Fluorogases markets remain difficult as Arkema counts cost of US Gulf storms – CEO

LONDON (ICIS)–Arkema is mulling plans for parts of its fluorogases division as those markets are set to remain difficult in most regions in 2021, according to the CEO at the France-based producer.

Thierry Le Henaff added that portfolio changes for fluorogases would be in line with the company’s aim to become a pure specialty chemicals player.

Arkema announced in April 2020 that the bulk of its commoditised or weaker-performing assets would be housed in a separate division, now termed intermediates, as management devised plans for the portfolios.

Arkema has already agreed the sale of its methacrylates businesses to Trinseo, with a close to the €1.14bn-deal expected by mid-2021. Also siloed in the division are Arkema’s fluorogases operations and its Asian acrylates assets.

The company is planning to explore other options for part of the fluorogases division, potentially finding partnerships for the more controversial commodity refrigerants and coolants assets, and reabsorb fluoropolymer intermediates and battery materials back into its core operations.

Arkema has pursued several anti-dumping lawsuits in the EU and the US over cheap fluorogases imports, but conditions remain difficult despite some improvements in the US.

“We are robust in the US. In Europe, we cannot say we see much improvement, and in China, which is the other part of the world where we have a position, is in terms of supply/demand not favourable,” said Le Henaff.

“With regard to fluorogases we are just starting, and we will find a plan that we will implement, starting with defining more specifically the parameters so we have some months on that,” he added, noting that once the methacrylates sale closes Arkema will derive 90% of its pro-forma revenues from specialty chemicals.

INTERMEDIATES DRAG ON EARNINGS
The financial performance of the intermediates division was one of the key drags on fourth-quarter company performance.

Along with a drop in advanced materials income despite firm battery and light-weighting demand due to negative currency effects, the headwinds offset stronger adhesives performance and a 39% coatings division earnings bump.

Most European players with more commodotised portfolios reported extremely strong quarterly results, whereas the picture for specialties producers was more mixed, depending on end market exposure.

Aside from currency headwinds, the  drop in quarterly profit for Arkema was driven in part by slower recovery processes in industries with a lot of steps between the firm and the final consumer, according to Le Henaff.

“It’s a matter of timing of the recovery. The first market which recovered was construction, which is an end market in which we have very short cycle to the end consumer, as is the case with DIY [do-it-yourself],” he said.

“We started with a rather quick recovery of [flagship adhesives asset] Bostik, but there are some electronic and related business linked to oil and gas and chemicals where there are many steps between the end customer and ourselves, and restocking recovery takes time, so it’s just a matter of length of supply shutdown,” he added.

The company is also counting the cost of the polar storms in the US Gulf Coast that knocked out much of the Texas power grid, leading to shutdowns and curtailments at Arkema’s Bayport and Clear Lake sites.

Le Henaff declined to speculate on the total cost, with the restart of the industry in the region expected to take weeks, but noted that some minor repairs may be necessary in bringing units back online.

“It is a complex situation for all chemical companies, as well as the whole supply chain, so we all depend on the other. It is difficult to know how much time it will take. There are some small things to repair, but it takes some time,” he said.

Arkema has also felt the impact of skyrocketing shipping prices and supply chain disruptions that have dogged global supply chains but, with significant operations in China, the company has also felt the uplift from the current turbulence.

“We have the same as everybody, but in the end you have to look at the cause – because the rebound is very strong in China, where we benefit from bigger volumes and we have to pay more for freight transportation. I would prefer to be in this situation than the one we were in a year ago,” Le Henaff said.

POST-CRISIS
Despite annual drops in profitability of 10% in the fourth quarter and 37% for the year overall, Arkema remained stable during the most dramatic days of the coronavirus crisis.

The company declined to accept any furlough or stimulus funding from the French government, with Le Henaff wanting to demonstrate that, as a public company, Arkema could stand on its own in a crisis.

“With the strength of our balance sheet, we thought the funding could be better used by others, out of solidarity, and we wanted to prove that as a listed company we could get through this crisis,” he said.

“It is clear that if we had used it our EBITDA [earnings before interest, taxes, depreciation, and amortisation] would have been better, but we accept that, I think,” he added.

Many central bankers have estimated the savings build-up among households during the pandemic totals hundreds of billions of euros, meaning that demand could spike substantially once the vaccination programmes are further advanced, Le Henaff added.

Arkema (€/m)	Q4 2020	Q4 2019	% change	2020	2019	% change
Net sales	1,985	2,053	-3%	7,884	8,738	-10%
EBITDA	289	295	-2%	1,182	1,457	-19%
Recurring operating income (REBIT)	144	151	-5%	619	926	-33%
Adjusted net income	92	102	-10%	391	625	-37%

Le Henaff expects to achieve the company’s goal of 100% of revenues from specialties ahead of the stated deadline of 2024, after a solution has been found for base fluorogases and Asia acrylates operations have been restructured and absorbed back into its core operations.

The focus on specialties may leave the company more dependent on third parties for raw materials and other upstream products, however.

“What we will keep integrated from the upstream is the acrylic chain, but for the rest we can find [raw materials] outside, it is not so much an issue. You can’t be an expert in everything and we are a huge supplier of critical materials,” Arkema’s CEO said.

“What is more important to us is to add more and more value downstream, and be more diversified in terms of end application, use of raw materials, etcetera. The challenge of the coming years is not so much to refine integration, it is to add new value opportunities and businesses.”

Front page picture: Arkema’s facilities in Suzhou, China
Source: Arkema

Interview article by Tom Brown