlantic should prepare for delays. RECONSTRUCTION AND CHEM DEMANDHurricane Helene's current path could put $5.64 billion worth of housing at risk to storm surge flooding, an insurance data company said on Wednesday. Nearly 25,000 residential properties in the Tallahassee and Homosassa Springs metropolitan areas are at risk, said CoreLogic. “Helene has the potential to become a once-in-a-generation storm,” said Jon Porter, chief meteorologist for the meteorology firm AccuWeather. It estimates that most of Florida and much of the southeastern US will be exposed to winds reaching 40-60 miles/hour. AccuWeather expects that most of Florida and all of the states of Georgia, South Carolina and North Carolina are at risk for tornados. For hurricanes in general, reconstruction can translate to increased demand for many chemicals and polymers. The white pigment titanium dioxide (TiO2) is used in paints. Solvents used in paints and coatings include butyl acetate (butac), butyl acrylate (butyl-A), ethyl acetate (etac), glycol ethers, methyl ethyl ketone (MEK) and isopropanol (IPA). Blends of aliphatic and aromatic solvents are also used to make paints and coatings. For polymers, expandable polystyrene (EPS) and polyurethane (PU) foam are used in insulation. Polyurethanes are made of methylene diphenyl diisocyanate (MDI), toluene diisocyanate (TDI) and polyols. High density polyethylene (HDPE) is used in pipe. Polyvinyl chloride (PVC) is used to make cladding, window frames, wires and cables, flooring and roofing membranes. Unsaturated polyester resins (UPR) are used to make coatings and composites. Vinyl acetate monomer (VAM) is used to make paints and adhesives. Thumbnail photo: Helene. (By the National Hurricane Center) (adds missing world "Gulf" in headline)

26-Sep-2024

NEW YORK (ICIS)–The lack of a meaningful recovery in volumes amid a weak macroeconomic backdrop along with geopolitical uncertainty are key factors hindering mergers and acquisitions (M&A) activity, panelists said at a recent meeting of the Societe de Chimie Industrielle in New York. “Right now, it’s all about volume in our businesses. That’s the number one issue, because we have operating leverage in our businesses where small increases in volume will lead to meaningful increases in profitability,” said Scott Wolff, managing director at private equity firm American Securities. “Fortunately, our portfolio companies – mostly specialties businesses – have maintained real pricing power during this inflationary period. So, our margins across portfolio companies are really strong,” he added. Wolff is also chairman of US-based specialty chemical companies Hexion, Meridian Adhesives and Vibrantz (combination of former Ferro, Chromaflo and Prince businesses). On the macroeconomic front, “China is struggling and is not going to hit 5% growth while Europe is clearly struggling with Germany potentially in recession. The US has been remarkably resilient,” said Peter Young, CEO of investment bank Young & Partners. Panelists at the Societe de Chimie Industrielle meeting from American Securities, DC Advisory, Young & Partners and ICIS. COMMODITY VS SPECIALTY“Demand is soft but there’s a bit of a split personality. If you talk about specialty chemicals, weaker demand is not helping but at least they’re not facing overcapacity,” said Young. “Commodity chemicals is a very different story. There is a massive increase in capacity in China of commodity chemicals and plastics, coupled with the Middle East trying to add capacity because they want to diversify away from [fuel], he added, pointing out that an “irrational amount of capacity” is coming online. He doesn’t see global capacity utilization improving for commodity chemicals until 2028. “For specialty chemicals businesses, the lower cost in commodities works to our advantage because our companies are buying those raw materials at favorable prices,” said Wolff from American Securities. DEALS PUT ON HOLDThis widespread weakness in volumes has curbed M&A activity as many potential sale processes were delayed or put on hold. “Profits in 2023 dipped for a number of companies, so a number of processes that were started in 2023 got pushed back or put on hold because people were concerned about lower 2023 results and did not have enough visibility on 2024 numbers,” said Federico Mennella, managing director and US head of chemicals at