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Speciality Chemicals14-Jun-2024
HOUSTON (ICIS)–Rates for shipping containers
continue to surge as carriers are implementing
peak season surcharges while capacity remains
tight from Red Sea diversions, but some
shipping analysts think there are signs that
the dramatic rate of growth may be slowing,
which leads off this week’s logistics roundup.
CONTAINERS
Shipping container rates continued to rise this
week, but the rate of increase slowed,
according to data from supply chain advisors
Drewry and as shown in the following chart.
Ocean freight rates analytics firm Xeneta said
its data indicates spot rates on major trades
out of Asia will increase again on 15 June, but
to a less dramatic extent than witnessed in May
and early June.
Average spot rates from Asia to US West Coast
are set to increase by 4.8% on 15 June to stand
at $6,178/FEU (40-foot equivalent unit).
However, on 1 June, rates on this trade
increased by 20%.
From Asia into the US East Coast, rates are set
to increase by 3.9% on 15 June to stand at
$7,114/FEU. Again, this is a far less dramatic
jump than when rates increased by 15% on 1
June.
Rates from north China to the US Gulf are at
the highest this year but leveled off this
week, as shown in the following chart.
“Any sign of a slowing in the growth of spot
rates will be welcomed by shippers, but this is
an extremely challenging situation, and it is
likely to remain so,” Xeneta chief analyst
Peter Sand said. “The market is still rising,
and some shippers are still facing the prospect
of not being able to ship containers on
existing long-term contracts and having their
cargo rolled.”
Container ships and costs for shipping
containers are relevant to the chemical
industry because while most chemicals are
liquids and are shipped in tankers, container
ships transport polymers, such as polyethylene
(PE) and polypropylene (PP), are shipped in
pellets.
They also transport liquid chemicals in
isotanks.
LIQUID TANKER RATESUS
chemical tanker freight rates assessed by ICIS
were mostly unchanged. However, rates were
lower from the US Gulf (USG) to India and
unchanged from the USG to the Caribbean.
From the USG to Asia, the market has gone
overall quiet after a few busy weeks in the
month of May.
The spot market faces headwinds as activity has
been slow, causing spot space to pile up for
July, placing downward pressure on spot rates.
Recent force majeures in the USG have caused
some COA vessels to look for additional
cargoes, adding pressure to rates.
Market participants are optimistic that freight
rates for larger parcels will stabilize in the
near term.
US PORT OPERATIONS
Operations at US ports are stable even as import
volumes are at the highest since 2022, and
railroad performance has improved over the past
month, according to analysts at freight
forwarder Flexport.
Nathan Strang, director of ocean freight, US
Southwest for Flexport, said that apart from
the Port of Charleston, South Carolina, volumes
are moving really well through the East Coast
ports with rail dwell averaging about two days.
Charleston is undergoing an infrastructure
project on its Wando Welch Terminal to expand
the docks.
Dock construction at Wando Welch terminal
started on 11 March, reducing berth space from
three to two berths for one year, with berths
given on first come, first serve basis.
Strang said some vessels are discharging at the
Port of Savannah, Georgia, and then moving
material to Wando Welch via trucks, or using
other terminals within the Port of Charleston
as space becomes available.
Overall port omissions from all carriers are
starting to reduce the extent of the delays,
with six to nine days delay expected in week
24, according to a port update from
Hapag-Lloyd.
RAILROADS
Strang said Flexport customers are seeing lower
dwell times for rail cars at ports over the
past month.
“I have been talking about how rail performance
to and through the West Coast has been
suffering a little bit,” Strang said,
describing his point of view in past webinars.
“I will say that we have seen real
improvement.”
Strang said West Coast port operations have
remained stable, with local pick-up dwell at
six days for Los Angeles/Long Beach, at five
days in Seattle/Tacoma (SeaTac) and at four
days in Oakland.
