ADI Chemical Market Resources Newsletter
January 7, 2008

My Turn – Dr. Balaji B. Singh – Have a Happy New Year

Comments: The start of the New Year heralds a new race for Specialty and value-added polyolefins.

Chemical Market Resources focused on technology and value-added polyolefins since 1990 and has conducted over 40 multiclient studies on various specialty polyolefins.

The year 2008 will focus on specialty polyolefins for every region:

1. Middle East – has to focus on specialties for the future – because the commodities from the Middle East will lose their feedstock advantage after transportation to the end-use markets and also their decreasing gas supply will obsolete their feedstock advantage for the derivatives in the next five to ten years.

2. North America – has to focus on specialties for the future – because of a lack of feedstock and labor advantage and the commodities can be supplied by other countries

3. Asian countries, currently enjoying unprecedented growth in China will have to focus on specialties – because – once China becomes self-sufficient (the year 2012) they will present a double whammy – lower imports into China; and More commodities exports

4. Japan/Korea have to focus on specialties because – their domestic markets need high specialties to survive and consume.

5. South America, with all its alternate feedstocks, will have to focus on specialties because – in the short run alternate feedstocks will have to constantly undergo justifications.

6. Only countries that can take commodities will be Africa and parts of the Middle East – but by the time all the giants of the polyolefin world – Dow, Exxon Mobil, Basell, Shell, Total, and some Japanese and Koreans – congregate there – very few winners will be left – the winners have to be able to differentiate themselves and go beyond – Just follow the others – strategy.

Whichever way you look at it the year 2008 will be known as the year of SPOs

1. We are organizing the FlexPO2008 in June/July in Houston to discuss Specialty Polyolefins Global Markets, Technologies, and Trends. Mark your calendars and Plan to attend.

2. We will be completing the multiclient study on Global Specialty Polyolefins Markets, Technologies, and Trends We wish you the best year ever and Hope you all have peace and fun – Prosperity will automatically follow.

Indian Oil Corporation (IOC) considers investing in petrochemical projects in Oman

Indian Oil Corporation Ltd (IOC) is considering an investment of over $5 billion to either set up a gas-based petrochemical complex in Oman or to form a JV with a local company in that country for an existing petrochem complex.

IOC is continuously striving for growth through the integration of its core business with opportunities available in the petrochemicals sector globally. However, it seems IOC would invest in the project only after preliminary studies were completed within a year.

IOC had earlier announced that the company is gearing itself to take on the impending challenges with investments of Rs 43,250 crore over the next five years. Of this, Rs 30,000 crore will go into downstream integration.

Comments: Most of the petrochemical companies in India have been looking for opportunities to partner with a player in the Middle East to improve feedstock availability and cost position. There were talks about Reliance planning a venture with KPIC, and ONGC looking to partner with a company in the Middle East and now IOC is trying to do the same thing by looking at projects in Oman. IOC is also adding capacity in India to utilize its feedstock and vertically integrate toward value-added products. There are many announcements but not all of these announcements will be implemented – we will have to wait and see if this announcement eventually becomes a project. Oman may also be looking for other options after the plans of Dow and Oman JV were shelved in July 2007. Another point to consider is that there was speculation that these plans were shelved due to escalating costs and doubts regarding gas availability. These factors will be equally important for implementing the project.

NPC’s Mehr Petrochemical Complex to be operational by early 2009

NPC subsidiary Mehr Petrochemical Complex would come on stream in the second half of the next Iranian calendar year (Sept. 23, 2008, to March 20, 2009).

According to the company, the investment for the construction of the 300 KT PE plant will be about $230 million.

Jam Petrochemical Complex would supply the feedstock of the Mehr plant and over 3,000 tons of metal structures and more than 10,000 tons of heavy equipment and systems would be installed in Mehr Petrochemical Complex.

The NPC owns 40 percent of Mehr’s shares and the remaining 60 percent belongs to SCG and PTT, two companies of Thailand, and Japan’s Itochu. About 60 percent of Mehr’s output would be exported and 40 percent would be sold by Iran Petrochemical Commercial Company.

Mehr Petrochemical Complex is under construction on land with a 13.34 ha area in the second phase of the Pars Special Economic Energy Zone (PSEEZ), known as Assaluyeh.