investment bank DC Advisory, a unit of Japan’s Daiwa Securities. Today, in contrast, players are now focused on improved 2024 results and have more confidence in 2025 figures, he noted. “At the beginning of the year, we expected volumes in 2024 to be significantly higher than in 2023. In fact, the M&A market was weaker than expected in H1 2024, although we still expect an increase in transactions in the months ahead and in 2025,” said Mennella. The banker attributes the slowdown to difficult credit conditions, geopolitical factors – including elections in a number of countries, the war in Ukraine and Middle East uncertainty – high energy costs and logistics considerations. Data from Young & Partners show chemical M&A activity market is down significantly, with only 20 deals above $25 million in size closing in H1 2024 versus 75 for all of 2023 and 86 for all of 2022. And among the 20 deals closed in H1 2024, 55% were in Asia – mainly in China with Chinese buyers. “That makes the accessible market even smaller for Western players because private equity firms are not lining up to do LBOs (leveraged buyouts) in China,” said Young. “Chemical deal volume has gone down, mainly because of uncertainty. And Europe volume has just plunged because Europe is in trouble. Their energy sources have changed and are much higher cost, and in general it is a high-cost place to make chemicals,” he added. On a geographic basis, Europe is certainly being eyed more cautiously and critically in terms of investment by private equity firms, Mennella from DC Advisory pointed out. There are less cross-border deals coming from China while the US remains a key area of interest. M&A activity in the US could pick up with interest rates easing, he added. “We are also seeing increased M&A activity in and from Japan, as well as from Southeast Asian and Middle Eastern companies and entities,” said Mennella. Meanwhile, chemical companies themselves are more active in restructuring, repositioning and refocusing their businesses, which in turn drives M&A activity among strategic players as well as private equity groups, he added. PROCESSES TAKING LONGERPrivate equity firms bought “a lot of companies in the 2015-2019 period which they need to sell soon. Other private equity groups are raising funds and want to show good returns on prior investments,” said Mennella. “But processes often take longer because of gaps between sellers and buyers. We expect a catch-up once we have confidence in 2024 earnings and projections for 2025.” he added. “You see that every time we go through a peak and valuations start to come down – volumes start to drop because buyers and sellers can’t agree on price,” said Young from Young & Partners. In 2023, for American Securities, in approximately 75% of the deals evaluated by the investment team, there was no transaction. This compares to around 30% in a typical year, Wolff pointed out. “Broadly speaking, there has been a buyer-seller disconnect, and there are various factors [contributing to this] including interest rates and destocking in 2023. So while we were able to close a number of transactions, there is no question that the pace of dealmaking has been slower for us and the industry at large,” said Wolff. GOOD TIME FOR BOLT-ONSCertain private equity firms are continuing to make bolt-on acquisitions to existing platform companies rather than taking on major new deals on the buy side. “From an M&A perspective, the market is active right now. That’s not necessarily the case for platform investments. But for add-on deals, there continues to be an abundance of opportunities. We are really active on that front,” said Wolff. In August 2024, American Securities’ portfolio company Vibrantz acquired US-based Micro Abrasives, a producer of specialty alumina for automotive refinishing, optics polishing and industrial lapping markets. In June 2024, portfolio company Meridian Adhesives acquired specialty adhesives producer Bondloc UK, which makes anaerobic adhesives, cyanoacrylates, epoxies, UV cure adhesives, and structural acrylics. On the sell side for American Securities, Hexion in April 2024 announced the sale of its PVA and EPI Emulsions business to Franklin International, a US-based producers of adhesives, sealants and polymers that supplied that Hexion business for over 40 years. Also in April, Vibrantz sold its Onda, Spain ceramic