CHEMICAL UPDATE
FEBUARY 2013
McIlvaine Company
TABLE OF CONTENTS
Ashland Commits To Major Investment in Ky. Plant
BASF Breaks Ground on New Automotive Coatings Plant in Shanghai
Lubrizol Expands Uses for CPVC Pipe Brands
Dupont Puts Cyanide Business on the Block, Sources Say
DuPont to Double R&D Spending in India
Albemarle Fine Chemistry Services Continues Expansion in Tyrone, Pennsylvania
Dow Reports Fourth Quarter and Full-Year Results
DuPont Reports 4Q and Full-Year 2012 Earnings
Eastman Chemical Posts Mixed Results, Outlook Optimistic
Major Japanese chemical producers are downsizing by closing plants at three locations, Chemical & Engineering News reports. Near Tokyo, Sumitomo Chemical will shut down an aging ethylene cracker that feeds several plants downstream. Ube Industries will dismantle a plant near Osaka producing caprolactam, a key material for making nylon. A few months ago Japan’s largest chemical company, Mitsubishi Chemical, announced it would close one of its ethylene crackers in Kashima, Ibaraki prefecture, citing deteriorating business conditions.
The moves are taking place at a time when demand in Japan is weak and companies face competition from lower-cost players in the Middle East and the U.S.
The Sumitomo cracker by itself represents only 6% of Japan’s total ethylene production capacity, says Yoshihiro Azuma, a stock analyst who covers the Japanese chemical sector for the investment firm Jefferies & Co. “But if you add the reduction in capacity at Mitsubishi, it’s significant, and it will reduce Japanese chemical exports.”
Sumitomo is shuttering the 415,000-metric-ton-per-year ethylene cracker at its main Japanese petrochemical plant, in Ichihara, Chiba prefecture. To feed facilities that will remain operating after the 43-year-old cracker closes, Sumitomo plans to source more raw material from Keiyo Ethylene, a multiparty production venture in which Sumitomo owns a 22.5% stake. In tandem with Sumitomo’s closure announcement, Mitsui Chemicals says it plans to divest its own 22.5% stake in Keiyo.
Meanwhile, in Sakai near Osaka, Ube Industries will take apart its 100,000-metric-ton caprolactam plant and associated facilities producing ammonia, liquefied carbon dioxide, ammonium sulfate, and 1,6-hexanediol. In a research note, Azuma called Ube’s move “a very fast and brave decision” considering the likelihood that global caprolactam demand may rebound soon.
Ube and Sumitomo operate larger, newer, and more efficient plants outside Japan. Ube produces caprolactam at a plant in Thailand where it expanded capacity by 20,000 metric tons in December 2011. Sumitomo is co-owner with Saudi Aramco of a major integrated oil refinery and petrochemical complex in Saudi Arabia. The cost of feedstock for that venture’s 1.3 million-metric-ton ethylene cracker is a mere 3% of the cost in Japan, according to a Sumitomo spokesman.
The closure announcements at Sumitomo and Ube coincided with the release of Japanese chemical company earnings for the first nine months of the fiscal year, which ends on March 31. Sumitomo reported a net loss of $435 million, partly owing to negative margins in its petrochemical segment. Mitsubishi managed to remain just barely profitable, but it too suffered losses in its polymers and chemicals segments. At Ube, net income fell 35%; gross margins in its chemicals and plastics segment plummeted 78%.
Ashland Inc. will spend $15 million and retain 500 jobs at its specialty chemical operations in Calvert City, Ky.
Covington-based Ashland (NYSE: ASH) will add three high-efficiency heat recovery steam generators to the Marshall County facility, according to a news release. The move will reduce emissions and improve energy efficiency at the facility, which Ashland acquired through the 2011 purchase of International Specialty Products.
Construction and installation of the new generators is set to begin in March, with the system in operation by spring of 2014.
“Calvert City will play an important role in Ashland’s growth, particularly as we expand our presence in personal care products," said CEO Jim O'Brien.
The company received state incentives for the project of up to $5.5 million through the Kentucky Reinvestment Act.
Composite manufacture in Russia has taken a big step forward following a deal between Dow and some local partners, including state-run nanotechnology corporation Rusnano, to produce composite materials and carbon fibre intermediates in the country.
The partnership, which includes Dow’s Turkish composites joint venture DowAksa, agreed to study opportunities in the areas of aerospace, infrastructure, energy, oil and gas and transportation, and to explore supplying both the Russian domestic and global markets.
The parties agreed to draw up “a comprehensive strategy” for composite production which will lead to potential investments in Prepreg-ACM and Nanotechnology Center of Composite, two Russian firms with Rusnano co-investment.
