ADI Chemical Market Resources Newsletter
April 19, 2010

AMERICAS

U.S plastic bag update

U.S. to levy fees on bags from Vietnam, Taiwan, Indonesia

The U.S. government plans to impose final duties of up to nearly 96 percent on plastic shopping bags from Indonesia, Vietnam, and Taiwan. The rulings from the Department of Commerce impose specific penalties on 18 companies from Vietnam, two from Indonesia, and two from Taiwan, in addition to general duties on all imports from those countries. The amounts ranged from 69-85 percent for Indonesia, 36 percent to almost 96 percent in Taiwan, and 52-76 percent in Vietnam.

The U.S. government announced the dumping margins and amounts of subsidies in two late-March decisions. The U.S. International Trade Commission is expected to issue its final ruling on April 14.

The U.S. also said plastic bags from Vietnam benefit from subsidies ranging from 0.44 percent to 52.56 percent. It’s the first time the U.S. government has applied its anti-subsidy/countervailing duty laws to Vietnam.

More CA communities take steps to ban PS packaging and plastic bags

Monterey County in California has banned polystyrene take-out packaging, while Santa Cruz County has taken the first step toward a ban on plastic bags and a fee on paper bags.

Monterey County supervisors on April 13 approved its ban on PS take-out packaging in all unincorporated areas of the county. The ban will apply to all disposable food service items, including plates, cups, bowls, trays, straws, cup lids, utensils, and hinged or lidded containers and cartons. It will take effect on Nov. 10, as the county built in a grace period for restaurants to deplete their current supplies.

Santa Cruz County, Marin County, and Monterey County, as well as 31 cities in California, now have PS bans. In addition, Los Angeles and four other counties in California have PS bans at citywide facilities and events. Further up the coast, Seattle, Portland, and Issaquah, Wash., also have enacted PS bans.

In Santa Cruz, supervisors agreed to go ahead with the recommendation of the county’s public works department to ban plastic bags and place a 10-cent fee on paper bags that would escalate to 25 cents in the second year.

There are currently 12 plastic bag bans in the United States, four of them in the California cities of San Francisco, Fairfax, Palo Alto, and Malibu. The District of Columbia also has a 5-cent tax on single-use plastic carryout bags.

LyondellBasell may face U.S. probe

LyondellBasell (LBI) may face a U.S. bribery probe after telling prosecutors about a potentially improper payment linked to a project in Kazakhstan. LBI’sreview involves a petrochemical complex in western Kazakhstan where LyondellBasell was a partner until earlier in 2010. A LyondellBasell payment of USD 7 million made about two years ago to an individual affiliated with a Kazakh company, SAT & Co., is at the center of the internal investigation. The payment may not have followed LyondellBasell’s required approval process.

LBI told the Justice Department it uncovered conduct that raised compliance issues under the US Foreign Corrupt Practices Act. The FCPA makes it a crime for companies with US operations to bribe foreign officials. A review of international holdings by a management team installed after the bankruptcy triggered the disclosure. While the probe would be unlikely to affect LBI’s emergence from bankruptcy, any FCPA investigation could result in fines and indictments.

EUROPE

BASF to establish Polyurethane System Houses in China and Colombia

BASF has announced plans to establish two new polyurethane(PU) solutions system houses at Chongqing (China) and Cartagena (Colombia).

The Chongqing PU system house will have local production with sales, technical service, and development personnel to meet the demand of the growing Chinese markets, including construction, appliance, transportation, and footwear. Start-up is expected by 2012.

The Cartagena system house will meet the demand of the growing markets in Colombia, Ecuador, and Venezuela. BASF intends on catering to business opportunities in industries like appliance, transportation, construction, and footwear. The new site is expected to be operational by the first quarter of 2011.