floor and wall tile manufacturing operations to Xphere Global Specialities, an affiliate of Vidres India Ceramics. TARGETED PROCESSES AND FLEXIBLE DEAL STRUCTURESIn a challenging deal environment, players are engaging in more targeted buy or sell processes rather than putting an asset out for auction. Deal structures are also becoming more flexible to bridge any gaps. “A number of transactions include targeted processes that do not involve a broad auction. In other cases, a strategic or private equity group with sector knowledge targets a specific asset and approaches the owner directly,” said Mennella from DC Advisory. One case in point was Germany-based Henkel proactively approaching Arsenal Capital Partners for the acquisition of US-based protective coatings and sealants producer Seal For Life industries ($250 million in 2023 sales) and closing the deal in April 2024, he noted. “In another situation, instead of a broad auction, we targeted five logical buyers before going through any process. Two of the five submitted bids, and one was accepted. It never went to the broader market,” said Mennella. Earnings growth and macro assumptions are much fuzzier today, often requiring flexible or hybrid M&A models to get deals done. “A lot of the acquisitions made in the past were based on a variety of optimistic assumptions – the EBITDA was going to increase, the exit multiple was going to remain or even increase, interest rates would continue to stay low, and everything was going to be on a consistent and predictable trajectory,” said Mennella. “Given the recent post-pandemic market dynamics, many buyers are more flexible and innovative in structuring and executing their deals,” he added. In certain private equity sell-side deals, the seller is retaining a portion of its stake rather than exiting 100%. In August 2024, H.I.G. Capital announced a deal to sell water treatment solutions company USALCO to private equity firm TJC (formerly The Jordan Company) while retaining a minority stake. “The willingness of private equity and strategics to utilize flexibility and inventiveness helps bridge gaps and gets transactions done,” said Mennella. Or private equity firms could simply stand pat and hold onto their portfolio companies for longer, especially for those firms with longer fund lives. “We’re excited about the investment thesis of our companies and their long-term potential. Fortunately, we can be patient,” said Wolff from American Securities. “We’d rather realize the earnings growth we see in these companies before exit, and if that means holding for longer, that’s fine,” he added. CHALLENGE FOR MANAGEMENTSAmid all the uncertainty and weak demand backdrop, what should other chemical company managements do? “It really depends on who you are and where you are because the nature of the problem and the opportunity and the solution are going to be dramatically different,” said Young of Young & Partners. “First, take a real look at the asset and try to characterize it. And then the solution will be driven by the nature of that asset – in terms of its competitiveness, who and where its customers are, etc.,” he added. Obviously, a commodity chemical producer in the US will have very different options than those in Europe and Asia because of cost competitiveness. “Most CEOs are quite nervous these days because the landscape has changed dramatically and become much more uncertain. In the US presidential election, there is going to be a huge difference in policy depending on who becomes president – on tariffs and so forth,” said Young. “It used to be CEOs could do a base case, have two or three scenarios, and plan around them. Now they don’t know what their base case is, much less what the scenarios are to consider,” he added. The path to zero carbon emissions and greater circularity are additional challenges for managements, as technologies are all over the place and return on investment is far from certain, the banker pointed out. “Most of these CEOs are saying – I’ve got to do it. I may not get a return on capital, but I don’t really have much choice because if I don’t do anything, five years down the road… I’m going to be in trouble,” said Young. LYONDELLBASELL EXAMPLESome companies are taking decisive action. US-based LyondellBasell, for example, is using strong cash flows from its core cost-advantaged commodity businesses to