INTERVIEW: Hexion mulls US formaldehyde capacity expansion amid demand growth – CEO

NEW YORK (ICIS)–Adhesives and performance materials company Hexion is mulling a US capacity expansion in formaldehyde, while it also builds out phenolic resins and fireproofing materials capacity amid strong demand, its CEO said on Friday.

“Both external demand and our internal demand in wood adhesives is strong, so we’re pushing all our formaldehyde units hard. Likely we’ll have to do an expansion in formaldehyde in the next couple of quarters,” said Craig Rogerson, CEO of Hexion, in an interview with ICIS.

The expansion could come in the form of debottlenecks or a greenfield facility, and would be in the US – likely on the US Gulf Coast, he added.

“We ship significant amounts to the Midwest so that is a potential [location] but the majority of the demand is on the Gulf, other than our internal demand,” said Rogerson.

Around 60% of Hexion’s formaldehyde is sold externally with 40% consumed internally for its wood adhesives.

“Formaldehyde is very strong. Some of our customers are being impacted by the ability to get other raw materials they need to produce, so in some cases they are seeing slowdowns because of logistical issues. But the demand for their products is very strong,” said Rogerson.

“Our margins have also remained strong because of the pass-through on methanol [in contracts]. Plus, demand for our own wood adhesives is also very high,” he added.

Methanol is the key feedstock for formaldehyde. Along with urea, phenol and melamine formaldehyde resins for engineered wood used in residential and other construction, formaldehyde is used in methyl diphenyl di-isocyanate (MDI), butanediol (BDO), herbicides and fungicides, scavengers for oil and gas production, fabric softeners, hexamine and other catalysts.

PHENOLIC RESINS EXPANSION

Hexion is also installing a phenolic reactor at its Brimbank, Australia site to add an undisclosed amount of phenolic resins capacity.

“That’s the biggest single capital project and that will start up very late this year or early in 2023,” said Rogerson.

Phenolic resins are used in many applications, including as a component in fire-resistant cladding material for commercial, institutional and residential applications.

Hexion is also expanding capacity of its ArmorBuilt adhesive fire protection wrap in Missoula, Montana, US, which is expected to start up in Q4 2022.

ArmorBuilt is used to protect wooden utility poles from fire and the company is actively developing other fire protection applications for a range of industries.

“Demand across our product lines is very strong so we’re being pushed to look at debottlenecking and productivity projects we put under the self-help category. Those are critical right now because of the demand,” Rogerson said.

RAW MATERIALS, LOGISTICS CHALLENGES

Hexion is seeing major raw material cost inflation – for phenol, methanol and urea – but is passing along these costs to customers. And raw material availability is not an issue for the company, the CEO pointed out.

“Some of [the price increases are] due to energy costs, and specifically for urea, a big source of global supply is from Russia. We’ve seen those cost increases but we’ve been able to get product. We’re a big consumer and have a broad supply base,” said Rogerson.

“90% of our adhesives – both formaldehyde and wood adhesives – are under long-term contracts with raw material pass-throughs so we haven’t been hurt from an EBITDA (earnings before interest, tax, depreciation and amortisation) perspective because of rising costs,” said Rogerson.

“We don’t have those kinds of contracts on the performance materials side but these are high value products and we’ve announced price increases to offset both high raw material costs – and because we produce those products in Europe – the high energy costs,” he added.

Hexion’s performance materials segment includes versatic acids and derivatives for coatings and construction applications, and chemical intermediates. The company’s adhesives segment comprised around 85% of its $1.9bn in sales in 2021 with performance materials at about 15%. On a geographic basis, Hexion only has about 7% of its sales in Europe and no exposure to Russia or Ukraine, he noted.

“Logistics are a problem, but in some cases it helps us because it’s still an issue getting things from Asia to Europe or the US. That opens to door for us… on reliability of supply and even cost versus Asian competitors in some cases,” said Rogerson.

“Clearly we have the issues as well – it’s both cost and reliability – but we’ve been able to deal with that fairly well so far,” he added.

“We’ve been through a pandemic and then there’s a war in Europe… and through all that the demand has remained very strong. Assuming that’s still the case, we should be able to offset the stress on raw material costs and logistics. We’re optimistic for 2022,” said Rogerson.

Interview article by Joseph Chang