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Hurricanes Taking Toll on Petrochemical Industry
Following Hurricane Gustav, many chemical plants in
Louisiana remained without power for an extended
period. Three Caustic soda producers temporarily
declared force majeure (FM), contributing to
heightened tightness in that market. Two Ethylene
glycol manufacturers also declared FM in the wake of
the storm, as did a Melamine producer. Fortunately,
power was restored within a few days, and most
manufacturers were able to return to normal
operations within a week or so.
Before companies in Louisiana could fully recover
from Gustav, firms located in the Houston area had
to prepare for the onslaught of massive Hurricane
Ike. Up to 100 petrochemical facilities in Texas
were affected by the storm, but none seriously. As
with Gustav, the major issue has been power
restoration, and it may takes several weeks for many
plants to return to business. A great number of
facilities were still working to restart operations
more than two weeks after the storm. Chemical
shipments were down dramatically, reflecting the
lost production and damaged shipping infrastructure.
Two drilling rigs were torn from their moorings.
Practically all crude oil and about 94 percent of
natural gas production in the Gulf remained shut in
several days after Ike passed through the area. The
port of Houston was clogged with debris and over a
hundred ships lingered, waiting to unload. The Coast
Guard was working to clear ship lanes, but was also
struggling without power. It will take weeks to make
the Houston Ship Channel fully navigational.
There is concern about Ike's possible impact on the
already struggling U.S. economy. In addition to
potential fuel shortages and higher prices, many
industries that have remained strong during the
downturn could be hurt by the extended shutdowns of
chemical plants in the Gulf region.
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Chemical M&A Continues
with Big and Small Deals
While big deals such as the acquisition of
Rohm and Haas by Dow Chemical and the
takeover of Hercules by Ashland, smaller and
medium-sized transactions will likely be as
important. In the first half of 2008, $36
billion worth of M&A deals took place, while
in all of 2007 deals totaled $55 billion.
The number of deals above $25 million was
just 34 in 2006, however. There were 81 such
high-value deals in all of 2007, reflecting
the deepening credit crisis. Mergers and
acquisitions will continue, though,
according to analysts, because the key
drivers are still in place. In many cases,
the economy has led companies to identify
businesses ripe for divestiture. Some also
expect that the Dow/Rohm and Haas deal to
serve as a catalyst for other companies
considering a move of their own. More and
more deals will take place in Asia, the
Middle East and Latin America as those
markets look to consolidate and
international companies look to gain a
foothold.
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Top 100 Companies
Enjoyed a Strong 2007
BASF is once again first on the annual lists
of top chemical companies according to two
leading chemical industry magazines.
Chemical firms are ranked by annual sales in
2007. Dow Chemical, the chemical operations
of ExxonMobil and Shell, LyondellBasell,
INEOS, SABIC, Sinopec, Mitsubishi Chemical
and DuPont round out the top ten on the ICIS
Chemical Business list, while Chemical
Week's top ten includes Dow Chemical, INEOS,
ExxonMobil and Shell, Sinopec, DuPont, SABIC,
Total and Mitsubishi Chemical. Both lists
reflect the global nature of the industry.
Demand growth in emerging countries in Asia,
Central and Eastern Europe and Latin America
led to strong growth, despite the slowdown
in North America. Both volume and price
increases were achieved, with fertilizer and
agchem companies making the greatest gains.
Acquisitions helped others advance on the
list. Overall profits grew by more than 12
percent, while the operating margin for this
industry increased by 6 percent.
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Paraffin Wax Cartel
Members Fined
The European Commission (EC) fined nine
Paraffin wax producers $952 million (Euro
676 million) for operating a pricing cartel
between 1992 and 1995. Companies in the
cartel include ENI, ExxonMobil, Hansen &
Rosenthal, Tudapetrol, MOL, Repsol, Sasol,
RWE and Total. Although a member of the
cartel, Shell was not fined because it
cooperated with the EC. Sasol was fined the
largest amount as the leader of the group,
and ENI's fine was higher than the others,
because they have been accused of
participating in similar cartels in the
past.