For the first 23 weeks of 2024, ended 8 June,
North American chemical railcar loadings rose
3.8% to 1,082,614 – with the US up 3.9% to
745,780.
In the US, chemical railcar loadings represent
about 20% of chemical transportation by
tonnage, with trucks, barges and pipelines
carrying the rest.
PORT OF BALTIMORE OPENS
The Fort McHenry Federal Channel – the entrance
to the Port of Baltimore – is fully reopened just 11
weeks after a container ship lost power
and struck the
Francis Scott Key Bridge, causing its collapse
and essentially shutting the port.
The Unified Command (UC) said salvage crews
successfully removed the final large steel
truss segment blocking the 700-foot-wide Fort
McHenry Federal Channel on 3-4 June.
Deep-draft commercial vessels have been able to
transit the port since 20 May when the UC
cleared the channel to a width of 400ft and
depth of 50ft.
Following the removal of wreckage at the
50-foot mud-line, the UC performed a survey of
the channel on 10 June, certifying the riverbed
as safe for transit.
The closing of the port did not have a
significant impact on the chemicals industry as
chemicals make up only about 4% of total
tonnage that moves through the port, according
to data from the American Chemistry Council
(ACC).
PANAMA CANAL
The Panama Canal Authority (PCA) is offering an
additional booking slot for the Neopanamax
locks as of 11 June, increasing the total
number of daily canal transits to 33, and is
also raising the maximum authorized draft based
on the current and projected level of Gatun
Lake.
The PCA will open an additional slot on 8 July,
which will bring the total number of daily
transits to 34.
Because of the improved water levels now that
the rainy season has arrived, the PCA is also
increasing the maximum authorized draft for
vessels to 14.02 meters (46.0 feet).
This is the second increase in draft
restrictions over the past few weeks.
Wait times for non-booked southbound vessels
ready for transit have been relatively steady
at less than two days, according to the
PCA vessel
tracker.
The tracker is only for non-booked vessels in
the queue and shippers should consider two
additional days as a minimum to estimate
transit times for unscheduled vessels, the PCA
said.
Focus article by Adam Yanelli
Additional reporting by Kevin Callahan
Recycled Polyethylene Terephthalate14-Jun-2024
LONDON (ICIS)–Matt Tudball, senior editor for
Recycling, takes a look at the latest
developments in the European recycled
polyethylene terephthalate (R-PET) market,
including:
ICIS at Plastics Recycling Show Europe
(PRSE) – email recycling@icis.com for a meeting
Mixed views on food-grade pellet demand
Better 2024 outlook to emerge at PRSE
Prices stable ahead of event
Acetone14-Jun-2024
LONDON(ICIS)–European downstream demand
remains low due to inflation and high interest
rates. Add logistics issues and a continuous
flow of imports to that, and the doom of
European petrochemical industry begins. But
with the recent reduction in interest rates by
ECB and increased tariffs on Asian EVs, there
is hope that the acetone and phenol derivative
chain might come back to its glory.
Europe ICIS editors Jane Gibson (acetone and
phenol), Heidi Finch (bisphenol A and epoxy
resins), Meeta Ramnani (polycarbonate), Mathew
Jolin-Beech (methyl methacrylate) and ICIS
senior analyst Michele Bossi (aromatics and
derivatives) discuss the latest development in
imports, bans and interest rates that are
likely to impact the acetone, phenol and
derivatives markets.
Acetone market balanced to tight on export
demand, slim import volumes and curtailed op
rates as phenol struggles to find demand
Cut of interest rates by ECB and tariffs on
Chinese EVs increases hope of recovery of
demand
Dependency increases on Asian imports for
PC
BPA and epoxy players keep close eye on
upstream, logistics and regulatory factors
Challenging global as well as regional
logistics impact MMA supply in Europe
Podcast edited by Meeta
Ramnani
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.
Ethylene14-Jun-2024
SAO PAULO (ICIS)–Proposals to sharply increase
chemicals import tariffs are only one of the
three aspects Brazil’s chemicals producers have
proposed to the government to save their
“besieged” operations, according to the CEO at
trade group Abiquim.
