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Braskem Pursues Growth
Strategy with Ipiranga Deal; Future
Reorganization in Brazil Petchem Expected
Braskem, state controlled Petroleo
Brasileiro SA (Petrobras) and Grupo Ultra (Ultrapar)
announced the acquisition of rival
petrochemical producer, refiner and fuel
distributor Ipiranga for $4 billion. The
deal is expected to receive regulatory
approvals and be finalized by the end of
2007. For its $1.1 billion (Euro 825
million), Braskem will receive 60 percent of
Ipiranga's petrochemical business and one
third of its refinery operations. Petrobras
will take control of the remaining
petrochemical stake and one third of the
refinery operations for its $1.3 billion
investment. Ultrapar will get the final
third of Ipiranga's refinery operations and
4,240 gas stations for $1.6 billion.
Brazilian analysts believe the deal is well
balanced and distributes the assets without
creating market concentration. Service
station owners are somewhat concerned that
competition in distribution and resale of
fuels will be diminished, and Petrobras will
have even greater ability to control prices.
Labor unions representing workers at
Ipiranga facilities are protesting the sale
and demanding that pension benefits and jobs
be maintained. The workers will strike if
necessary, but prefer to avoid such action
if possible.
Braskem expects to achieve annual cost
savings of $700 million and will increase
its upstream integration in Ethylene and
Propylene to 85 percent. As part of the
deal, Braskem gains full control over the
Copesul cracker, which it plans to
debottleneck by the end of the decade,
further increasing polyolefins capacity by
as much as 250,000 tonnes/year.
Braskem also has projects in Venezuela,
including a 1.3 metric tonne/y Ethane-based
Polyethylene complex with PDVSA due to begin
operations in 2011 and a 400,000 tonne/y
Polypropylene complex with Pequiven due on
stream in 2009. The company will also obtain
competitively priced natural gas from
Venezuela, giving it a much more balanced
feedstock supply.
Once the Ipiranga deal is completed, Braskem
plans to make further acquisitions and will
look for partnerships in Bolivia, North
America and Europe. The goal for the company
is to become a top 10 player in
petrochemicals by 2012. There is already a
rumor that Braskem is interested in
acquiring Petroquimica Triunfo from
Petroquisa, a Petrobras subsidiary.
Petroquimica Triunfo, the only
non-integrated petrochemical company in
Brazil's Southern region, is a PE producer
that could never reach its full capacity of
160,000 tonne/y because of a lack of raw
materials. The acquisition by Braskem would
address this problem.
Petrobras also announced that it will spend
$12 billion on foreign investments,
including $3.4 billion in Latin America.
Argentina is a key area for the company,
where it has committed $2.5 billion.
Projects continue in Brazil as well, with
$8.3 billion marked for the new Rio de
Janeiro Petrochemical Complex (Comperj),
which is supposed to come on stream in 2012
and process 150,000 bbl/day of heavy
petroleum/day. Partners currently include
Brazil's National Development Bank (BNDES)
and Grupo Ultra, and others will be
determined within a year. Petrobras is also
involved in planning the Petroquimica do
Sudeste complex, which is to be built by
Petrobras and Suzano on the Rio-Sao Paulo
axis.
Grupo Ultra will strengthen its position as
leader of Brazil's fuel distribution sector,
controlling 75 percent of the market once
the Ipiranga deal is complete. The
acquisition expands the company's presence
in the southern and southeast region of the
country. Grupo Ultra expects to receive $2.4
billion in revenues and a 75 percent
increase in earnings before interest, tax,
depreciation and amortization.
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Univar, Brenntag Vie over
Chemcentral
Following an announcement by
Amsterdam-based Univar that it would
acquire Chicago-based Chemcentral
for approximately $600 million (Euro
456 million), Germany's Brenntag
made a rival bid of $700 million
(Euro 526 million). The rival offer
includes $22 million that
Chemcentral would have to pay to
Univar for terminating the deal in
favor of another offer. Univar
responded by raising its offer to
$650 million (Euro 494 million) and
the two companies signed a revised
agreement, part of which is that
Chemcentral will not seek any other
alternate offers.
The purchase will provide Univar
with access to a more diverse set of
North American customers with
different product needs, thus
providing opportunities for both
businesses to grow. Some in the
chemical distribution sector
anticipate that this deal will spur
others such as Ashland and Brenntag
to look for acquisition targets in
order to remain competitive. Others
do not believe it is indicative of
future M&A activity, noting that
specialty chemical firms in
particular will continue to require
the services of smaller and even
niche-type distributors.