Comments: The advantage polyurethane Systems houses provide, is that they play a major role in high-value-added flexible/rigid polyurethane foams. BASF has currently 38 polyurethane system houses located globally. These system houses suppliespremixed major components for foaming for targeted applications. These include polyol, isocyanate, catalyst, and reaction systems to the end-use suppliers for foam-in-place applications.

BASF’s move to establish a polyurethane system house in Chongqing, China, and Cartagena, Colombia; will allow it to take advantage of the growing markets in the region. The company will also be able to give technical services as new applications develop in the region.

Lukoil’s Russian expansion plan was delayed again

Russian oil group Lukoil has put back the planned launch of a major €2.6 billion (USD 3.5 billion) gas-chemicals expansion project in southern Russia to 2016 or 2017.

The lingering global economic recession has played a significant role in the group’s decision to postpone the completion of the Caspian gas-chemical complex and the expansion of its existing Budyennovsk chemical cracker. The complex was originally set to go on stream this year but has been postponed until 2013.

Lukoil planned the complex in Budyennovsk with a 15 billion m3/year gas processing capacity. The new chemical complex will source the Caspian natural gas for production at its new 600KTA PE plant.

Comments: The Russian Oil and Gas industry is highly vertically-integrated. The Lukoil group is one such key player in the Russian O&G landscape, and it has established itself as one of Russia’s largest crude oil producers. The group was formed in 1991 as a state-owned concern. It was born out of the conglomeration of three oil producers (Langepasneftegaz, Uraineftegaz, and Kogalymneftegaz) and two oil refineries (Permnefteorgsyntez and Volgograd Refinery). Its Lukoil-Neftekhim division principally manages the group’s petrochemicals activities.

Lukoil’s gas-chemicals expansion project formalized upon the discovery of six important oil and gas fields in the Caspian Sea. It is a key component of Lukoil’s petrochemical investment and expansion strategy, which is expected to amount to about USD 4 billion by 2017. As part of the project, Lukoil-Neftekhim has planned a world-class petrochemical complex in the Budyennovsk region of southern Russia. The complex will source feedstock from Lukoil’s offshore oil and gas fields in the Caspian Sea. Construction was initially intended to start in 2009 and completion was expected by 2014. The gas-processing facilities will be linked by a 230 km (144 miles) feedstock pipeline to the Budyennovsk complex, which will include 600 KTA ethylene,450 KTA HDPE, and 200 KTA ethylene glycol units. Lukoil’s existing petrochemicals complex at Budyennovsk has a 350 KTA ethylene cracker, which is suffering from low capacity utilization owing to feedstock shortages.

The Russian economy had been growing at a robust annual rate of 7 % in the years building up to the recession, consequently boosting its petrochemical demand. As a result, several new petrochemical projects were planned by Russian petrochemical majors in a bid to cash in on increased local demand, while also catering to export markets by Russia’s inherent feedstock advantaged position. However, with the economic recession taking its toll on several project investment plans across the globe, Lukoil to has decided to put new projects on hold after feeling the pinch of poor economic results. Several other Russian producers have also delayed their capacity expansions, and are waiting to ride out the effects of the downturn. Russian demand for polymers is expected to tread the path of recovery in the next few years and reach pre-recession levels by around 2014.

W. R. Grace to supply polypropylene catalysts to Borealis

W. R. Grace & Co. has signed a multi-year agreement to supply polypropylene catalysts to Borealis AG. Financial terms of the deal however remain to be disclosed.

Grace and Borealis have worked together for several years. In 2002, Grace acquired Borealis catalyst manufacturing assets, including catalyst production facilities in Stenungsund, Sweden, and catalyst manufacturing equipment located in Porvoo, Finland. Through that transaction and a related licensing agreement, Grace began to produce, market, and sell Borealis’ proprietary catalysts on a global basis.