Andre Passos added that the industry has also
proposed to the government a structural plan to
reduce natural gas prices in Brazil as well as
a US-style, IRA-type stimulus plan for the
chemicals chain, completing a plan to help
chemicals producers which remain, he said,
operating at historically low rates.
Abundant and low-priced chemicals imports have
been making their way to Brazil for several
months, with domestic producers facing stiff
competition and losing market share. China has
been the main country of origin, but Passos
said also pointed to the US, Russia, or Saudi
Arabia.
In May, chemicals producers – via Abiquim but
also as individual companies – proposed increasing
tariffs in more than 100 chemicals, most of
them from 12.6% to 20%, in a public
consultation held by the Brazil’s government
body the Chamber of Foreign Commerce (Camex). A
decision is expected in August as the latest.
Abiquim represents only chemicals producers,
but not distributors; Brazil’s polymers major
Braskem, which is 36.1% owned by the
state-owned energy major Petrobras, has a
commanding voice in the trade group.
Other trade groups in the chemicals chain, such
as Abiplast, representing plastics
transformers, do not support higher tariffs as
most of their members import product to meet
their demand.
Soon after Abiquim met with Brazil’s President
Luiz Inacio Lula da Silva in May, as part of
their lobbying to prop up chemicals producers’
operations, Abiplast and several other trade
groups also demanded a meeting with Lula to
lobby for their case
of not raising import tariffs.
NOT ONLY TARIFFSPassos
was keen to stress that higher tariffs were
only one part of producers’ proposals to the
government and emphasized the measure has been
proposed to be in place for one year.
In May, a source in Brazil’s chemicals said to
ICIS that simply proposing higher tariffs,
without addressing other productivity and
global competitiveness issues in an industry
mostly based in commodity chemicals production,
was the result of “business mediocrity”. Passos
was not having it.
“What is a showing of mediocrity is not to
understand this [higher import tariffs] is a
proposal to be in place for only one year, in
the face of a situation where chemicals
producers are operating at rates of 62-64% and
where the survival of several chemicals chains
is being jeopardized,” he said.
“What we have presented to the government is
the need to undertake action on three main
fronts: in the short term, import tariffs, but
in the medium and long term we also need a
structural plan to address natural gas prices,
which are seven times higher in Brazil than in
some other jurisdictions, as well as a stimulus
plan covering the whole chemicals production
chain.”
Brazil’s natural gas prices have hovered around
$14/MMBtu during the past months. That compares
to a price of around $2.5/MMBtu at times in the
US, although this week prices surpassed the
$3/MMBtu mark in that country.
The chemicals industry can use natural
gas-based ethane as one of its building blocks,
which has allowed the US’ chemicals industry to
thrive after the shale gas boom. In Brazil,
most steam crackers run on crude oil-based
naphtha.
According to Passos, with the adequate
regulatory framework and a helping hand from
Petrobras, prices could come down considerably
in Brazil. To that aim, the energy major and
Abiquim signed a memorandum of understanding
(MoU) earlier in 2024 to explore potential
agreements on natural gas supply to chemicals.
Abiquim says the sector is Brazil’s largest
consumer of natural gas, coping 25-30% of
supply, and therefore government-controlled
Petrobras could do more to help. Petrobras has
always focused on crude oil production, with
most of the natural gas extracted in its
operations reinjected back into the system.
Passos said Abiquim and Petrobras should be
announcing concrete action on natural gas in
coming weeks.
Moreover, Petrobras said in May it was to
restart construction work on its gas processing
unit in Itaborai, called Gaslub and also known
as Rota 3. The project’s construction, started
in the early 2010s, fell
victim to the wide-ranging corruption
scandal Lava Jato in which Petrobras was a
central part.
