Deal allows company to help secure the future of Europe styrenics which is battling competition from other regions
INEOS was expected eventually to take control of its styrenics joint venture with BASF. Its call option on Styrolution matured at the beginning of February, but the timing of the acquisition accentuates important structural trends in the petrochemical industry, particularly in Europe.
INEOS is playing an active consolidating role in styrenics while at the same time pursuing a similar strategy in PVC (polyvinyl chloride). The company’s chairman and major shareholder, Jim Ratcliffe, has been outspoken in his criticism of EU policies, particularly on energy, and their impact on chemicals.
In a letter to European Commission president, Manuel Barroso in April he predicted that much of the European chemical industry would face closure within the next 10 years unless some things changed. His company is not waiting for policy or regulatory change.
The INEOS styrenics joint ventures, first with Nova, then with BASF have helped rebuild strength in polystyrene and other styrene-based plastics. The Styrolution joint venture has trimmed capacities and costs but also started to invest in faster growing styrenic products in developing markets.
It posted operating earnings before depreciation and amortisation (EBITDA) for last year of €442m, up 32% on 2012. Polystyrene (PS) and styrene monomer margins were higher. However, total sales in 2013 were slightly down compared to 2012, from €6bn to €5.8bn, a decrease of 2.5%. The company closed a PS plant in Marl, Germany in October 2012 so its fixed costs and utilisation rates in PS were higher.
The company had a 24% PS market share in Europe by installed capacity in 2013, according to ICIS Consulting data, closely followed by Total Petrochemicals and Styron. Just over 280,000 tonnes of PS capacity in Europe was closed between 2012 and 2013 bringing the total to 2.05m tonnes.
Some styrene-based plastics are not growing strongly, but there are pockets of growth for certain copolymers, in Asia and Latin America. The INEOS acquisition, which will cost the company €1.1bn and is subject to regulatory approval, ties these materials with a feedstock supply network that is likely to be among the most streamlined in Europe.
INEOS is challenging Europe’s high feedstock cost position by planning to import ethane from the US for cracking in its ethylene plants in Grangemouth, Scotland and Rafnes in Norway. The company has also constructed a 1m tonne/year capacity ethylene import terminal in Antwerp, Belgium.
Feedstock cost will be vitally important when it comes to producing any ethylene-based chemical effectively in Europe. It stands alongside balancing polymer supply with sometimes-challenged regional polymer demand.
This is certainly the case in PVC currently, where the costs of production, in terms of ethylene and of chlorine, which depends almost totally on the costs of electricity, are the major cost elements. PVC demand is poor because of a depressed construction industry.
In another major consolidation, INEOS has inked its joint venture with Belgium’s Solvay to create one of the world’s biggest chlor-alkali and PVC producers.
In what might be perceived as a roundabout way of securing competitive advantage, but on closer reflection is not, the company is also looking at potentially sourcing its own ethylene feedstock in the UK. It is seriously thinking about becoming involved in shale gas exploration and more closely tied to the nation’s energy market.
In a statement about Styrolution released on 30 June, Jim Ratcliffe put it this way: “Styrolution has fulfilled its promise as a globally competitive business that competes effectively with large-scale producers from Asia and the Middle East. We are pleased to bring Styrolution fully into the INEOS family,” he said.
“After the purchase, Styrolution will be run separately as a standalone company within INEOS, and continue to operate as it does today.”