invest in plastics recycling and bio-based chemicals – its Circular and Low Carbon Solutions business – both organically and through M&A. LyondellBasell in August 2024 agreed to acquire full ownership of Germany-based APK which uses solvent-based technology to recycle low density polyethylene (LDPE). Earlier in February, it bought US mechanical recycling operations from PreZero. The company has a goal of producing over 2m tonnes/year of recycled and renewable-based polymers by 2030 and taking 20%+ market share in North America and Europe for these plastics. In the meantime, LyondellBasell is also conducting strategic reviews of six European assets in its Olefins & Polyolefins (O&P) and Intermediates & Derivatives (I&D) segments for potential sale. By the end of the decade, if the company follows through on its strategy, it will look very different from where it is today. Insight article by Joseph Chang Thumbnail photo source: Photo source: Taidgh Barron/ZUMA Press Wire/Shutterstock

25-Sep-2024

BARCELONA (ICIS)–Initial purchasing manager index (PMI) figures for the eurozone reveal that the region’s economy is contracting, with the previously resilient services sector weakening and the manufacturing recession deepening. The HCOB Flash eurozone composite PMI by S&P Global fell to 48.9 in September, showing that overall regional private sector business activity contracted for the first time in seven months; with a reading below 50 denoting a decline. There was a sustained reduction in new orders with new business decreasing at the sharpest pace since January. New orders and volumes of outstanding business fell at a sharper rate and business confidence hit a ten-month low. Companies scaled back their workforce numbers for the second month running while demand weakness resulted in slower inflation of both input costs and output prices. The reduction in overall business activity was driven by a deepening downturn in eurozone manufacturing, where production decreased for the eighteenth month running and at the fastest pace year-to-date. Although services business activity continued to rise, the latest expansion was only marginal and the weakest since February. After an Olympics-related boost in August, output in France returned to contraction in September, joining Germany where the pace of decline was the most pronounced since February. The rest of the euro area saw output rise again, although the pace of expansion was only modest and the softest since January. MANUFACURING MALAISE DEEPENS The downturn in eurozone manufacturing output extended to an eighteenth consecutive month, and showed signs of deepening in September. Production decreased at the sharpest pace in 2024 so far. Declines in manufacturing were particularly marked in Germany and France, but the rest of the eurozone also posted a fall. Services grew marginally, but at the slowest pace since February. A renewed decline in France contrasted with continued services growth in Germany and the rest of the euro area. Services new business decreased for the first time in seven months, alongside a further contraction in manufacturing new orders, which quickened for the fourth successive month. OUTLOOK DEPRESSED Business confidence continues to wane, dropping for the fourth consecutive month to the lowest since November last year. Sentiment was also weaker than average, particularly among manufacturers. Euro area confidence was dragged down by a pessimistic outlook in Germany, where companies predicted a fall in output for the first time in a year. It ticked slightly higher in both France and the rest of the eurozone. As well as cutting employment, eurozone manufacturers reduced purchasing activity and stocks of raw materials and finished products during September. PRICE INFLATION WEAKENS A weakening demand environment contributed to softer inflationary pressures in September. The rate of input cost inflation slowed sharply, easing to the lowest since November 2020. Manufacturing input prices decreased for the first time in four months, while service providers posted the weakest rise in costs for three-and-a-half years. Output prices increased only slightly, and to the least extent since February 2021 when the current period of inflation began. A slower rise in service inflation was accompanied by a renewed fall in manufacturing selling prices. Slower increases in output prices were seen in Germany and the rest of the eurozone, while charges in France decreased for the first time since February 2021. