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Chemical Hub Concept
Challenged in India
Farmers in India are protesting the
compulsory acquisition of agricultural land
for the creation of special economic zones (SEZs)
in which the government hopes to create
large chemical complexes. West Bengal state
recently cancelled a petrochemicals park
project because of such protests. The
central government, (no comma) however, is
moving forward with plans for petroleum,
chemicals and petrochemical investment
regions (PCPIRs). Each of five zones will
include a refinery and downstream
petrochemical plants, with the complexes
expected to attract as much as $17.1 billion
(Euro 12.7 billion, RS 700 billion) per
zone. State governments would provide land,
water, electricity, and waste disposal
services, and the central government would
build the infrastructure. Industry sources
are concerned about the amount of land that
must be acquired, which must be achieved by
the state governments. Without the land, the
projects will not attract investors. Others
are concerned about the ability to attract
investors willing to serve as hub
developers.
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Upturn for Some
Chinese Intermediates, but will be Short
Lived
During late April and early May, prices for
purified Terephthalic acid (PTA) and
Monoethylene glycol (MEG) rose dramatically
in response to strong demand, some tightness
in supply and increasing raw material costs.
Prices for both intermediates rose over 8
percent during the period. A ramp up in
Polyester production in China was the key
demand driver. This increase in activity was
related to the potential for the Chinese
government to reduce rebates for
made-in-China textiles by mid-year. Many
producers were building inventory prior to
any action by the government. The delayed
start-up of a MEG plant in Taiwan also
contributed to the tightness in supply of
this product.
The PTA situation was expected to change for
the negative in June, however, with
anticipated lower demand and new capacities
coming on stream in China. Many South and
Southeastern Asian PTA producers began
reducing operating rates in advance of the
low Polyester production season. Rising raw
material prices are also making it difficult
to retain profit margins, and sellers
believe it will be difficult to pass through
any price hikes as demand weakens. Chinese
producers, however, have indicated they have
no plans to reduce operations, and with as
many as 4 new plants coming on stream,
volumes lost through other operating cuts
might easily cancelled out.
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Paint and Coatings
Market Experiencing Strong Growth in China
Manufacturing of consumer goods and
automobiles in China will contribute to
strong growth in the country's paint and
coatings sector, according to consulting
company IRL. The rate of growth of vehicle
ownership will increase by 12 percent per
year through 2010. China is the world leader
in the production of appliances such as
refrigerators, freezers, washing machines
and microwave ovens and as such has
experienced increasing demand for powder
coatings. Growth is expected to continue in
this segment as well, but increasing
competition has forced producers to lower
prices, resulting in lower profits.
With the 2008 Olympics scheduled to take
place in China, demand for sporting goods is
also on the increase. Consumer electronics,
toys, and other goods that require coated
plastics show tremendous potential for
growth. Annual per capita expenditure on
children's toys in China is only $3. Across
Asia it is $13, the global average is $34,
and in the US the figure is $340. As income
levels grow, spending on toys and other
items is expected to increase dramatically.
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Merck KGaA divested its generics business to Mylan
Laboratories for $6.6 billion (Euro 4.9 billion).
The combined companies will have approximately $4.2
billion in revenues and $1 billion in earnings,
placing the new entity as a leading generics player.
The current senior management team at Merck Generics
will be retained. The acquisition provides Mylan
with strong positions in regions outside of North
America and also expands the range of therapeutic
products and dosage forms it will be able to offer.
This purchase comes shortly after Mylan finalized
its acquisition of India's Matrix, the second
largest API manufacturer in the world.
BP announced that it has signed a gas
exploration agreement with the National Oil
Company of Libya (NOC) worth $900 million
(Euro 669 million). The deal includes
exploration of approximately 54,000 square
kilometers of the onshore Ghadames and
offshore frontier Sirt basins, and is one of
the BP's biggest commitments, according to
CEO Tony Hayward. BP's announcement comes
after Dow Chemical reported that it will
form a joint venture with Libya's National
Oil Corporation to expand existing
facilities at its Ras Lanuf petrochemical
complex. That project will include a new
Ethane cracker and associated Polyethylene
(PE) and Polypropylene (PP) production
capabilities as well as upgrades to a
Naphtha cracker and two PE plants, with
additional expansions for new natural gas
based hydrocarbon, plastics and chemical
facilities already planned for the future.
New Japanese laws governing mergers and
acquisitions could lead to increased
interest from foreign investors. Under the
new rules, overseas companies can use their
own shares to purchase Japan-based
businesses and no longer need to pay in
cash. Players in the pharma industry are
expecting an increase in foreign investment,
which is the world's second largest in this
sector. The Prime Minister hopes greater
overseas participation in the industry will
spark new activity, particularly in new drug
development and generic manufacturing.
Foreign direct investment (FDI) in Japan,
while increasing slowly, still remains much
smaller than that in most other developed
economies.