Top executives from global chemicals giant Dow, DowAksa, Rusnano and Russian composite materials producer Holding Company Composite (HCC) signed the memorandum of intent (MOI) at the 2013 World Economic Forum in Davos, Switzerland. Signatories to the agreement included Dow chief executive Andrew Liveris, Dow Europe, Middle East and Africa president and DowAksa chairman Heinz Haller and Anatoly Chubais, Rusnano’s chief executive.
The latest deal will also open the way for Rusnano’s Russian portfolio companies to do business and enter technological partnership with Dow Chemical, according to Anatoly Chubais.
“The agreement will enable our companies to spurt ahead in the rapidly evolving realm of carbon composite materials and to find new solutions to increasingly complex engineering challenges,” he said.
DowAksa is a 50:50 joint venture between Dow Europe and Turkey’s Aksa Akrilik Kimya Sanayii, a global supplier of acrylic fibres. DowAksa entered the carbon fibre business in 2009 by developing its own technology for the production of carbon fibre and carbon fibre intermediates.
State-of-the-art facility to start operation in 2014
Plans to further invest in additional production capacity
BASF Shanghai Coatings Co., Ltd. broke ground recently on a new automotive coatings plant at the Shanghai Chemical Industry Park in Shanghai. This state-of-the-art production facility is scheduled to commence operation in early 2014. It complements the company’s existing plant in Shanghai, which has been operating for more than 15 years.
The investment further strengthens BASF’s position as a leading coatings supplier to the automotive industry in China. “As the demand for mobility grows, so does the demand for highly efficient, sustainable solutions for the automotive industry. This investment helps demonstrate BASF’s commitment to addressing these needs and supporting the dynamic growth of China’s automotive industry a s the number one supplier from the chemical industry,” said Dr. Albert Heuser, President Asia Pacific of BASF.
“High-quality coatings products and eco-efficient manufacturing processes are in enormous demand in China,” remarked Peter Fischer, Senior Vice President, Coatings Solutions Asia Pacific, BASF. “We will continue to invest and expand our automotive coatings production capacity, providing coatings solutions according to the latest and most environmental friendly manufacturing processes and technologies.”
BASF Shanghai Coatings Co., Ltd. is a joint venture between BASF (China) Co., Ltd. and Shanghai Coatings Co., Ltd., with more than 15 years of successful partnership.
Lubrizol Corp. has found new applications for its chlorinated PVC products, pushing its multilayer bendable pipes for water-service lines and its fire sprinkler systems in retrofit applications.
Lubrizol's Flowguard bendable pipes can be run like the coiled copper pipe typically used in water service lines, but the CVPC pipes have several advantages over their metal counterparts, said Mark Lemire, a piping system consultant at Lubrizol's TempRite Engineered Polymers business.
Copper pipes can break down during use, damage easily, and can kink, Lemire said in an interview at the International Builders Show, held Jan. 22-24 in Las Vegas.
The bendable, three-layer pipes — made of aluminum surrounded by CPVC — have great impact resistance and flexibility and can be bent without breaking, he said.
Metal is continuing to lose market share to CPVC products, but using the material in construction projects requires builders to avoid chemical incompatibility, Lemire said.
Lubrizol promotes a compatibility program as a way to ensure that engineers, architects and everyone else involved in the building project know what materials they can use, he said. Builders can use the program to check the compatibility of complementary products, like leak detectors and thread sealants, with Lubrizol CPVC products. Complementary products also carry a logo so they can be easily identified.
DuPont is exploring the sale of its cyanide business and has hired investment bank Morgan Stanley to run the sale process, according to three sources familiar with the matter, Reuters recently reported.
The unit, which sells the poisonous chemical for use in gold mining, could be worth more than $700 million, according to two of the sources. It is projected to have earnings before interest, taxes, depreciation and amortization of around $100 million, the sources said.
The 210-year-old chemical company is under pressure to focus more on its food and agriculture products. It sold its performance coatings unit last August to Carlyle Group LP for $4.9 billion cash.
DuPont Chief Executive Ellen Kullman is betting drought-resistant AquaMax corn seed, Curzate potato fungicides, Amylex beer enzymes and other food and agriculture products will make DuPont's profit less subject to the ebbs and flows of its commodity chemicals business, which include its cyanide unit and its much larger paint business.
DuPont declined to comment. Morgan Stanley did not immediately respond to requests for comment.
DuPont to Double R&D Spending in India
DuPont expects India to be among the top five revenue contributors in the next three-four years as the global growth axis tilts from the West to Asia. At present, India is among the top 10 revenue contributors to the science-based products and services multinational, with emerging markets contributing 38%, the Times of India reported.