Comments: There is a lot of speculation regarding how much of the planned capacity will come on-stream in Iran and whether delays will affect the start-up dates in Iran. This project was delayed last year due to political issues and was back on track in November 2006. The initial plans were for the project to start-up in early 2008 but not it seems the project will see a delay of 2-4 quarters. All the announced and ongoing projects are being carefully monitored by the industry to estimate the available capacity and its impact on future operating rates. This project along with others will be continuously monitored for any further delays.

Wacker Chemie to acquire Air Products’ stake in construction polymers joint ventures

Wacker Chemie AG plans to acquire full ownership of Air Products Polymers (APP) and Wacker Polymer Systems (WPS), its two joint ventures with Air Products and Chemicals, Inc. The two partners announced they have signed an agreement to this effect.

The closing of the transaction, which is subject to approval by the relevant antitrust authorities, is expected in Q1 2008. As part of the agreement, WACKER retains the Vinyl Acetate Ethylene (VAE) activities of the Joint Venture, while Air Products will receive full ownership in the Elkton, Md., and Piedmont, S.C., production facilities and their related businesses plus cash considerations of USD 265 million. With approval, the transaction would contribute substantially to further developing WACKER’s polymer business to around EUR1 billion in sales in 2008.

Currently, WACKER owns 35 percent and Air Products 65 percent of APP. As for WPS, WACKER holds 80 percent, and Air Products, 20 percent.

The planned acquisition focuses on the activities of APP and WPS in vinyl acetate ethylene-based dispersions and dispersible polymer powders. Consequently, WACKER plans to acquire all of the two companies’ related activities at their APP and WPS sites in Allentown (PA, USA), Calvert City (KY, USA), Cologne and Burghausen (Germany), South Brunswick (NJ, USA) and Ulsan (Korea). WACKER intends to continue operating this business out of Lehigh Valley. The Elkton (MD, USA) and Piedmont (SC, USA) sites and the associated businesses will become fully owned by Air Products.

Comments: Air Products had previously announced its intention to divest its polymers business.

The joint venture had a leadership position in dispersible polymer powders for construction applications and now Wacker will retain that advantage. The company will also benefit from the integration of products and raw materials and have cost advantages.

DuPont selects South Carolina site for $500 Million investment to expand Kevlar® fiber

DuPont has selected its Cooper River plant to receive the planned $500 million investment it recently announced to significantly expand production of high-performance DuPont™ Kevlar® para-aramid brand fiber for industrial and military uses.

The investment at the Cooper River site, which is located about 30 miles north of Charleston in Berkeley County, will include the construction of a new Kevlar® fiber facility. It is expected to require 100 permanent DuPont jobs, as well as more than 400 contractor jobs during peak construction, which is scheduled to begin in January 2008. The plant’s startup is scheduled for 2010.

The new Cooper River facility is the centerpiece of a multi-phase, multi-year Kevlar® production expansion announced in September that will ultimately increase global Kevlar® production capacity by more than 25 percent. The company is investing an additional $50 million at its Spruance plant in Richmond, Va., to increase Kevlar® polymer production. The combined expansion represents the largest single investment in Kevlar® and the largest capacity increase since the fiber was introduced in 1965.

DuPont’s Cooper River plant opened in 1973. The site currently has 60 employees and produces DuPont™ Hytrel® thermoplastic polyester elastomer, which is used primarily in the automotive industry.

Comments: This announcement is one step ahead in DuPont’s implementation of their previously announced investment in the Kevlar® business. The demand for Kevlar fibers which are para-aramids is mainly due to their increased use in military applications.

Alcoa to sell its packaging and consumer business to New Zealand’s firm Rank Group

Alcoa announced it has agreed to sell its packaging and consumer businesses to New Zealand’s Rank Group Limited for $2.7 billion in cash. The transaction is expected to be completed by the end of the first quarter of 2008. Alcoa’s packaging and consumer businesses generated approximately $3.2 billion in revenues and $95 million in after-tax operating income in 2006, representing approximately 10 percent of Alcoa’s 2006 revenues and approximately 3 percent of after-tax operating income. Alcoa announced in April 2007 its plan to explore strategic alternatives for this segment.