“Currently, Brazil’s crude oil sector is well
regulated and is one of the country’s success
stories. We need the same for natural gas. When
Gaslub is started up, 18 million of cubic
meters (cbm)/year will come into the market. We
are forecasting there could be gas oversupply
within two years, although this of course
depends on other variables as well,” said
Pasos.
“Barring disruption to supply from Bolivia, or
a potential severe drought which would lower
hydraulic electricity production [having to use
natural gas to produce it], we are forecasting
that with the adequate regulatory framework and
Gaslub functioning, natural gas prices could
come down considerably in the medium-term.”
Passos was keen to stress how Braskem’s steam
cracker in Rio de Janeiro’s Duque de Caxias
facilities, which runs on natural gas-based
feedstocks, is operating, exceptionally, at an
approximately 85% operating rate. This shows,
he went on to say, how even with high prices
more supply of natural gas is indispensable for
chemicals producers to increase their
competitiveness.
He also said the fiscal burden chemicals
procures in Brazil endure stands at 43%, versus
20% in the US, according to Abiquim’s
estimations. Work there, he said, could also be
done.
STIMULUS
Passos said the government must contemplate a
plan for the chemicals industry following the
example of the US’ Inflation Reduction Act
(IRA), which has propelled large investments in
green energy projects, propping up the
chemicals industry along the way.
He conceded the US’ resources are larger than
Brazil’s but said that the government has
already showed it can design plans to prop up
specific economic sectors, and mentioned the
example of the Mover program for the automotive
industry.
Earlier this week, Brazil’s Congress finally
approved the plan, proposed in December. In the
best Brazilian style, members of parliament
(MPs) introduced amendments which graphically
are known as “jabuti” (turtle): amendments to a
bill which are little related to the spirit of
the bill itself. In Brazil’s strong balance of
powers, MPs can greatly delay the passing of
bills, like Mover.
“We have presented to the government the need
for an IRA-like, Mover-style plan for the
chemicals industry, for all elements in the
production chain: basic chemicals as well as
chemicals of first, second, and third
generation,” said Passos.
“Brazil has been able to destine Brazilian
reais (R) 19.3 billion [$3.6 billion]
for automotive – it can do the same for the
important chemicals industry, which creates so
many jobs in the country.”
Finally, Passos said that before the severe
floods affecting Rio Grande do Sul in May –
which brought havoc to one of Brazil’s most
industrialized states – demand and
manufacturing activity was healthier than in
2023, overall, although that improvement had
not benefitted any of Abiquim’s members: higher
demand for chemicals was being met by imports,
he said.
On Monday (17 June), the second part of this
interview will be published, with Passos’ views
on Brazil’s response to the floods. Passos is a
gaucho himself – as people from Rio
Grande do Sul are called – and said the
authorities’ response to the disaster had been
decent, adding he had been humbled by the
response of civic society across Brazil.
($1 = R5.36)
Front page picture: Braskem’s Duque de
Caxias facilities in Rio de Janeiro
Source: Braskem
Interview article by Jonathan
Lopez
($1 = R5.36)
Gas14-Jun-2024
Trading association celebrates anniversary,
outlines future challenges
Integration with emerging markets in
Ukraine, Moldova, West Balkans and
consolidation of institutions key to success
Gains for populist parties in EU elections
will not change outlook for energy transition
LONDON (ICIS)–Europe’s single energy market
needs more integration and free trade to live
up to ongoing challenges, Mark Copley, CEO of
Energy Traders Europe told ICIS in an
interview.
Marking the 25th anniversary of Europe’s
foremost energy trading association, previously
known as EFET, Copley said the EU had created
the largest and best functioning gas and power
markets anywhere in the world.
He said the proof of this achievement came in
the last three years, when the single market
showed its extreme resilience. It went from the
lowest demand in living memory during the
COVID-19 pandemic to keeping Europe’s supplies
secure in the face of Russia’s war in Ukraine
and an unprecedented energy crisis.
