Mergers and acquisitions (M&A) will play a greater role in Trinseo’s growth strategy as it navigates a challenging global automotive market.
“We are well positioned both strategically and financially to grow. And we would put our balance sheet to work at a time when valuations have come down significantly,” said Frank Bozich, president and CEO of Trinseo.
Bozich spoke to ICIS on the sidelines of the American Chemistry Council (ACC) Annual Meeting.
Trinseo will seek to add technologies and capabilities targeted toward key end-use markets in automotive, rubber, CASE (coatings, adhesives, sealants and elastomers) and consumer electronics, he said.
In early May, Trinseo agreed to acquire Dow’s latex assets in Rheinmunster, Germany, for around €40m in the form of assumed pension liabilities for transferred employees. The deal is expected to close in the second half of 2019.
The acquisition includes two latex production facilities at Rheinmunster and 114 employees will transfer from Dow to Trinseo.
The acquisition adds to Trinseo’s presence in Europe, including an existing latex plant in Rheinmunster and operations in Hamina, Finland; Norrkoping, Sweden; and Terneuzen, the Netherlands.
On potential divestitures, the company is evaluating a number of options for its polycarbonate (PC) resins business in Stade, Germany. The plant’s capacity is 145,000 tonnes/year, according to the ICIS Supply and Demand Database.
The Trinseo PC plant represents about 12% of European capacity and 3% of global capacity, said Bozich.
Trinseo consumes around 40% of its PC resins output in its downstream compounding business and aims to maintain a long term sustainable cost position and quality of feedstock.
“At the end of the day, our journey is about accelerating growth, improving the quality of earnings and reducing the cyclicality of our portfolio,” said Bozich.
“We are constantly assessing our M&A strategy and capital allocation to achieve these three goals,” he added.
NO AUTO RECOVERY
Meanwhile, the automotive markets in China and Europe continue to be weak, and it is too early to predict a recovery, the CEO said.
“We have not seen the real pop we had hoped for from China’s stimulus but the jury is still out,” said Bozich.
“Shanghai’s license plate auction is a good metric to gauge auto demand and it has been flat to declining, so we have not seen the corner turn in China automotive,” he added.
The percentage of winning bidders for license plates in Shanghai has gone up in many consecutive months through April, indicating there were fewer bidders, Bozich noted.
Weakness in China automotive is causing an overhang of supply for a number of major plastics worldwide, he pointed out.
“China is hugely important as a consumer of downstream products. For polycarbonate, ABS (acrylonitrile butadiene styrene) and HIPS (high impact polystyrene), China is close to or over 50% of world demand. When demand slows down in China, it creates an overhang and strands supply in other regions,” said Bozich.
“Even though certain markets in China are slowing - automotive, housing - having the right business partners and focusing on the right sub-segments such as electric vehicles is critical,” he added.
End market players in China will continue to consolidate and emerge stronger from the slowdown, he said.
“One of our key partners in China’s tyre market has grown by taking significant market share from regional competitors,” said Bozich.
Europe’s auto market has been more stable than Asia’s, but it is also too early to predict a recovery in the second half, he said.
“This will depend on discussions on trade and consumer confidence,” said Bozich.
However, the global styrene market could tighten as China sharpens its focus on environmental and safety issues.
“I feel pretty good about polystyrene (PS) and styrene. Operating rates are high and in China, about a third of the producers are local and not back integrated, and also not located in national chemical industry parks,” said Bozich.
“These are typically the ones more impacted by the tightening of environmental and safety standards in China. This has the potential to tighten styrene monomer,” he added.
There is also little new styrene capacity coming on until 2022 to 2023, the CEO noted.
And there is a unique opportunity for Trinseo in PS recycling as PS waste can be turned into pure styrene monomer.
“PS is the first plastic with a technology route proven to return it to the monomer, so it can go into food grade products with no [product] loss,” said Bozich.
“If we can build a collection network, there is an economic way to recycle. We have heard from end consumers that if we can give them recycled PS, they will look to do more with that plastic,” he added.
Trinseo’s AmSty joint venture with Chevron Phillips Chemical in late April 2019 itself launched a joint venture with Agilyx called Regenyx to fully recycle post-consumer PS to new PS products. Regenyx will utilise Agilyx’s chemical recycling process to convert waste PS into styrene monomer.
AmSty is already using recycled styrene monomer from Agilyx’s plant in Tigard, Oregon, at its PS plant in St James, Louisiana, the company said in early April. Agilyx’s plant can handle up to 10 tonnes/day of PS waste.
Key to commercial scale success is building the collection network and infrastructure to produce the waste PS feedstock, said Bozich.
“The first step is to get that collection network set up, and we are excited about working with partners to do that.”