Businesses included in the sale are (1) Closure Systems International – manufacture of plastic and aluminum packaging closures and capping equipment for beverage, food, and personal care customers;

(2) Consumer Products – manufacturer of Reynolds Wrap branded and private label foil, wraps, and bags;

(3) Flexible Packaging – manufacturers of laminated, printed, and extruded non-rigid packaging materials such as pouch, blister packaging, unitizing films, high-quality shrink labels, and foil lidding for the pharmaceutical, food & beverage, tobacco, and industrial markets; and

(4) Reynolds Food Packaging – makers of stock and custom products for the food service, supermarket, food processor, and agricultural markets including foil, film, and both plastic and foil food containers.

In total, these packaging businesses have approximately 10,000 employees in 22 countries around the world. Alcoa will continue to operate its flat-rolled can sheet products serving the packaging market. Lehman Brothers acted as financial advisor to Alcoa on this transaction.

Rank Group is a New Zealand-based privately-held company with a significant packaging presence, including Carter Holt Harvey, SIG Holding, and Evergreen Packaging. Rank Group has operations in North America, Australasia, Europe, Asia, South America, and the Middle East and employs approximately 17,000 people.

Comments: Alcoa is the world’s third-largest producer of aluminum, and leads the world in alumina production and capacity. The company has its operational headquarters in Pittsburgh, Pennsylvania, and has operations in 44 countries. Alcoa is active in, mining, refining, smelting, fabricating, and recycling.

The global market for flexible packaging is currently close to $50 billion growing at just over 4.0%. Alcoa’s packaging and consumer market sector represents 23% of its total revenue, after aluminum and alumina which has 29% of its total revenue. The company has 57% of its revenue coming from the United States and 24% from Europe. The sale of their packaging and consumer sector to Rank group will allow Alcoa to concentrate on its core business aluminum and related products and in turn expand Rank’s product portfolio and global reach.

A. Schulman CEO reveals strategy to improve company performance

A. Schulman’s new chief executive officer Joseph Gingo already has put forth a plan to improve the company’s market position. Gingo has devised a 100-day plan that addresses “six primary areas of transformation across the company.”

The six are:

1.) More efficient and effective utilization of A. Schulman’s North American manufacturing facilities, including potential restructuring;

2.) Enhanced focus on value-added products to drive profitable growth in the polybatch and engineered compounds segments;

3.) Reassessment of A. Schulman’s North American automotive business to emphasize profitable areas;

4.) Suspension of further capital expenditures on its Envision business until its marketing strategy has been refined “to ensure accelerated market adoption” of the company’s new, multilayered sheet product;

5.) Identification of additional efficiencies in the sales and administrative structure of European operations; and 6.) Ensuring that “the best leadership team is in place” to execute A. Schulman’s strategy.

Gingo noted that he was a key member of the turnaround team at his previous employer, Goodyear Tire & Rubber Co., and he intends “to quickly and effectively implement the changes necessary to drive profitable growth” at A. Schulman.

A. Schulman also disclosed that Ramius Capital does not intend to drop in advance of the company’s Jan. 10 shareholders’ meeting its proxy proposal to create an independent board committee to review so-called strategic alternatives that could include a sale of A. Schulman.

“Most recently, A. Schulman offered to have its Nominating and Corporate Governance Committee interview and recommend the appointment of one of Ramius’ two nominees to the Company’s board to serve as a director for a one-year term ending at the next annual meeting,” A. Schulman stated. “The company would then have supported the re-election of that director as an incumbent for a full three-year term at the next annual meeting, upon the anticipated retirement of another director.” A. Schulman said Ramius rejected that offer.

A. Schulman also noted that it already has formed a special committee of independent directors to conduct a review of strategic alternatives. That five-member committee includes two directors nominated by Barington Capital, another large stockholder.

Comments: A. Schulman has transformed from a rubber processing plant to a leading global supplier of high-performance plastic compounds and resins. It combines basic resins through mixing and extrusion processes, introducing additives that provide color, stabilizer, flame retardant, or other required enhancements. Operating through 14 manufacturing units in North America, Europe, Mexico, and the Asia-Pacific region it serves customers primarily across the United States, Europe, and Asia. The products find applications in various industries, including the electronic, automotive, construction, packaging, agriculture, and molding industries. It has a joint venture with Indonesian P.T. Prima Polycon Indah for producing plastics and related products.

This new strategy should help the company improve its competitiveness in the industry.

DSM invests in biopolymers firm Novomer Inc.

