Emery Oleochemicals to sell Europe commodities as it refocuses
Will Beacham
22-Apr-2015
LONDON
(ICIS)–Malaysia’s Emery Oleochemicals is seeking to sell its
Europe-based commodity chemicals plant, expand other sites,
and seek acquisitions as it drives forward its transformation
from commodities into a specialties-based producer.
Volatility caused by global overcapacity and increasing
competition from Indonesia and China means that a
non-integrated producer such as Emery Oleochemicals cannot
compete effectively in commodities outside of the US,
according to the group’s new CEO, Ramesh Kana.
He said: “In Europe the cheapest palm oil in the world is on
sale. We are unlikely to invest more in our 250,000
tonnes/year Dusseldorf site and are in the process of selling
it. I can’t manage the volatility of that
business. In the last two to three years there has been a big
change in the market emanating from Indonesia.”
Kana explained that the Indonesian government put a tax on
exports of crude palm oil to encourage a value-added industry
to develop. In response, a lot of plants were set up and the
production is now exported to Europe. He expects oversupply
of fatty acids to last for seven years, and 10 years for
fatty alcohols.
“These plants can be operated in an unpredictable way.
Because they are integrated plants they can play the market,
introducing a lot of volatility and irrational pricing. Emery
is not integrated so we cannot cope as this is a low-margin
business. The site would benefit someone who is integrated
and use it as a swing plant.”
For non-core, commoditised businesses such as those serving
home and personal care, Emery plans to spin them out into
joint ventures to someone with a competitive advantage, or
possibly involving private equity groups as a way to return
shareholder value.
Emery’s specialty businesses enjoy profit margins of 15-20%
compared to around 3-5% in commodities.
“Our strategy is to move from commodities to specialties: you
need scale to keep costs down and you need feedstock
integration.”
CORE BUSINESS GROWTH STRATEGY
Kana
wants to expand Emery Oleochemicals’ plastic additives and
bio-lubricants businesses as he drives forward a plan which
should see the current 40/60 split between
specialties/commodities reverse to be more like 60%
specialties within a year.
“Emery can’t become a leader in the five segments in which we
operate so we will focus on two. Time and
money will be invested here, where we already have
long-standing customer relationships and proprietary
technology going back 40 years.”
At Loxsted in north Germany, a specialty bio-lubricants plant
came onstream in the third quarter of 2014 and Kana is
already planning to debottleneck that plant, with a decision
expected within the next two months. He is also considering
options for a bio-lubricants plant is Asia as that market is
growing in double-digit figures.
Longer-term the company – a 50:50 joint venture between PTT
Chemical International and Sime Darby Plantations – is also
planning to launch an oilfield chemicals segment to take
advantage of growth in shale and conventional oil production.
Emery already supplies Halliburton with these products in
what Kana describes as a very proprietary business where each
customer has a different formulation.
“Drilling will continue despite the oil price drop and
companies are seeking to replace the use of conventional
products. Our product is 97% natural. We are working with a
company which provides carbon nanotubes which can be blended
at 2% or less to change the viscosity of our ingredients for
drilling muds.”
Emery is conducting trial runs with a big oil exploration
company within the next six months following lab tests which
went phenomenally well, according to Kana.
He insists the company is not seeing a huge impact from the
oil price drop: “It is difficult to swap back to
petrochemical-based products and most of them don’t want to
turn back the clock. However it is increasing pricing
pressure.”
ACQUISITIONS
The group is on the
acquisition trail, seeking inorganic growth in the US or
Europe in plastic additives, biolubricants and eco-polyols:
“We need to supercharge plastic additives and bio-lubricants
with non-organic growth though we are not close at all to a
deal.”
The focus will be on adding competencies and technology
rather than growing market share. We want to grow in. Home
and personal care is closely linked to the commodities
business so we will decrease our focus there, as well as the
agrochemicals sector which is a very niche business.
Kana also wants to expand into Africa in the longer-term as
he sees the potential for a lot of competition from palm oil
and oleochemicals produced in West Africa.
He said: “In ten years’ time there will be a threat to our
markets. There is not a lot of palm oil production in West
Africa right now but the microclimate and soil are very
suitable for palm oil production. Once they get this going as
well as downstream then this will threaten US markets as you
just have to cross the Atlantic.
“We are looking at Africa and will start by setting up local
partnerships . This would be for biolubricants and plastic
additives,” he added.
He thinks downstream customers could also move to Africa if
China becomes more expensive for manufacturers. “We will
support those industrial sectors such as packaging and
plastics manufacture. Africa does not have the scale yet but
we need to be there.”
US STRATEGY
Kana says he remains
committed to his commodity business in the US. It still makes
money because the market is isolated from overcapacity caused
by the Indonesian expansions. “The US
commodity business is very strong – it suffers from the
tyranny of distance as you can’t take palm oil to the
US.”
In September, at its US Cincinnati site, Emery will
commission a $60m specialty polyols plant with capacity of
20,000-30,000 tonnes/year. Once this plant starts up, 40% of
the existing production at that site will become captive. The
plant will be focussed on semi-rigid foams for the automotive
sector and will ramp up gradually to full capacity.
He says product accreditation takes around two years in
automotive so he will sell to the packaging industry in the
meantime which is not as high margin.
At the same site Emery has acquired foam recycling technology
from recycling group InfiChem. This is scaling up now as part
of the polyols expansion. Mattress foam is cut up and
recycled into material for dashboards.
Kana says quantitative easing in Europe has stimulated a real
boom in the construction sector as lower interest rates
encourage people to invest. Asked about China, he says:
“There has been a drop in demand from China but not enough to
change my forecasts.”
The CEO is trying to change corporate culture: “Building
plants is easy but re-educating our people is more difficult.
It’s all about the competence of your people – introducing
behaviours to allow them to sell on value rather than price.
I have brought in a lot of industry experts who will hold
their own against cheap Chinese competition.”
At its head office in Kuala Lumpur, Kana says he has been
employing more customer-facing people, and not reducing
headcount, as media reports suggest.
He also wants to change customer behaviour along the supply
chain: “Big buyers talk a lot about the green value chain and
traceability, to ensure there is no felling of mature
rainforests. But we want the entire value chain to be more
sustainable: just look at the amount of non-recyclable
packaging used in consumer goods.”
Interview article by Will Beacham
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