Low-penetration, strong economic growth indicators and enhanced focus on research and development (R&D) are some of the factors that would help DuPont grow faster than the market, its global chairperson and CEO, Ellen Kullman told TOI. The 57-year-old Kullman, who is on a brief visit to India to take stock of the Indian operations, besides meeting the local management and industry leaders, said she would like to set the bar high on growth in India.
DuPont, best known as the creator of Teflon fluoropolymer coating, has been operating in India since the early '90s and its 2012 revenue was $800 million. "We will double our research and development activities in India. We really need to bring science locally to the Indian industry. Despite science being global, solutions have to be local and that's why we are expanding innovation and R&D centres. Our centres in India would not only address local issues but their solutions would apply to global markets as well,'' said Kullman, who is the 19th executive to lead the company in DuPont's history, and its first woman to chair the board.
The focus at its Hyderabad and Pune centres would be discovery and application of new technologies that would help improve lives. The NYSE-listed DuPont spends about 5% of its revenues on R&D. Kullman believes that organic growth will be the way forward for DuPont in India but it will not shy away from acquisitions if an interesting opportunity comes up such as the one on cotton seeds. Three years ago, it snapped up Nandi seeds and the cotton germplasm business of Nagarjuna seeds that marked its foray into the cotton seeds business.
"You have to have a solid base of organic growth from which you can grow from. Along the way, if you find opportunities for inorganic growth then you take a look at them," Kullman said. Recently, there was speculation that DuPont may form an alliance with a large domestic agribusiness company but the former denied of any such move.
A challenge that could pose a hurdle in its growth is the volatile regulatory environment. Kullman said DuPont was concerned about the regulatory environment in India, because the company has to work within this environment given its connectivity with farmers on agriculture related products, among others. The over 200-year-old organization has evolved over the years from being called a "chemistry" company to adapt a broader definition of being a science company in a bid to open up various possibilities for the future.
Albemarle Corporation (NYSE: ALB), a global developer, manufacturer and marketer of highly engineered specialty chemicals and services, announced recently that its Fine Chemistry Services (FCS) business has approved and begun construction on another expansion of its Tyrone, Pennsylvania custom manufacturing facility.
"This $30 million expansion adds new capacity to the site for custom manufacturing projects, but more importantly, will improve the infrastructure to allow for future incremental and low-cost expansions as we gain new projects from customers. This rapid response and flexibility are hallmarks of the Tyrone operating culture," says Randy Andrews, Tyrone Site manager.
"We are pleased once again to expand the Tyrone site to serve the growing product needs of our customers. This expansion comes shortly after our earlier expansion that began operation in November 2012 and will fuel the continued growth of FCS's custom manufacturing business. We are anxious to take advantage of the eventual 40% increase in reactor capacity. The first increment of new capacity will be operational late in the first quarter of 2014," said David DeCuir, FCS Business Director.
Albemarle Corporation, headquartered in Baton Rouge, Louisiana, is a leading global developer, manufacturer, and marketer of highly-engineered specialty chemicals for consumer electronics, petroleum refining, utilities, packaging, construction, automotive/transportation, pharmaceuticals, crop protection, food-safety and custom chemistry services.
Albemarle's Fine Chemistry Services (FCS) division is a full-service provider of fine chemicals to the world's leading companies across the pharmaceutical, agrichemical, and specialty materials markets. www.albemarle.com/fcs.
Fourth Quarter 2012 Highlights
Dow reported Sales for the quarter were $13.9 billion, down 1 percent versus the year-ago period. Agricultural Sciences achieved a new sales record, with sales growing 17 percent.
Increases were also reported in Electronic and Functional Materials (up 3 percent), Performance Plastics (up 1 percent) and Coatings and Infrastructure Solutions (up 1 percent). These increases were more than offset by declines in Feedstocks and Energy (down 9 percent) and Performance Materials (down 5 percent).
Volume was flat for the quarter, as a 5 percent decline in Western Europe offset volume growth in Asia Pacific (up 5 percent) and North America and Latin America (each up 1 percent).
Andrew N. Liveris, Dow’s chairman and chief executive officer, stated: “The second half of 2012 saw significant deterioration in the markets we serve, particularly in China. In response, Dow identified and took aggressive action to mitigate the effects of a slow-to-no-growth global environment – by deploying cost and cash flow levers and by continuing to prudently manage our portfolio and prioritize growth investments.
“Our Agricultural Sciences business continues to outperform, driven by its technology pipeline. Performance Plastics also posted strong results in the quarter, bolstered by feedstock advantages in North America and the Middle East, coupled with improving pricing momentum. In addition, our Kuwait joint ventures posted exceptional results in the quarter.
“We delivered on our cash flow target for the year, and our focus on rewarding shareholders remained resolute, as evidenced by a 34 percent increase in declared dividends for 2012.”
