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Higher Profits for Specialty Chemical
Companies
Three more specialty chemical firms posted positive results
for the first quarter of 2006. Arch Chemicals reported a 5
percent increase in sales and a 69 percent rise in earnings
due to strong activity in its water and performance products
businesses. Lubrizol reported a 16 percent gain in sales and a
7 percent increase in earnings. Cytec Industries saw profits
rise 2 percent. Overall, stock prices for specialty chemical
firms are expected to rise in value in response to higher than
expected earnings in the first quarter and anticipated
continued growth in the sector. Companies with recently
peaking stock prices include Albemarle, Arch Chemicals, Cytec
Industries, HB Fuller, Hercules, MacDermid, PolyOne, PPG
Industries, Rockwood Holdings, Rohm and Haas, Stepan and
Valspar.
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BASF announced the opening a new nanotechnology research
center in Singapore. The company plans to invest a further
$16.4 million (Euro 13 million) in the Competence Center for
Nanostructured Surfaces through 2008. The location will enable
BASF to work with research institutions in Asia and provide
access to highly skilled scientists in the region. Worldwide
the company will invest another Euro 180 million in
nanotechnology research in the next two and a half years.
Two days after Statoil nominated Johan Fredrik Odfjell to
replace the retiring Jannik Lindbaek as chairman, Odfjell
withdrew as a candidate. Political groups including the Labour
Party and trade unions opposed the selection, suggesting that
more appropriate candidates were not even considered. There
was also concern over the large compensation package Odfjell
received from Vesta, his previous employer. Lindbaek has
agreed to stay on as chairman for another two years.
Linde announced that it has agreed to acquire Turkish
industrial gases producer Karbogaz for an undisclosed amount.
Karbogaz was formed in 1984 as a joint venture between Praxair
and Turkish firm Aytemiz. Linde made the investment to
strengthen its position in the region. Aytemiz divested the
business as part of its strategy to focus on its petroleum
operations. The transaction is subject to approval. Linde is
also waiting for approval of its $15.2 billion (Euro 12
billion) bid for BOC.
Higher than predicted demand coupled with short supply has
kept Hexane prices in Europe higher than normal. In the
beginning of 2006, prices hikes were implemented in response
to higher raw material costs. Despite the decline of these
costs, prices remain elevated. Plant shutdowns (planned
turnaround at Portugal's Galp and an unexplained shutdown by
Israel's Gadiv) have contributed to the tightness in supply.
An increase in domestic Polyolefins capacity of as much as 32
percent in 2006-2007 will make China much less dependent on
imports. Except for linear low-density Polyethylene (lldPE),
imports of Polyolefins to China could decline over 40 percent,
according to Sinopec. Demand for lldPE, which increased 23
percent in 2005, will continue to outpace the country's
production capabilities and require continued higher levels of
imports.
Isopropanol (IPA) producers Dow Chemical and Shell announced 5
cent/pound ($110/tonne) price increases effective June 1, 2006
for distributors east of the Rocky Mountains. The other two
U.S. suppliers of IPA, Sasol and ExxonMobil, were evaluating
the action and planned to announce their decisions on pricing
in the near future. The price hike was attributed to rising
raw material and energy costs, which are contributing to
unsustainable margins. It remains to be seen whether buyers
will accept the price hikes.
Following President Evo Morales' order to nationalize
Bolivia's oil and gas resources, armed forces took control of
the country's privately owned oilfields and two refineries.
Total, Repsol YPF, Petrobras, British Gas and others are
required to turn over all oil and gas production to
Yacimientos Fiscales Bolivianos (YPFB). The companies have 180
days to renegotiate contracts or discontinue operations. The
government will receive 82 percent of revenues under the new
system (up from 50 percent). In response to the situation,
Petrobras announced that it has suspended plans to invest in a
petrochemicals complex on the border with Bolivia and
cancelled other plans to expand the capacity of its Gasbol
pipeline that moves natural gas from Bolivia to Brazil.
The switch from Methyl tertiary butyl ether (MTBE) to Ethanol
as a fuel oxygenate in the U.S. led to disrupted supplies of
gasoline, particularly in the Northeast, due to a shortage of
Ethanol. The transition to Ethanol for reformulated gasoline
blends has now been largely completed, and shortages of
gasoline due to blending issues should no longer be a concern.
In the wake of the switch of oxygenates, MTBE prices have
plunged, while Ethanol prices have risen dramatically. Spot
prices are up nearly 50 percent compared to the beginning of
2006. Ethanol capacity in the U.S. is approximately 4.5
billion gallons/year, and an additional 2.2 billion
gallons/year of capacity is under construction, with some
expected to be operational in mid-summer.
A very tight supply and high energy and raw material costs are
leading European Adipic acid producers to once again hike
prices. May contract prices rose between 4-5 percent.
Suppliers are looking to increase prices for June a further
8-9 percent. Despite the price increases, margin gains have
been tempered by higher feedstock costs. Demand for Adipic
acid has increased do to improved conditions in downstream
markets. The shortage of material is likely to worsen as
several producers have scheduled shutdowns for this summer.
The U.S. Glycerine market appears to be tightening for the
first time in over 12 months. Some suppliers expect the
improved conditions to be temporary, but others believe the
market will remain more balanced over the long term. New
applications (Glycerol-to-Propylene glycol for example) are
driving the increased demand. Prices for Glycerine in the U.S.
have declined dramatically since 2004 when producers
over-supplied the market with high hopes for increased
biodiesel demand that did not emerge. Leading producers of
Glycerine include Archer Daniels Midland, Cargill, Cognis, and
Procter & Gamble.