In the last 25 years, Energy Traders Europe has
witnessed the single energy market develop from
a dozen core countries to include 27 EU member
states as well as neighbors such as Ukraine or
Moldova.
The challenges experienced by the electricity
and gas sectors are reemerging in new markets
for hydrogen, biomethane or guarantees or
origin.
“In a way everything’s changed and nothing’s
changed,” Copley said, adding that the need to
attract investors and global competitiveness
remained as pertinent as ever.
To meet ongoing challenges, the single market
would have to work towards even greater
integration, stronger institutions and a more
flexible regulatory framework.
CLOSER TOGETHER
Integration would translate not only into
bringing EU and neighboring countries closer
but also integrating short and long-term
markets, harmonizing subsidies and establishing
more standardization to ensure all members work
along similar principles.
“If the discussion is going to be around
competitiveness, let’s expand it,” he said.
“Let’s become even more competitive by taking
it into the UK, the Western Balkans, into
Ukraine, into Moldova, into North Africa,
because the structure we’ve created is
replicable and extendable. And the more you
extend it, the bigger the benefits to
everyone,” he said.
Mirroring the growth of the market itself,
Energy Traders Europe’s membership has grown
from seven to 165, including two that joined
this month.
Members come from 30 countries, including
Azerbaijan, Kosovo and Ukraine.
COMMON LANGUAGE
Copley said he is particularly proud of some of
the association’s achievements, such as
establishing standard EFET contracts. These
helped streamline over-the-counter trading in
energy and energy-related instruments.
“Can you imagine a trading system where every
person you trade with has to be assessed on a
bespoke basis and everybody you trade with,
every trade you do has to be confirmed by fax,
because that’s where we came from?”
Copley, who joined the association in February
2021 after spells with the British government
and the energy regulator Ofgem, said the
integration of markets should go hand in hand
with the consolidation of institutions tasked
to drive policies.
This may include giving greater powers to the
EU Agency for the Cooperation of Energy
Regulators (ACER) and consolidating the
independence of national watchdogs to ensure
rules are enforced effectively.
Although the merits of an integrated,
functional market were proven in times of
extreme stress, they are still not fully
recognized across the political spectrum, he
said.
POLITICS
Geopolitical uncertainty may be prompting
policymakers to take a more interventionist
stance, as they fear security of supply risks.
“Energy’s got more political. I’m not going to
say energy was ever boring but people have
become more acutely aware that energy is key to
economic growth, to inflation, to everybody’s
lives.
“Now there’s more fragmentation in thinking and
there’s a job for us to explain why this thing
we’ve created is genuinely good for customers
across Europe,” he said, adding that more free
trading will be critical in ensuring a
successful energy transition.
Although far-right populist parties gained
ground in recent EU elections, the bloc’s
energy transition ambitions may not be diluted.
“I think there’s going to be a conversation
about the speed of decarbonization, but
fundamentally, we’re working to a legally
binding target and if you add up [centre-right
group] EPP, Renew and the Socialists &
Democrats you’ve got 400 members and you need
361 [out of 720 seats]. So, for all the talk of
the right-wing parties, there is a fairly large
centrist group, and I would like to think we
should be able to agree [on energy transition
policies],” he said.
Polyethylene14-Jun-2024
SINGAPORE (ICIS)–Click here to see the
latest blog post on Asian Chemical Connections
by John Richardson: China has set itself a
target that 40% of all the vehicles on its
roads will be electric by 2030. And by that
year, the aim is that all new-vehicle sales
will be electric vehicles (EVs). The country
wants to reach peak carbon emissions before
2030 and carbon neutrality before 2060.
“After 2030, it is going to be pretty much
impossible to get approval for a heavy industry
project because of the emissions targets,” said
a petrochemicals industry source.
This has led to suggestions that the resulting
lower availability of feedstocks from local
refineries will slow China’s push towards
complete petrochemicals self-sufficiency. I
disagree for the following reasons.