The Univar-Chemcentral acquisition,
however, is the largest of a recent
spate of mergers in the chemical
distribution market, where $5
billion worth of transactions
occurred in 2006. Some consolidation
within the distribution sector will
benefit producers, making it easier
for them to deal with fewer
organizations. Prices may also
initially decline as efficiencies
are gained. If the M&A pace keeps
up, however, the fewer and larger
distributors that would result could
have more leverage and ability to
raise prices.
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China Approves Joint Venture Between
ExxonMobil, Sinopec and Saudi Aramco
The Chinese government granted
business licenses to operate a $5
billion refiner-cracker joint
venture between ExxonMobil, Sinopec,
Saudi Aramco and the Fujian
province. Fujian Refining and
Petrochemical Co. will expand an
existing refinery in Quanzhou,
Fujian province from 4 million tonne/y
to 12 million tonne/y. The project
also includes an 800,000 tonne/y
Naphtha cracker, an 800,000 tonne/y
Polyethylene (PE) unit, a 400,000
t/year Polypropylene (PP) unit and
an aromatics complex to produce
700,000 tonne/y of Paraxylene (PX)
and 300,000 tonne/y of Benzene. A
300,000 tonne crude berth and power
cogeneration plant will also be
built. Sinopec SenMei (Fujian) will
manage and operate about 750 service
stations and a network of terminals
in Fujian province. The joint
venture will be owned by Sinopec
(55%), ExxonMobil China Petroleum
and Petrochemical (22.5%) and Saudi
Aramco Sino Co (22.5%).
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UK Sees Biotech as Key to Future
Success of its Chemical Industry
There are 400 biotech companies in
the UK, with about three quarters
involved in the health sector. The
remainder are pursuing industrial
applications for biotechnology,
particularly the use of enzymes,
microbes and plant based products
for the manufacture of chemicals,
materials and fuels useful for
producing higher value added
commodity and specialty chemicals
and in applications in the food,
pulp and paper, pharmaceutical,
nutraceutical, and energy sectors.
The goal is to replace fossil fuels
as the key feedstock for energy and
industrial raw materials, reducing
costs and environmental impact.
Expertise in the UK revolves around
the areas of biocatalysts,
production of biomass, and the
development of biosensors.
Several agencies and research
organizations are involved in the
effort, including Centre of
Excellence in Biocatalysis,
Biotransformation and Biocatalytic
Manufacture (CoEBio3), the National
Industrial Biotechnology Facility (NIBF),
John Innes Centre, the Institute of
Grassland and Environmental
Research, the Centre of Novel
Agricultural Products (CNAP) and
Rothamsted Research. The UK
government's Technology Strategy
Board has recognized bioscience as
one of its seven key technology
areas. The Bioscience for Business
Knowledge Transfer Network assists
UK companies in creating a
sustainable bio-based economy.
Some UK companies involved in
industrial biotechnology efforts
include Ingenza, Novacta
Biotechnology, Baxenden Chemicals,
EKB Technology, NPIL Pharma, British
Sugar Group, Bethan Technology, GW
Pharmaceuticals, and Amarine
Neuroscience.
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Reach Extends its Reach, Costs Being
Elucidated
As companies begin the initial work
required to pre-register chemicals
to be manufactured in or imported
into the European Union in
accordance with the EU's program for
registration, evaluation and
authorisation of chemicals (Reach),
the true costs of compliance are
becoming apparent. According to
Wolfgang Ihme, head of Task Force
Reach at Swiss-based contract
research firm RCC Ltd., small volume
producers and exporters with
multiple products are likely to see
Reach costs of more than $1 million,
while large producers of high-volume
chemicals exported to Europe will
have costs of several millions of
dollars, even though consortia
formed of producers of common
products will make it possible to
share the costs.
The EU estimates that Reach will
cost the chemical industry $3
billion over the 11 years it will
take to complete its implementation.
This number seems to be very
conservative. BASF alone expects to
spend $724 million over 10-12 years.
Concern over Reach in the U.S. is
not just related to potential costs
for compliance. Democrats in the
U.S. Congress are actively
considering ways to modernize the
risk-based Toxic Substances Control
Act (TCSA) and bring it more in line
with Reach's "precautionary
principle." State and local
legislatures in the country are also
beginning to evaluate and in some
cases adopt Reach-like regulations.