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FDA Expands Workforce
by 1,300, Upgrades IT
The FDA has expanded its personnel by about
10 percent, adding about 1,200 new
employees. The Center for Drug Evaluation
and Research (CDER) will get 663 of the new
employees. About 75 percent have started
working, an additional 11 percent will start
by the end of September, and another 11
percent are undergoing background checks. Of
those already working, 85 percent are
professionals, such as chemists, biologists,
pharmacologists, statisticians, medical
officers, microbiologists and field
inspectors.
Overseas offices will be established in
China, India, Europe, Latin America and the
Middle East, and some country directors,
technical experts and inspectors have been
hired already. These jobs are going to
existing FDA personnel to ensure that people
with experience fill the positions.
The agency also announced that it will
invest $2.5 billion over the next 10 years
to upgrade its IT systems. Ten different
contractors will work to implement two new
data management systems for data tracking.
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Petchem Prices
Declining in Asia
The falling price of crude in the end of
August and first half of September had a
dramatic impact on prices of commodity
chemicals in Asia, which have declined
considerably. Even the recent spike in crude
oil values is not likely to have an impact.
Many expect downstream demand, which is
already weak, to slow down further, as
buyers wait to see if prices will go still
lower. Styrenic compounds have seen spot
prices drop as much as 8 percent, while
Benzene and Toluene fell to a seven-month
low. Declining raw materials costs are
expected to lead to some of the lowest
prices seen in Asia for solvents in some
time. Polyolefin prices experienced the
biggest drop in prices in the last 10 years.
Traditionally, downstream consumption rises
in the third quarter, but restrictions on
the production and transport of chemicals
surrounding the Olympic Games in China
dramatically affected the market. Prices
could drop even further with the upcoming
Chinese National Day holiday in early
October. The subprime crisis, growing global
economic slowdown and recent crises in
Western financial markets, combined with
increased capacity in the Middle East, will
further exacerbate the market conditions in
Asia. As a result, economists are predicting
a major downturn in the region.
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Pre-registrations for
Reach Surpass 350,000 While Agency Faces
Shortfall
As of Sept. 15, 2008, 352,641
pre-registration applications for the
European Union's Registration, Evaluation
and Authorization of Chemicals (Reach)
program were received by the European
Chemicals Agency (ECHA) -- a number far
greater than the 200,000 the agency
expected. The ECHA fears that companies are
pre-registering substances that they will
not pursue to full registration, and that
revenues will be thereby lower than
expected. Two companies, for example, filed
pre-registrations for the entire Reach
inventory; European distributor Azelis is
one of the two. The company, which sells
more than 40,000 products, took this action
to prevent the possibility of unknowingly
selling unregistered substances.
The ECHA announced that it was changing the
rules for Reach pre-registration,
restricting the amount of substances that
can be pre-registered electronically to
10,000. Approval from the ECHA must be
obtained if a company wishes to pre-register
a greater number. Some complained that the
agency previously encouraged companies to
err on the side of caution and pre-register
all substances they weren't sure about, but
that the agency is now saying that only
products that will ultimately be fully
registered should be submitted. The
pre-registration time period closes at the
end of November 2008.
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Akzo Nobel is implementing a new cost
reduction program to achieve annual savings
of $100 million. The program includes
elimination of 3,500 positions --about 5.8
percent of its workforce -- by 2011. The
company will also defer a share buyback
program and a $2.6 billion (Euro 1.8
billion) dept repayment plan. 
Repsol will invest $1.4 billion (Euro 1
billion) in its Sines, Portugal, facility to
expand its cracker capacity and polyolefin
units, which are anticipated to be online in
2011. This announcement increases the
expenditure initially reported and delays
the start-up by one year.
SAFC will invest $30 million (Euro 20.7
million) to increase capacity for the
production of highly potent APIs in
Wisconsin. The new facility, located in
Verona, will be built on 15 recently
acquired acres and will include a 45,000ft²
(4,200m²) building that houses two
4,000-litre reactors, giving the company the
ability to produce large quantities of
highly potent compounds. The plant should be
operational by the end of 2009. SAFC
recently completed a $15 million expansion
of capacity for highly potent APIs at its
Madison, Wisc. site.