Despite a cap on local refinery capacity, I’ve
been told that local supply of naphtha, etc
shouldn’t be a problem until up to a least
2030, because refineries will be increasingly
turned in petrochemicals feedstock centers.
More naphtha and gasoil crackers are expected
to be added to refineries ahead of the 2030
cut-off point. Other heavier fractions from
refineries are also forecast to be increasingly
used as petrochemicals feedstocks.
And even if local feedstock supply does become
constrained after 2030, we shouldn’t assume
that this will restrict domestic production
because of the weaker-tonne economics of
importing raw materials.
China’s closer geopolitical relationships with
the Middle East, along with increased
availability of natural-gas liquids in the
Middle East, suggest that imports of feedstocks
will be available at the right costs.
My view is that China’s economic challenges
will result in annual average petrochemicals
consumption growth of 1-3% per year up until
2030. Beyond 2030 I see growth falling to
around 1%.
Weaker demand growth will of course make it
easier to increase petrochemicals
self-sufficiency.
Because recycling is mainly a “local for local”
business due to the restrictions on moving
plastic waste across borders growth of
recycling in China will, in my view again,
increase the country’s self-sufficiency in
polymers.
Recycling is exactly the type of higher-value
industry China needs to nurture as it attempts
to escape a middle-income trap made very deep
by its demographic challenges.
Security of local supplies of raw materials in
an ever-more uncertain geopolitical world will
add further momentum to the growth of recycling
in China.
Local virgin polymer and petrochemical plants
will run at high operating rates, supported by
maximising supply of feedstocks from local
refineries and by competitive imports of
feedstocks from China’s geopolitical partners.
This will further boost supply security.
Don’t be therefore distracted by suggestions
that the growth of EVs in China and the
country’s emissions targets will be good news
for petrochemical exporters to China.
China will become a vast continent-sized market
that will be just about entirely
self-sufficient. As I shall explore in a later
post, this will apply to specialty as well as
commodity grades of petrochemicals.
Overseas producers most focus on markets
elsewhere. As the chart below shows using
high-density polyethylene (HDPE) as an example,
the opportunities in other countries and
regions are big.
China lifted all petrochemicals boats during
the 1992-2021 Supercycle, making even the
least-competitive companies successful. This is
no longer the case.
Editor’s note: This blog post is an opinion
piece. The views expressed are those of the
author, and do not necessarily represent those
of ICIS.
Ammonia13-Jun-2024
HOUSTON (ICIS)–The US Department of
Agriculture (USDA) outlook for the corn crop is
unchanged relative to last month while for
soybeans, it is projecting there will be higher
beginning and ending stocks, according to the
June World Agricultural Supply and Demand
Estimate (WASDE) report.
For corn, the monthly update said along with no
adjustments to its corn forecast from May that
the season average price received by producers
remains at $4.40 per bushel.
The USDA did reveal it will release its acreage
report on 28 June, which will provide
survey-based indications of planted and
harvested area.
For soybeans, the WASDE said higher beginning
stocks reflect reduced crush for 2023-2024,
with it expected to be down by 10 million
bushels on lower soybean meal domestic use that
is partly offset by higher exports.
With increased supplies and no use changes, the
USDA said soybean ending stocks are projected
at 455 million bushels, up 10 million bushels.
The soybean price is forecast at $11.20 per
bushel, unchanged from last month.
The next WASDE report will be released on 12
July.
Speciality Chemicals13-Jun-2024
HOUSTON (ICIS)–Operations at US ports are
stable even as import volumes are at the
highest since 2022, and railroad performance
has improved over the past month, according to
analysts at freight forwarder Flexport.
RAILROADS
Speaking during a webinar to discuss the state
of freight, Nathan Strang, director of ocean
freight, US Southwest for Flexport, said its
customers are seeing lower dwell times for rail
cars at ports over the past month.
“I have been talking about how rail performance
to and through the West Coast has been
suffering a little bit,” Strang said,
describing his point of view in past webinars.