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said, “The eurozone is heading towards stagnation. After the Olympic effect had temporarily boosted France, the eurozone economy fell in September to the largest extent in 15 months. Considering the rapid decline in new orders and the order backlog, it doesn't take much imagination to foresee a further weakening of the economy.” He added, “Manufacturing is getting messier by the month.  The recession has now dragged on for 27 months and even worsened in September. Looking ahead, the sharp drop in new orders and companies' increasingly bleak outlook for future output suggest that this dry spell is far from over.” UK PMI SHOWS ECONOMY STILL EXPANDING The S&P Global Flash UK PMI for September, also released today, shows that the private sector economy is still expanding, albeit at a slower rate than in August. The UK PMI stood at 52.9 compared with 53.8 the previous month. There was a sustained upturn in business activity during September, marking 11 months of continuous expansion. However, output growth slowdowns in both manufacturing and services meant that the overall speed of recovery moderated for the first time since June. Price inflation eased to a 42-month low in September. A weaker rise in prices charged by service providers more than offset an acceleration in factory gate price inflation. Thumbnail photo: Installation of solar photovoltaic panels in Germany (Source: Jochen Tack/imageBROKER/Shutterstock)

23-Sep-2024

SAO PAULO (ICIS)–The Brazilian government’s committee on foreign trade Gecex-Camex approved late on Wednesday an increase in import taxes on more than 80 chemical and fertilizers products, with the new rate up to 20% for most materials. Among some of the products affected are widely used chemicals such polypropylene (PP), polyethylene, (PE), polyvinyl chloride (PVC), polystyrene (PS), and polyethylene terephthalate (PET). See bottom list for details. Previous rates stood between 7.6% and 12.6%. The new rates will apply from October and are valid for one year. The decision is yet to be approved by Mercosur, the trading common area formed by Argentina, Paraguay, and Uruguay, as well as Brazil, which is the dominant economy in Mercosur. The cabinet, thus, gave in partly to the pressure by chemical producers in Brazil. Earlier this year, individual companies as well as the trade group representing producers, Abiquim, had proposed to increase tariffs in more than 100 chemicals. The decision was widely anticipated by analysts, and it is expected to immediately prop up earnings for some of Brazil’s largest producers such polymers major Braskem or chlor-alkali major Unipar. Brazil has been the recipient of large amounts of imports from Asia and, to a lesser extent, the US which have greatly dented domestic producers’ market share. Sectors that opposed increasing tariffs, including plastic transformers represented by Abiplast, expressed their disappointment after Wednesday’s measure by Gecex-Camex. “[The decision was taken even though] Abiplast and other trade groups have exhaustively demonstrated to the government the harmful impacts of increases in import tariffs on raw materials,” said Jose Ricardo Roriz Coelho, president of Abiplast, in a letter to the trade group’s members seen by ICIS. “We will continue to fight to ensure that these unreasonable measures are reversed.” Product Current Tax Rate Proposed Tax Rate Plaintiff Phosphoric acid with iron content less than 750 ppm 9% 17.5% Abiquim Sodium hydrogen carbonate (bicarbonate) 9% 20%* Abiquim Isobutyl alcohol (2-methyl-1-propanol) 10.80% 20% Abiquim Isobutyl alcohol (2-methyl-1-propanol) 10.80% 20% Elekeiroz Inc. Phenol (hydroxybenzene) and its salts 7.20% 12.6%* Abiquim Phenol (hydroxybenzene) and its salts 7.20% 12.6%* Rhodia Brasil SA Butanone (methyl ethyl ketone) 10.80% 20% Abiquim Ethyl acetate 10.80% 20% Abiquim n-butyl acetate 10.80% 20% Abiquim n-butyl acetate 10.80% 20% Rhodia Brasil SA Other saturated acyclic monoalcohol acetates, c atom <= 8 10.80% 20% Abiquim Methacrylic acid methyl esters 10.80% 20% Abiquim Methacrylic acid methyl esters 10.80% 20% Unigel Holdings Inc. Adipic acid 9% 20% Abiquim Adipic acid 9% 20% Rhodia Brasil SA Maleic anhydride 10.80% 