Nearly 80 state legislative
proposals were considered in 2006,
and as many as 150 are expected to
be proposed in 2007. Very few of the
proposals became law in 2006, but
many in state government believe
that a Reach-like approach would be
more effective, even though there is
no evidence to support such a view.
Key industry leaders are concerned
that innovation and product
development will be harmed by such
legislation.
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Total's newly appointed CEO
Christophe de Margerie was held for
questioning and placed under formal
investigation in relation to a
judicial investigation of the South
Pars project in Iran. The company
entered into agreements in 1997 with
National Iranian Oil Company for
this project. CFO Rovert Castaigne
and Executive VP of gas and power
Philippe Boisseau were also
questioned but not charged. Margerie
is also under investigation in a
separate inquiry looking into oil
purchases he made under the UN
oil-for-food program in pre-war
Iraq. 
Russia announced that it has plans
to raise the average domestic
natural gas price for domestic
industrial consumers by 50 percent
(an increase of $100 per thousand
cubic meters) by 2010. The price
would be raised over the next three
years. Russian natural gas prices
are regulated by the government
which has predicted that at current
consumption rates, the country could
face a shortage of as much as 4.2
billion cubic meters (bcm) in 2007,
and as much as 46.6 bcm by 2015.
Textile producers in Zhejiang
province, a major production area,
have difficulty retaining workers
due to the increase in job
opportunities made possible by the
growing Chinese economy. Many did
not return following the Lunar New
Year holiday. Producers of Purified
terephthalic acid (PTA),
Monoethylene glycol (MEG) and
Polyester filament yarn have been
affected by the lower demand, as
prices for these products have
declined. Polyester manufacturers
have not reduced production
capacity, though, as they can still
achieve good margins. Many hope that
the situation will be addressed
before the peak season begins in
April. Workers are expected to
return at least for this busy and
more profitable period.
An increase in the sugar cane
harvest will enable Brazil to
produce 5.26 billion gallons (20
billion liters) of Ethanol in 2007,
a 10 percent increase over the
previous year, according to the
Agriculture Ministry. Domestic
consumption should be about 3.95
billion gallons (15 billion liters)
in 2007. Some experts predict that
Brazil will be able to export
approximately 1 billion gallons (3.8
billion liters) in 2007, 12% more
than official export estimates for
2006. Braskem predicts that the
Ethanol output in Brazil will double
in the next five years. 
Higher Benzene costs lead U.S
producers to raise the Cumene
formula contract price by 6 percent.
The formula price is based on the
cost of Benzene and the price of
refinery grade Propylene. Prices for
Cumene in February were down as a
result of lower Benzene prices.
Major Cumene producers in the U.S.
include Flint Hills Resources,
Georgia Gulf, INEOS, JLM, Shell and
Sunoco.
Seasonally lower demand and strong
inventories have led to further
declines in the spot Methanol market
in the U.S. Trades for March at
$0.75/gal (Euro 0.56/gal) were the
lowest seen since September 2005.
Contract prices for April are down
about 40 percent compared to peak
pricing seen in January. Many market
players expect the prices to
continue falling as additional
capacity comes on stream beginning
in 2007 in China. The gap between
demand and production capacity is
expected to grow to more than 15
million tonnes by 2009.
Some Chinese traders that have
imported blow molding grade high
density Polyethylene (HDPE) are
looking for re-export opportunities
in response to weak demand in the
domestic market. The quantities of
re-exported material have not
impacted prices in China or the
Middle East, but could if more
traders pursue this option. It is
not preferred, because the margins
are very small. Virgin plastics
producers in China are also facing
competition from recycled material
that is both domestically collected
and imported. 
In response to recent increases in
demand for some grades of
Polyethylene (PE) in Mexico,
Petroleos Mexicanos (Pemex) raised
prices around 6 percent. Low density
PE (LDPE) prices were increased 6.5
percent, and linear low density PE (LLDPE)
prices were hiked 5.8 percent. Even
with the increases, prices of
domestic PE grades remain
significantly lower than the prices
of imports.
As of March 30, 2007, 63 ships were
idled as a strike by the
Confederation Generale du Travail (CGT)
trade union at the Fos-Lavera oil
and gas terminal in southern France
went into its 17th day. Dockers
stopped working to protest a new gas
terminal at the port that is
operated by Gaz de France, which
will not use port stevedores. As a
result of the strike, 30 oil
tankers, six liquefied petroleum gas
carriers and 18 chemical carriers
have been held up. Losses for the
oil industry are estimated to be $33
million (Euro 25 million) so far,
while the chemical industry has lost
about $13.2 million (Euro 10
million).