“I will say that we have seen real
improvement.”
Strang said West Coast port operations have
remained stable, with local pickup dwell at six
days for Los Angeles/Long Beach, at five days
in Seattle/Tacoma (SeaTac) and at four days in
Oakland.
“Trucking and transload capacity remain good
out of all US West Coast ports,” Strang said.
Rail traffic has risen for 19
consecutive weeks, with railcar loadings for
the week ended 8 June up 5.7% year on year
according to the Association of American
Railroads (AAR).
For the first 23 weeks of 2024, ended 8 June,
North American chemical railcar loadings rose
3.8% to 1,082,614 – with the US up 3.9% to
745,780.
In the US, chemical railcar loadings represent
about 20% of chemical transportation by
tonnage, with trucks, barges and pipelines
carrying the rest.
PORTS
Strang said that apart from the Port of
Charleston, South Carolina, volumes are moving
really well through the East Coast ports with
rail dwell averaging about two days.
Charleston is undergoing an infrastructure
project on its Wando Welch Terminal to expand
the docks.
Dock construction at Wando Welch terminal
started on 11 March, reducing berth space from
three to two berths for one year, with berths
given on first come, first serve basis.
Strang said some vessels are discharging at the
Port of Savannah, Georgia, and then moving
material to Wando Welch via trucks, or using
other terminals within the Port of Charleston
as space becomes available.
Overall port omissions from all carriers are
starting to reduce the extent of the delays,
with six to nine days delay expected in week
24, according to a port update from
Hapag-Lloyd.
ASIA PORTS CONGESTED
Strang said that things are opposite of the
conditions seen during the pandemic, when US
West Coast ports were dealing with huge
backloads and major congestion because of the
strong US consumer demand for goods.
“Shanghai and Singapore are seeing the most
congestion right now, but most ports within
Asia are seeing pretty heavy congestion,”
Strang said.
Carriers are even omitting Singapore on certain
services because of the amount of congestion in
Singapore, Strang said.
Speciality Chemicals13-Jun-2024
HOUSTON (ICIS)–Chemical companies have started
the first half of 2024 announcing potential
sales and separations of several businesses,
which could lead up to busy cycle for mergers
and acquisitions (M&A).
Sustainability continues to influence
M&A decisions, although it will unlikely
lead to any large acquisitions.
Private equity firms could play a larger
role in M&A despite higher interest rates
because financial investors have plenty of
money.
Electronic materials could be another
M&A trend because of government incentives
for the semiconductor industry.
CHEMS EXPECT MORE
M&AMore than half of the
chemical executives who participated in a
survey expect M&A activity to increase in
the next 12-18 months, according to Kearney, a
consulting firm that conducts an annual report
about deal-making in the industry. By contrast,
18% expect M&A activity to decrease, and
32% expect activity to be roughly stable.
The sentiment is more positive than surveys
from the past few years, said Andy Walberer,
partner and global chemicals lead at global
strategy and management consultancy Kearney. He
made his comments while discussing Kearney’s
recent M&A report.
Part of that optimism comes from the divestment
plans and strategic reviews recently announced
by chemical companies, he said. Also,
executives at chemical companies are no longer
contending with the COVID-19 pandemic and the
subsequent supply-chain disruptions.
They have the headspace to think about medium-
and long-term strategy, he said.
SUSTAINABILITY CONTINUES INFLUENCING
DEALSSustainability will
unlikely lead to high-dollar deals, but it will
still be a noteworthy trend, Walberer said.
Chemical companies are scrambling to secure
supplies of recycled and renewable feedstock.
Chemical executives and Kearney have noted the
gap between supply and demand for sustainable
feedstock.
To secure feedstock, companies have been
establishing partnerships or acquiring
businesses.
Walberer expects that trend to continue.
In other cases, chemical companies are making
sustainability M&A decisions in response to
government incentives and regulations, Walberer
said.