Comments: Grace Davison is well known for its polyethylene catalyst offerings. In 2002, Grace diversified its polyolefin catalyst business into PP via the acquisition of Borealis’s catalyst assets in Europe. This gave them access to spherical MgCl2 and hence to PP catalysts with excellent morphology. Following the acquisition, Grace developed a commercial PP catalyst product which they offer under the band name Polytrak® – the product has had a positive response in the market – especially for bulk and CSTR processes. Since 2002, Grace has been involved with Borealis in developing catalyst technologies and supplying their PP catalyst requirements. The multi-year supply agreement is a continuation of this long-standing relationship.

 Ineos confirms relocation of headquarters from the U.K. to Switzerland

Ineos has confirmed plans to relocate its headquarters and tax residence from Lyndhurst, U.K. to Lausanne, Switzerland. Ineos announced last month that it was considering plans to shift its HQ to Switzerland. The decision follows consent from Ineos’s lenders to the move. Ineos’s day-to-day operations in the U.K. and elsewhere are not affected by the change.

Comments: Ineos is Britain’s largest private company, with over 80 affiliated businesses located globally.

Ineos’s acquisitions in the recent past have riddled it with debt to the tune of about USD 9 billion, which has proved to be a thorn in its corporate flesh. More recently, Ineos had to shelve options for an IPO on account of its bad debt. The company thus has been trying to adopt several new strategies to reduce debt and stabilize finances. To this end, it has sold non-core petrochemicals business units – Ineos recently sold its Fluorochemicals division to Mexichem and is looking to sell its ChlorVinyls division as well. Ineos has also been actively seeking partnerships with players in the Middle East for JVs or for selling assets. Ineos estimates that as the world economy emerges from recession, an improving financial performance, coupled with changes in UK tax legislation would result in significant levels of additional tax being payable by its businesses. Therefore, to augment cost savings and boost its balance sheet, the new move by Ineos to switch its headquarters to Switzerland comes as a bid to reduce the amount of taxes the company pays. The change in headquarters could potentially result in cash tax savings of about €450 million (USD 599 million) by 2014 However Ineos’s relocation is not expected to curb its investments in the UK.

Total JV inaugurates Bioplastics Plant

Futerro, a 50-50 joint venture between Galactic (Brussels) and Total Petrochemicals, has inaugurated a previously announced bioplastics pilot plant at Escanaffles, Belgium. The partners will develop technology at the plant to produce polylactic acid (PLA) from renewable vegetable sources. Futerro is the first company to operate this type of unit in Europe.

The plant has a capacity for 1.5 KTA of PLA and represents an investment of €15 million (USD 20.3 million). The technology which is being tested at the plant comprises two main steps: preparation and purification of the monomer, lactide, from lactic acid, which is obtained by fermenting sugar, mainly from beet; and polymerization of the monomer to obtain biodegradable PLA granules.

Comments: PLA is the most widely used bioplastic material – only next to thermoplastic starch (or TPS) blends. Europe is expected to be the largest consumer of bioplastic materials and the development of PLA assets in this region is timely as the PLA demand is expected to see high growth rates in the next 5-10 years. Currently, most of the PLA consumed in Europe (for that matter most parts of the world) has been supplied by NatureWorks from their production assets in the US. This has prompted regional interests to establish PLA manufacturing capabilities to satisfy the local demand. Futerro’s inauguration of the new plant is a step forward in increasing the availability of domestically produced PLA in Europe. Natureworks is also planning on a production facility in Europe to cater to their customers in the region.

Galactic is well-known as one of the major lactic acid, and lactide producers with a total capacity of 100 KTA. The birth of Futerro was the result of a JV with Total in 2007 and the plant has finally come to fruition. Total, like various other petrochemical majors, has invested in the renewables business and this marks their entry into the bioplastics realm. Total’s knowledge and experience in the plastics business, combined with Galactic’s history/expertise in biobased processes for the monomer – makes them an ideal combination. In the near future, the capacity is expected to expand significantly; this will however depend on how Natureworks’ European plans materialize.