2012 Full-Year Highlights
Dow sales were $56.8 billion, down 5 percent, or 3 percent on an adjusted basis, with currency representing nearly two-thirds of the decline. Sales decreased in all operating segments excluding Agricultural Sciences (up 13 percent) and in all geographic areas year over year, led by Western Europe.
Agricultural Sciences achieved record-level sales and EBITDA, posting $6.4 billion and $977 million, respectively.
Volume decreased 2 percent, or increased 1 percent on an adjusted basis. Asia Pacific and Europe reported volume growth during the year (up 3 percent and 1 percent respectively). Volume in North America remained flat, primarily due to the impact of shutdowns in Feedstocks and Energy.
For the full year, Dow reported EBITDA of $5.6 billion, or $7.5 billion on an adjusted basis.
Outlook
Commenting on the Company’s outlook, Liveris said: “Dow enters 2013 squarely focused on driving earnings growth, increasing cash flow and rewarding shareholders. And while our business plans do not call for material macroeconomic tailwinds, we will fully harvest our feedstock strength, particularly in Performance Plastics, and further accelerate growth in our technology-driven Agricultural Sciences segment. In addition, we have deployed $2.5 billion of cost reductions and cash flow improvements, and are aggressively managing our portfolio – by prioritizing our growth programs and driving selective, non-core divestitures. Collectively these actions demonstrate our firm resolve to control what we can control, and proactively implement the right strategic decisions to accelerate Dow’s performance.
“We have the right catalysts firmly in place. Our feedstock advantage, particularly as the ethylene cycle unfolds, and the commercialization of our technology pipeline, as well as our integration investments in the U.S. Gulf Coast and Sadara as a whole differentiate Dow, and will continue to propel our strategy to deliver higher earnings growth and increasingly reward shareholders.”
DuPont Reports 4Q and Full-Year 2012 Earnings
Fourth Quarter:
Sales of $7.3 billion equaled the prior year. Three percent higher volume was offset by 2 percent negative currency impact and a 1 percent reduction from portfolio changes.
Segment pre-tax operating income (PTOI) was down, primarily reflecting lower price and volume in Performance Chemicals. Titanium dioxide pricing led the decline.
Full Year:
Sales were $34.8 billion, up 3 percent with a 6 percent increase in developing markets.
Segment PTOI increased 3 percent to $5.7 billion, excluding Pharmaceuticals and significant items. Agriculture PTOI increased 18 percent driven by volume and pricing growth for seed and crop protection businesses in North America and Latin America. Performance Chemicals PTOI decreased 16 percent from lower sales across the segment.
Free cash flow was $3.1 billion versus $3.3 billion in the prior year. 2012 includes a $0.5 billion contribution to the principal U.S. pension plan and lower net income, partly offset by improved working capital productivity.
Fixed cost and working capital productivity benefits were each about $400 million, surpassing their $300 million targets.
Eastman Chemical's $3.4bn (£2.2bn) purchase of Solutia in early 2012 increased the Kingsport-based firm's annual sales total, but also reduced its growth rate, Plastics News reports.
Combined, Eastman-Solutia sales fell almost 2% to about $9.1bn (£5.8) in 2012, including a gain of almost 13% in the legacy Eastman businesses. Eastman-only profit for 2012 fell more than 30% to $444m (£282m).
Sales for 2012 in Eastman's adhesives and plasticisers unit - which was not affected by the Solutia deal – grew almost 4% to more than $1.4bn (£0.89bn). That unit's operating earnings also grew 5% to $263m (£167m). In the statement, officials said that the unit's sales revenue increased because of higher sales volume from continued substitution of phthalate plasticisers with non-phthalate plasticisers.
Eastman's advanced materials unit – including Eastman's Tritan-brand copolyester and Solutia's polyvinyl butral (PVB) products – did not fare as well, with sales slipping almost 3% to less than $2.3bn (£1.5bn). Eastman-only sales, however, were strong, growing more than 40% to almost $1.7bn (£1.1bn). Operating earnings at the combined advanced materials unit also tumbled 16% to $210m (£134m).
Company officials said that the combined sales decrease was attributed primarily to weakened demand in PVB sheet end markets, particularly the transportation market in Europe. It also was affected by weakened demand in specialty copolyester end markets, particularly durable goods and consumables. The sales drop was partially offset by increased sales in performance films, they said.
Eastman chairman and CEO Jim Rogers was optimistic despite of early mixed results.
"Eastman delivered another year of consistently strong earnings, with fourth-quarter results providing an outstanding way to end 2012," he said. "This high level of performance was driven by our market-leading businesses and the significant strategic actions we have taken to improve our portfolio."
Rogers added that the firm is "well-positioned for continued growth in 2013 and beyond, supported by strong cash generation".
McIlvaine Company
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