EPCA 2018 podcast special: Brenntag, Azelis, Petrochemicals Europe

Trade war, shutdowns impact supply chains – Brenntag CEO

The US/China trade war is having an impact on regional supply chains, exacerbated by environmental shutdowns in the key Asia Pacific economy.

Speaking on the sidelines of the European Petrochemical Association meeting in Vienna, Brenntag CEO, Steve Holland, said that the trade war is starting to have a real impact on sentiment in Asia Pacific, while the ongoing environmental shutdowns are altering China supply chains.

“Clearly the trade war is a major concern for a lot of people in terms of what the future trading position will be with major partners like China. Three or four months ago there was a lot of rhetoric about this but now I do detect a certain amount of nervousness in Asia Pacific,” he said in a podcast interview with ICIS.

Since the trade war began, China has been prioritising domestic production over production for exports, he noted.

“From [talking to] a lot of Chinese people here it’s clear that environmental closures mean there are some units shut which previously targeted production for exports. We support these moves but it does have an effect on the overall supply chain.”

He believes there is an important question over how much of China’s production will be used for domestic purposes and how much will be available for export.

DIGITISATION OPPORTUNITY

Brenntag’s new digital platforms allow it to reach new customers and has multiplier effect rather than being a threat, the CEO believes. He has seen no evidence of manufacturers using digital platforms to bypass distributors and sell direct to smaller customers.

“It’s an unlikely scenario that a major manufacturer would want to dilute their resources into a group of much smaller customers. I don’t think distribution is in too much danger at this stage,” Holland said.

Brenntag has been investing in reusable, returnable containers as it ramps up sustainability efforts. He said: “We have been looking at our closed loop returnable traffic. The default for manufacturers should be to sell product in returnable containers: we want to encourage the market to use returnable traffic.”

CLICK HERE to hear Steve Holland discuss the impact of the US-China trade war and shutdowns

Azelis sale to EQT will take place by November – CEO

The sale of specialty distributor Azelis to Swedish private equity firm EQT will take place by November, company CEO Hans Joachim Mueller said on 8 October.

Mueller said that earlier plans for an initial public offering (IPO) were abandoned after several bids were made for Azelis ahead of the planned IPO launch. The sale by owners Apax Partners to EQT is just waiting for one more regulatory approval.

“By November we expect to be through with all the approvals. We are just waiting for a regulatory approval from one economy. It won’t stop the transaction – if it not issued by the end of October then it is automatically granted and it cannot be blocked.”

Mueller explained that the IPO process had been going on for a couple of years and the middle of last year the company started to get more engaged in setting this up.

“Then our owners, Apax, got a bid last March from another private equity group followed by more bids. They explored the bids and a dual track process brought us to a new owner, EQT.”

GROWTH STRATEGY UPDATE

Mueller sees organic growth as the key element in its strategy, as this also enables its principals to grow.

“Another pillar of growth is when principals move business to us if they are not happy with an existing distributor in a geography – a transfer of mandates. M&A is the third pillar of growth.”

Five to six years ago Azelis was not present in Asian markets but this year the group expects to achieve around €200m of sales there.

“We will do more to grow our presence in Asia Pacific whilst continuing to drive our business in EMEA and the Americas. Within five years our ambition is to generate almost one third of revenues from APAC from around 8% today – we now have presence in most of the geographies in APAC.”

Azelis forecasts to end the year at €1.9bn plus in sales – on a like-for-like basis this is high single-digit growth, which Mueller expects to continue.

“We will continue to invest in people and labs – from 12 labs in 2012 to 55 today. We will continue to drive innovation through formulation,” said Mueller.

CLICK HERE to hear the CEO of Azelis describe how an IPO plan was switched to another private equity sale

Expansions do not signal new wave: Petrochemicals Europe

Announcements of expansions by Europe-based chemical producers are unlikely to herald a new wave of projects in the region, the executive director of a trade body says.

In a podcast interview Dorothee Arns of Petrochemicals Europe – an industry sector of Cefic – said many structural challenges remain for producers, including high energy costs and a complex regulatory framework.

Austria’s Borealis has a 720,000 tonne/year propane dehydrogenation (PDH) unit in Belgium due on stream in 2022. INEOS plans a cracker expansion in Scotland plus a €2.7bn cracker and PDH plant in northwest Europe.

Poland’s Grupa Azoty plans a PDH plant plus a polypropylene (PP) expansion, with construction due to start in 2019. “The expansions are a very positive statement for Europe. We have not seen these kinds of announcements for more than two decades. Is this the start of a wave of new investment in Europe? There I am quite hesitant.”

Arns said the recent investments addressed company-specific balance adjustments in very integrated value chains. “The last years were pretty good for petrochemicals – demand grew more than forecast and the low oil price had an effect too. The oil-gas ratio improved and that opened up margins too; but these investments are mainly ethane and propane – so non-crude raw materials. I would not speak of a big wave of petrochemical investments, if we compare to the US, Middle East or Asia.”

Arns pointed out that the lower oil price between 2014 and early 2018 brought welcome relief and closed the competitive gap between Europe and ethane-based regions a little. “But structural challenges remain – we are still suffering from the highest electricity prices in the world, together with Japan. We still have a lot of complexity in our regulatory framework. There is room for improvement here, though the EU has started to address these topics.”

She believes that Europe petrochemicals have a lot of advantages such as well-integrated sites, customer clusters plus skilled and motivated workers. The region also has feedstock flexibility and diversity.

REALISTIC RENEWABLES?

The chemical industry in Europe consumes 80m tonnes/year of raw materials with 75% of these based on refined products with only 10% from renewables.

“To replace these with renewables would run us into immediate competition with food and feed. We would have to build other infrastructure and this summer showed that harvests cannot be taken for granted. We will still use petrochemicals for the foreseeable future unless there are major technological breakthroughs,” said Arns.

BREXIT DISRUPTION

Arns said that among her members, every month that passes without a Brexit deal brings growing concern.

“The chemical industry is optimised across borders and Brexit has the potential to disrupt value chains if it is not managed successfully. We advocate for a compromise based on common sense.”

She pointed that chemicals investments in the UK could be hit by Brexit.

“The stalemate puts a lot of uncertainty into the markets, which blocks business opportunities and potentially also investments. For EU-UK trade, 30% is associated with petrochemicals.”

CLICK HERE to hear Dorothee Arns describe challenges and opportunities for Europe’s petrochemical sector.