Kearney has seen some companies divest sections
of portfolios because of high carbon emissions,
Walberer said.
PRIVATE EQUITY HAS PLENTY OF DRY
POWDERHigher interest rates have
made M&A more challenging for private
equity firms because of their traditional
reliance on debt-financed acquisitions.
That said, private equity firms have built up
large stashes of dry powder. They could put
that money to work without debt, which has
become more expensive because of higher
interest rates.
At the same time, chemical valuations have
fallen.
“We see PE very active,” Walberer said.
Walberer noted that financial investors made up
26% of chemical deals in 2023, up from 7% in
2022 and above the historic range of 15-20%.
In particular, private equity firms may acquire
some of the infrastructure assets that chemical
companies are eager to divest.
Dow had expressed interest in selling more
of its infrastructure
after agreeing to divest its rail assets at
six sites in mid-2020.
Recent and upcoming carveouts could provide
private equity firms with more M&A
opportunities.
In December 2023, Solvay carved out its
specialty business, called Syensqo, from its
mostly commodity business.
DuPont expects
to complete its breakup into three
companies in the next 18-24 months.
CHANGING OUTLOOK FOR
EUROPEEuropean chemical M&A
experienced a slowdown because of the spike in
energy and feedstock costs that followed the
start of the war in Ukraine, according to the
Kearney report. It should continue declining in
the next 12-18 months before a possible
rebound.
“Amid ongoing challenges, big chemical players
are under stress, prompting them to review
their business models and restructure,” Kearney
said in a report regarding Europe.
In some cases, the owner of a business may
decide to put it on the market after realizing
it is no longer a core part of the company,
Walberer said. The corporation concludes that
it is no longer the best owner of the business
and decides to divest it.
“There are a lot of good examples of how new
owners have been able to improve the
performance of the business,” he said.
DuPont’s performance coatings business would
later flourish as Axalta Coatings Systems.
which was initially sold to Carlyle for $4.9
billion before becoming a publicly traded
company.
Another example is Nouryon, the surfactants
business that was spun off from AkzoNobel.
In other cases, the business’s performance has
suffered because of structural reasons, such as
high costs, Walberer said.
GOVERNMENT SEMICONDUCTOR INCENTIVES MAY
DRIVE M&AElectronic
materials could become another M&A trend
because of the incentives being lavished by
government, Walberer said.
The US, China, the EU, Japan, Germany and South
Korea are among the countries that created
semiconductor incentive programs worth billions
of dollars.
DuPont’s electronics business is one of the
three that will break out of the company. That
business itself is the product of acquisitions
made by DuPont.
CHEM M&A ACTIVITY OVER THE
YEARSTypically, the value of
chemical M&A is $100 billion to $120
billion per year, a level it reached in 2022
and 2023, Walberer said.
The COVID pandemic and its subsequent recovery
distorted M&A in 2020 and 2021. Values in
2019 and 2016 spiked because of large deals
such as the Dow and DuPont merger and Aramco
acquiring a large stake in SABIC.
ANNOUNCEMENTS IN 2024The
following lists some of the major chemical
M&A announcements made so far in 2024.
February 26:
PPG explores strategic alternatives for
its architectural coatings business in the US
and Canada.
It could reach a decision by the end of
the third quarter.
March 4:
Evonik agrees to sell its superabsorbents
business to International Investors Group
(ICIG).
March 13: Trinseo
seeks to sell its stake in Americas
Styrenics. It later clarified that
the entire joint venture is for sale.
May 6:
BASF plans to sell its idled ammonia,
methanol and melamine units in Ludwigshafen,
Germany.
May 8: LyondellBasell
starts strategic review of the bulk of
its operations in Europe.
May 8:
Shell agrees to sell its refinery and
petrochemical assets in Singapore to the
CAPGC joint venture.
May 22: DuPont plans
to break up into three companies,
including one focusing on electronics and
another on water.
Insight article by Al
Greenwood
Thumbnail image by ICIS.
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