Emery Oleochemicals targets growth in specialties

Emery Oleochemicals aims to build strength in fatty acids to support high-margin specialties business

MALAYSIA’S EMERY Oleochemicals is embarking on a five-year expansion plan, relying on a time-tested strategy of combining advantaged feedstock with specialty products.

Rex Features/Chris Eyles

The company is a joint venture (JV) of Sime Darby – the world’s largest palm oil producer, also Malaysian – and PTT Chemical International – the investment arm of Thailand’s largest petrochemical producer, PTT Chemical. The partners provide Emery with feedstock and access to petrochemical-based markets.

“We want to be a leader in the industry, through both organic growth and M&A [mergers and acquisitions],” Emery CEO Kongkrapan Intarajang tells ICIS in an interview. “Consolidation in the global oleochemicals market is looming, and quite inevitable. We are looking for opportunities everywhere.”

Emery’s strategy of combining advantaged feedstock with downstream production is a familiar one in petrochemicals, and one that other oleochemical producers may adopt, says Neil Burns, managing partner for US-based consultancy Neil A. Burns. “It’s not a new strategy, but we are seeing a new execution of that strategy,” Burns says. “There will be others like Emery that will be establishing themselves in the global marketplace.”

Emery is already taking steps to convert its advantaged feedstock into high-margin products. Its Oleo Specialties segment accounted for about 25% of total sales of around $750m (€570m) in 2009, with Oleo Basics making up the rest. The company’s key end-markets include home and personal care, plastics and rubber, and oilfield chemicals. The firm is building a 15,000-25,000 tonne/year plastic additives plant in Telok Panglima Garang, Malaysia, says Kongkrapan.

The additive Loxiol is used as a lubricant in polyvinyl chloride (PVC) processing. In addition to Loxiol, Emery produces Dehylub, an oilfield chemical made from renewable feedstock that works as a surfactant.

As part of its strategy to build strength in basic oleochemicals to support its specialties growth, Emery plans to increase fatty acid production capacity from its current 600,000 tonnes/year to well over 900,000 tonnes/year.

The company is considering an investment project at Pasir Gudang, in Malaysia, but is also talking to Malaysia-based Kulim Group about acquiring fatty acids production from its subsidiary Natural Oleochemicals.

The Emery trade name began in the 1840s, when Thomas Emery started selling lard oil in Cincinnati, Ohio, US. His company and ultimately became part of Cognis Oleochemicals, a JV made up of German producer Cognis and Golden Hope Plantations, now part of Sime Darby. In December 2008, Cognis sold its stake to PTT for €104m.

Last autumn, the oleochemical industry was oversupplied. However, many producers have since idled or permanently closed high-cost plants, notes Burns. “Now you have a dramatic increase in consumption,” he says. “The outlook is very, very positive.”

Emery’s make-up could also help it avoid the pitfalls inherent in the industry. Both PTT and Sime Darby have the funds to address the high capital costs associated with oleochemicals, notes an oleochemicals market source. And as a standalone oleochemical JV, it should have sufficient focus, he says.

Kongkrapan says Emery aims to “grow more in specialties,” and in basics “if needed.” But this strategy could present its own challenges. Emery could acquire downstream businesses that are too far removed from its core, says Burns. “There is a risk that you take on more than you can handle.”

Al Greenwood is deputy editor at ICIS news in Houston, Texas, US. He has covered a number of financial topics such as the bankruptcies of Chemtura, LyondellBasell and Tronox as well as Dow Chemical’s takeover of Rohm and Haas. Before joining ICIS, he was a business reporter in Fayetteville, North Carolina, covering real estate, tourism and litigation
Additional reporting by Joseph Chang in New York