DSM Venturing, the corporate venturing unit of Royal DSM N.V., announced that it has invested in Novomer Inc. The companies also plan to sign a cooperation agreement. Financial details of the investment will not be disclosed.

Novomer is developing a technology platform to use carbon dioxide and other renewable materials to produce performance polymers, plastics, and other chemicals. The company’s products combine environmental benefits with improved materials performance and can be used in a range of applications, from injection molded parts for electronics to paper coatings and medical implants.

DSM Venturing joins Flagship Ventures and Physic Ventures in this financing round. In addition to the investment DSM and Novomer also intend to sign a cooperation agreement. Both the investment and cooperation agreement will support DSM’s ambitions to develop bio-based performance polymers to meet customers’ growing needs for improved materials performance and environmental benefits at competitive costs.

Furthermore, the cooperation is in line with DSM’s increased focus on exploiting the synergy between its Life Sciences and Material Sciences activities. The investment in Novomer is the 8th in 2007 for DSM Venturing. In the recent review of Vision 2010, DSM announced that the budget for venturing has been increased to up to EUR 200 million over the period until 2012.

Novomer’s catalyst technology enables the production of polymeric materials from renewable feedstocks with decreased reliance on fossil fuels. Their use of feedstocks such as carbon dioxide and carbon monoxide combined with the precision and reliability of synthetic manufacturing processes is expected to enable the cost-effective manufacture of bio-based building blocks, polymers, compounds, and formulations.

DSM Venturing is an active investor in companies and venture capital funds in DSM’s strategic growth fields of Nutrition, Pharma, and Performance Materials. DSM Venturing’s mission is to explore emerging markets and technologies in these strategic growth fields to enhance DSM’s product portfolio and create value. DSM Venturing also plays an active role in the development of several new DSM business opportunities in the so-called emerging business areas of Biomedical, Industrial (White) Biotechnology, Specialty Packaging, and Personalized Nutrition.

Novomer is a new materials company pioneering a family of low-cost, high-performance, green plastics, polymers, and other chemicals. Founded in 2004 by technology commercialization firm KensaGroup, Dr. Geoffrey Coates, and Dr. Scott Allen, the company is based on pioneering catalysts developed at Cornell University. Novomer’s groundbreaking technology allows carbon dioxide and other renewable materials to be cost-effectively transformed into polymers, plastics, and other chemicals for a wide variety of industrial markets.

Comments: Novomer is a materials company with a primary focus on developing a family of low-cost, high-performance, green plastics, polymers, and chemicals using their proprietary technology. Their catalytic technology enables the cost-effective conversion of carbon dioxide and other renewable materials into polymers, plastics, and chemicals for a wide variety of industrial markets. Novomer’s technology re-uses carbon dioxide as a major input in its production process unlike most of its counterparts utilizing food feedstocks and costly biological production processes. A highly calibrated zinc-based catalyst system is used in the production process and is claimed to be highly scalable and selective. While the science is in place and the deliverables are promising, the actual test would be at industrial scale production and of course, in the marketplace.

The current alliance with DSM would financially strengthen the company to move forward with its development efforts in terms of process technology. Further, there is much to gain from DSM’s experience in materials development and large-scale production of polymers & chemicals. From DSM’s viewpoint, the alliance is a step forward in terms of entering the biobased materials market.

South Korean FTC to fine polyolefins producers over LDPE/LLDPE cartel

South Korea’s Fair Trade Commission plans to fine around six or seven domestic petrochemical companies for fixing prices of low-density polyethylene and linear low-density PE, a source close to the commission confirmed Friday.

However, the names of the companies and the extent of the fines were not disclosed as the FTC was in the process of doing the calculations.

The FTC, which only focuses on the South Korean market, also hopes to conclude by next year price-fixing investigations into toluene, xylenes, styrene monomer, ethylene glycol, and ethylene oxide.

In February 2007, South Korea’s FTC fined 10 domestic petrochemical companies for fixing the prices of PP and HDPE products. They included Honam, Hyosung, Samsung Total, GS Caltex, LG Chem, Daelim Corporation, Samsung General Chem, KP Chemical, and SK Corporation.

The 10 companies were fined a combined Won 105 billion ($113 million). The highest fines were imposed on SK Corporation (Won 23.8 billion), KP Chemical (Won 21.2 billion), and LG Chem (Won 13.1 billion).

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