The final ouster of the Thai prime minister
following weeks of protest and unrest in the
country does not provide much reassurance to
members of the chemical industry. The
political turmoil in the country has
resulted in reduced foreign investment,
severely limiting access to capital.
Domestic consumer demand has also declined
due to the uncertainty in the country. Major
government projects, such as a mass-transit
railway, are also likely to be delayed. And
there is no indication that the person who
assumes power will be able to provide
stability.
BASF has made a $5.5 billion (Euro 3.9
billion) offer for Ciba Specialty Chemicals,
and Ciba's board has recommended that
shareholders accept it. The acquisition will
strengthen BASF's position in specialty
materials with the addition of Ciba's
operations in plastics additives, coating
effects and water & paper treatment
chemicals, which BASF will merge with its
performance products segment. Ciba gains
access to BASF's global research, production
and marketing capabilities and its
integrated position in raw materials and
intermediates. BASF will establish a global
operating division at Ciba's headquarters in
Basel, Switzerland, and retain its R&D site
there. BASF expects the deal to be finalized
some time the first quarter of 2009.
According to Frost & Sullivan, the $22
billion Chinese pharma market (2007) will
grow to be one of the top five in the world
by 2010. Between now and then, they predict
increased consolidation of the 30,000 plus
companies as well as growing investments in
R&D. The government aims ultimately to have
20 to 30 large players that produce high
quality products. Currently, generics for
domestic consumption and advanced
pharmaceutical ingredients (APIs) for export
account for most Chinese pharma sales. The
recent heparin tragedy and other incidents
have highlighted, however, quality issues in
the country's pharma sectors. To remain
successful, companies will need to improve
quality and service and perform at
international standard levels -- rather than
focusing solely on offering a lower cost.
China National Offshore Oil Corp. (CNOOC)
announced plans to invest about $6.6 billion
to expand its refining and Ethylene
production capacity. Refining capacity will
grow from 12 million to 22 million
tonnes/year. Construction is slated to begin
in 2009, with the facility becoming
operational in 2011.
Ethanol producers in Brazil recently
announced investments totaling about $4
billion in its sugar cane-to-Ethanol
operations. Bunge and Itochu will spend $800
million on two plants, while ETH Bioenergia
will spend $3.3 billion on 10 new facilities
by 2013.
PPG Industries will acquire the North
American coil and extrusion coatings
business of BASF for an undisclosed amount.
Production will continue from BASF's plants
for approximately one year, after which time
manufacturing operations will be moved to
PPG facilities. PPG plans to retain the
technical and sales capabilities of the
business to become better positioned to
provide innovative technologies,
high-quality products and superior customer
service, according to PPG Senior Vice
President William Wulfsohn. 
Hariolf Kottmann has been named as the new
CEO of Clariant, effective Oct. 1, 2008.
According to the company, Kottmann replaces
Jan Secher, who is leaving to pursue new
activities. Kottmann is leaving his position
as board member of SCL Carbon. Previously,
he also served as a board member with
Celanese and the former Hoechst AG. Some
analysts were surprised that Clariant made
the personnel change in the midst of a major
restructuring and view it as a sign of
instability. Others see Secher's departure
as an indication that the restructuring
program is not working.
Jacek Krawiec, deputy CEO, has been
appointed as CEO of PKN Orlen, replacing
Wojciech Heydel, who recently announced his
resignation. Analysts were expecting the
change in leadership; Heydel did not agree
with many of the strategies preferred by the
Treasury Ministry, which is the largest
shareholder. These strategies include
exiting the chemical and fertilizer
businesses and finding additional sources
for crude oil other than Russia.
Pieter Cox, Chairman and Director of Sasol,
is resigning from the company effective Nov.
28, 2008. Current board member Hixonia
Nyasulu has been appointed as his
replacement. Professor Juergen Schrempp has
been named as lead independent director.