20% Abiquim Maleic anhydride 10.80% 20% Elekeiroz Inc. Fumaric acid, its salts and esters 10.80% 20% Abiquim Dioctyl orthophthalates 10.80% 20% Abiquim Dioctyl orthophthalates 10.80% 20% Elekeiroz Inc. Dinonyl or didecyl orthophthalates 10.80% 20% Abiquim Hexamethylenediamine and its salts 10.80% 20% Abiquim Monoethanolamine and its salts 12.60% 20% Abiquim Other anionic organic surface-active agents, whether or not put up for retail sale, not classified under previous codes 12.60% 20% Abiquim Polyethylene with a density of less than 0.94, with filler 12.60% 20% Abiquim Polyethylene with a density of less than 0.94, without filler 12.60% 20% Abiquim Other unfilled polyethylenes, density >= 0.94, in primary forms 12.60% 20% Abiquim Other copolymers of ethylene and vinyl acetate, in primary forms 12.60% 20% Abiquim Copolymers of ethylene and alpha-olefin, with a specific gravity of less than 0.94 12.60% 20% Abiquim Unfilled polypropylene in primary form 12.60% 20% Abiquim Propylene copolymers, in primary forms 12.60% 20% Abiquim Expandable polystyrene, unfilled, in primary form 12.60% 18% Abiquim Other styrene polymers, in primary forms 12.60% 20% Abiquim Other styrene polymers, in primary forms 12.60% 20% Unigel Holdings Inc. Polyvinyl chloride, unmixed with other substances, obtained by suspension process 12.60% 20% Abiquim Polyethylene terephthalate of a viscosity index of 78 ml/g or more 12.60% 20% Abiquim Polyethylene terephthalate of a viscosity index of 78 ml/g or more 12.60% 20% Alpek Polyester Pernambuco SA Other unsaturated polyethers, in primary forms 12.60% 20% Abiquim Ex – Surfactant polymer class preparation, silicone free 12.60% 12.60% Abiquim Ex – Solvent-free modified polyester class preparation 12.60% 12.60% Abiquim White mineral oils (vaseline or paraffin oils) 3.60% 35% Abiquim Silicon dioxide obtained by chemical precipitation 9% 18% Abiquim Silicon dioxide obtained by chemical precipitation 9% 17% Rhodia Brasil SA Other silicon dioxides 0% 18% Abiquim Commercial ammonium carbonates and other ammonium carbonates 9% 18% Abiquim Styrene 9% 18% Abiquim Styrene 9% 18% Unigel Holdings Inc. Butan-1-ol (n-butyl alcohol) 10.80% 20% Abiquim Butan-1-ol (n-butyl alcohol) 10.80% 20% Elekeiroz Inc. Propylene glycol (propane-1, 2-diol) 10.80% 20% Abiquim Dipropylene glycol 12.60% 20% Abiquim Triacetin 10.80% 20% Abiquim Triacetin 10.80% 20% Denver Specialty Chemicals 2-Ethylexanoic acid (2-ethylexoic acid) 10.80% 20% Abiquim 2-Ethylexanoic acid (2-ethylexoic acid) 10.80% 20% Elekeiroz Inc. Salts and esters of adipic acid 10.80% 20% Abiquim Other esters of orthophthalic acid 10.80% 20% Abiquim Other esters of orthophthalic acid 10.80% 20% Elekeiroz Inc. Phthalic anhydride 10.80% 20% Abiquim Phthalic anhydride 10.80% 20% Petrom Petrochemicals Mogi das Cruzes S/A Ammonium nitrate, even in aqueous solution 0% 15% Abiquim Pigments and preparations based on these pigments 12.60% 20% Abiquim Linear alkylbenzene sulfonic acids and their salts 12.60% 23% Abiquim Organic surface-active agents, non-ionic 12.60% 23% Abiquim Alkylbenzene mixtures 10.80% 20% Abiquim Stearic acid (industrial monocarboxylic fatty acid) 5.40% 35% Abiquim Stearic alcohol (industrial fatty alcohol) 12.60% 20% Abiquim Sodium methylate in methanol 12.60% 20% Abiquim Other ethylene polymers, in primary forms 12.60% 20% Abiquim Filled polypropylene, in primary form 12.60% 20% Abiquim Other polystyrenes in primary forms 12.60% 20% Abiquim Other polystyrenes in primary forms 12.60% 20% Unigel Holdings Inc. Polyvinyl chloride, unmixed with other substances, obtained by emulsion process 12.60% 20% Abiquim Polymethyl methacrylate, in primary form 12.60% 20% Abiquim Polymethyl methacrylate, in primary form 12.60% 20% Unigel Holdings Inc. Other polyether polyols, in primary forms 12.60% 20% Abiquim Other polyesters in liquids and pastes 12.60% 20% Abiquim Other polyurethanes in liquids and pastes 12.60% 20% Abiquim Carboxymethyl cellulose with content >=75%, in primary forms 12.60% 20% Abiquim Carboxymethyl cellulose with content >=75%, in primary forms 12.60% 20% Denver Specialty Chemicals Styrene-butadiene rubber (SBR), food grade according to the Food Chemical Codex, in primary forms 10.80% 22% Abiquim Acrylonitrile-butadiene rubber in sheets, plates, etc. 10.80% 35% Abiquim Latex of other synthetic or artificial rubbers 10.80% 35% Abiquim  

19-Sep-2024