European Union statistics indicate that
exports of chemicals from the EU to Russia
have increased more than threefold since
2000. Revenues from chemical exports rose
from $4.5 billion (Euro 3.3 billion) in 2000
to $14.8 billion (Euro 10.9 billion) in
2006, an overall increase of 59 percent.
The Mexican Chamber of Deputies passed a
bill regarding development of policies on
biofuels and promotion of Ethanol as a
replacement for Methyl tertiary butyl ether
(MTBE) as a fuel oxygenate. The
Inter-Ministerial Rural Development
Commission will investigate the production
of Ethanol from sugar cane and maize,
options for biodiesel plants, and methods
for improving air quality. MTBE is imported
into Mexico, and the use of Ethanol (to make
Ethyl tertiary butyl ether - ETBE) would
reduce this reliance on external fuel
additives and could save the country as much
as $2 billion per year. Mexicans may resist
the change, though, since many fear that a
switch to Ethanol-based fuels will reduce
the availability of corn for corn flour
production, which is a key ingredient in
tortillas.
Strong demand for different types of glass
used in construction in Eastern Europe,
Russia and Turkey is creating a healthy Soda
ash market in Europe. Recently, demand has
also been growing for Sodium bicarbonate for
flue gas treatment and the stocking up by
bottle manufacturers in preparation for the
summer season. Many plants are running at
nearly 100 percent capacity, and often
buyers are looking to purchase more than
their contractual agreements specify. Even
producers expressed relief that additional
capacity has come on stream, notably a
further 350,000 tonnes/year at Magadi Soda
Company's plant in Kenya.
Unexpected production difficulties and
growing demand from downstream polyethylene
(PE) and Polyvinyl chloride (PVC) markets
have resulted in a tightening of the
Ethylene market. Rising feedstocks and the
tighter supply have led to some price
increases. Some analysts predict that
Ethylene, Propylene and derivatives markets
will get still tighter even though some
producers will debottleneck their plants.
The situation will change, however,
beginning in 2009, when several new Ethylene
facilities will come on stream in the Middle
East, Asia and Latin America. Until the new
capacity reaches the market, prices are
expected to continue to rise.
Demand for Propylene inChina is predicted to
increase by a factor of four in 2007, making
the country the largest importer in Asia.
Nearly 50 percent of the imported Propylene
will be converted to Polypropylene (PP).
Much of the material will come from new
crackers in Korea, Taiwan and Japan.
Successful product commercializations by
U.S. biotech firms is leading to
profitability and increasing investment in
the industry, according to Ernst & Young. In
2006, revenues of biotech companies grew by
14 percent, even without the $2.5 billion in
sales belonging to acquired companies Chiron
and Abbott Laboratories (new owners not
U.S.-based). Amgen and Genentech together
accounted for approximately 50 percent of
U.S. biotech revenue growth. Many smaller
firms also experienced significant relative
increases in revenue, indicating that the
industry is very healthy.
A shortage of Palm oil is driving the price
of this product to record levels. Spot
prices are 15-18 percent higher than they
were in March. The shortage is attributed to
lower than expected production levels (poor
harvest) and strong demand from China. Palm
oil is used by the biodiesel industry, which
has been hit very hard by the extremely high
prices. Competition from lower priced B99
out of the U.S. has forced reduction in
biodiesel production in Asia. Fatty acid
makers that use crude Palm oil as a
feedstock have also been forced to lower
operating rates because of the high prices.
The smallest producers are closing their
plants. Buyers are not interested in Fatty
acid products at current pricing levels (up
as much as 35 percent). 
Paint and coatings producers in Europe face
rising raw material and energy costs,
increasingly strict regulations and the
continued shift of manufacturing to lower
cost regions of the world. Resistance to
price increases in the consumer sector has
made it difficult to retain healthy margins.
Reach (registration, evaluation and
authorization of chemicals) goes into effect
in June, and companies have been investing
time and personnel resources into meeting
deadlines. Much remains uncertain about the
ultimate effect of the legislation,
particularly regarding availability of raw
materials, creating uncertainty for
producers. European coatings manufacturers
also must deal with the EU's new solvents
emissions directive that will establish
stricter regulations beginning in 2010.
Growth potential lies in developing regions
of the world, including Eastern Europe,
Russia and Asia (particularly China).
Innovation to meet regulator requirements
and changing customer demands will be the
key to success in both mature and emerging
markets. 
GE will sell its GE Plastics business to
SABIC for $11.6 billion (Euro 8.6 billion).
GE plans to buy back stock and restructure
the company with the proceeds. The company
put its plastic business up for sale after
it experienced declining profits in recent
years due to high raw material and energy
costs, oversupply of Polycarbonate, and
commoditization of other specialty resins.
SABIC outbid Basell and Apollo Management.
It will finance the deal with $8.7bn in
bonds and bank debt.