MIDDLE EAST & AFRICA

Sharq completes expansion at Al Jubail

Eastern Petrochemical Co (Sharq) has started commercial production upon completion of an a2800 KTA expansion at its Al Jubail petrochemical complex. The expansion will boost Sharq’s production at the complex to about 5000 KTA of petrochemicals.

Comments: Eastern Petrochemical Co (Sharq) represents a 50-50 joint venture between SABIC and the Saudi Petrochemical Development Company, which is a Japanese consortium led by Mitsubishi Corporation. Sharq was established in 1981 and the complex came on stream in 1985 with a focus on manufacturing Ethylene Glycol, LLDPE, and HDPE.

In 2004, SABIC’s board announced an investment of USD 6.4 billion as part of a strategic initiative geared towards the expansion of its global petrochemical capacity. Sharq received an investment amount of USD 2.28 billion, aimed at increasing its ethylene and downstream capacities located in Jubail, Saudi Arabia.

The Sharq expansion project was initiated in 2005 and has been its third major expansion project since it first came on-stream in 1985. Previous expansions occurred in 1993 and 2001. The recent expansion has cumulatively added about 2800 KTA of ethylene, LLDPE, and HDPE capacity to the plant. Sharq is the world’s largest single ethylene glycol manufacturing complex. In addition to the capacity expansions, the project has aimed to enhance Sharq’s position as the world’s single largest producer of ethylene glycol.

SABIC develops advanced technology for the manufacture of polypropylene

Saudi Basic Industries Corporation (SABIC) has developed more advanced technology for the manufacture of polypropylene. This is a fourth-generation catalyst that can be used in several vital applications, the most important of which are packaging, carpets, piping, and automotive parts. This catalyst is a technological breakthrough, being the first of its kind developed in the Gulf and Middle East. The new catalyst has been applied commercially in the SABIC affiliate, Saudi European Petrochemical Company.

Comments: Middle East has emerged as the global supply center for polyolefins promoted by low-cost feedstock, access to investment capital, and strong government support. One of the major interests in the Middle East region – especially in Saudi Arabia is to ensure supply security for critical specialty raw materials used in polyolefin production – such as catalysts, co-catalysts, additives, etc. SABIC is the largest and the most significant player in the region established the 1st polyolefin catalyst plant in the region followed by a recent JV with Albermarle to produce aluminum alkyl cocatalysts in the Kingdom. As expected SABIC, supported by its size and global reach, continues to lead the region in terms of technology- the recent development of the 4th generation PP catalyst is another case in point. This will essentially allow them to keep pace with the modern catalyst systems and their product breadth while assuring self-sufficiency.

ASIA-PACIFIC

Indian Oil forms JV to build SBR plant in India

Graham Packaging enters China via acquisition

Graham Packaging expects to acquire China Roots Packaging a plastic container manufacturer in Guangzhou, China. Graham has signed an agreement to acquire, from Malaysian-based conglomerate PCCS Group Berhad, all of the shares of Roots Investment Holding Private Ltd, which will be the sole equity holder of China Roots.

China Roots operates a plastic container plant in Guangzhou, which makes containers and closures for food, health care, and petrochemical products.

The deal is expected to close during the second quarter of 2010. The purchase of China Roots will be the first operation for Graham in China.

Comments: Graham’s move to acquire China Roots will allow the company to secure a foothold in the growing Chinese market. Graham is globally well positioned to market their product with production facilities in North America, South America, and Europe.

The growth for Graham packaging is secured in both the automotive lubricant sector and the food and beverage market. The Chinese automotive market has recently seen rapid growth and has now become the largest automotive producer in the world. The country currently has only 1.2 cars per 100 people compared to Western countries with 50 cars per 100. The growth in food and beverage markets will be influenced by the growth of the middle-class population which is quite healthy looking at the GPD the country is currently undergoing.

Reliance forms USD 1.7-billion Marcellus Shale JV

Reliance Industries has entered into a USD 1.7-billion joint venture with Atlas Energy (Moon Township, PA) to develop the company’s Marcellus Shale gas operations. Reliance Marcellus, a subsidiary of Reliance, will acquire a 40% interest in Atlas’ Marcellus Shale acreage position. Reliance will pay about USD 339 million in cash upon closing and an additional USD 1.36 billion, under a carry arrangement for 75% of Atlas’s capital costs over a seven-and-a-half-year development program. The transaction is expected to close by the end of this month.

The companies have agreed upon a five-year development plan that calls for the drilling of 45 horizontal Marcellus Shale wells for the jv during the remainder of 2010, which will increase to 108 wells in 2011, 178 wells in 2012, and 300 wells in 2013 and 2014.

Reliance Buys Stake in Logistics Company

One of RIL’s wholly owned subsidiaries has put forth its plans to invest in the logistics company Deccan 360 located in Bangalore, India.

Reliance will acquire between 26% and 50% stake in Deccan 360 and will pay about USD 20 million – USD 30 million for the stake. Deccan 360’s air and surface transportation network supports the transportation needs of various industries such as pharmaceuticals, machinery, manufacturing, retail, electronics, textiles, and banking. The investment will help Deccan 360 to increase the air and surface network coverage across the country.

The core of Deccan 360’s hub and spoke model is being developed at Nagpur, India and this central hub in Nagpur will form a multimodal (surface and air) storage, transportation, and delivery network bringing connectivity to every part of India.

Petronas to list petrochemical business

Petronas is preparing to list its petrochemicals business and the company’s heavy engineering arm – Malaysia Marine and Heavy Engineering, on the Bursa Malaysia stock exchange this year. Petronas’s petchem business had a revenue of RM13 billion (USD 4 billion) for the year ended March 31, 2009.

The other Petronas companies already listed on the Bursa Malaysia are Petronas Dagangan, Petronas Gas, KLCC Property Holdings, and MISC.

Comments: History has shown that non-government enterprises tend to perform better, and are more competitive and innovative focusing on R&D. The move will better equip Petronas to compete locally and globally. Petronas was incorporated in 1974 as Malaysia’s national oil company covering oil exploration, production, and refining as well as petrochemical production.

Iran to privatize all refineries, and petrochemical units to encourage private investment and boost the economy

Mehr Iran plans to privatize all its refineries and petrochemical units, seeking to speed up the sale of state assets in a bid to encourage private investment and boost the economy. Currently, the Iranian economy is under U.S. and U.N. sanctions over Tehran’s disputed nuclear program. Western companies shirk from investing in Iran due to the long-running nuclear dispute.

Few of the companies on sale may end up being transferred within the country’s vast public sector. Work on ceding (ownership of) oil companies has begun and based on plans, all petrochemical units, and refineries will be ceded, including service, drilling, and support companies.

Comments: The government of Iran has been pushing for privatization since 1989 and it has been a major national objective included in their five-year plans.

The petroleum industry is a primary area of their effort due to Iran’s richness in natural resources. Privatization is a complicated process and its implementation is not an overnight effort. Therefore, the process has been performed gradually.

This gradual privatization by the Iranian government would not only help Iran in the improvement of technology, but would also accelerate the development, strengthening, and globalization of Iranian industry. The macroeconomic impact of privatization in developing and transition economics was well elaborated by International Monetary Fund (IMF).

Sinopec signs Brazil oil deal with Petrobras

Petrobras has signed an agreement providing Sinopec the rights to develop two oil blocks, a step toward boosting energy ties between the two emerging market nations.

The agreement gives Sinopec access to the BM-PAMA-3 and BM-PAMA-8 blocks, both of which are located in the Para-Maranhao basin off the coast of northern Brazil.

The deal also includes a new USD 10 billion credit line, countering speculation Petrobras would tap Chinese capital as it faces a potential cash crunch.

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