COVID-19 - News digest as of 23.12.2020

1. Asia distillates-gasoil cash differentials rise to strongest in 4-1/2 months

MOSCOW (MRC) -- Asia's cash differentials for 10 ppm gasoil firmed to their highest level in four-and-a-half months on Monday, while refining margins for the industrial fuel slipped despite weaker prices of raw material crude, reported Reuters. Cash discounts for gasoil with 10 ppm sulphur content narrowed by a cent to 4 cents a barrel to Singapore quotes, the smallest discount since differentials plunged into a negative territory on Aug. 11. The gasoil market has firmed in recent weeks, thanks to reviving demand from India and China, but analysts have warned that increased refinery runs and reimposed lockdowns in several other key markets would pressurise refining margins and prices in the near term.



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MOSCOW (MRC) -- Oil futures settled lower Dec. 22 amid pandemic-dimmed demand outlooks prompted by the spread of more lockdowns across Europe, reported S&P Global.

NYMEX February WTI settled 95 cents lower at US47.02/b and ICE February Brent declined 83 cents to settle at USD50.08/b.

The UK's demand for road fuels and jet fuel is taking a fresh tumble after the country's efforts to contain a new strain of the coronavirus ripple through the European region.

A number of European countries, as well as countries further afield such as India and Russia, suspended all flights and closed their borders to the UK on Dec. 21 after the UK announced details of a new coronavirus strain spreading in the country. France has temporarily halted all UK arrivals and goods flows from ferries and trains.

The UK government on Dec. 20 imposed a tougher lockdown on 17 million people in the southeast of England amid concerns over the potentially more infectious COVID-19 variant.

Front-month Brent slid nearly 2% the day to settle at the lowest since Dec. 11, while WTI was down 1.5% and the lowest since Dec. 14.

NYMEX January RBOB settled down 2.09 cents at US1.3395/gal and January ULSD was 1.58 cents lower at US1.4616/gal.

"Crude prices declined as global lockdowns appear to be a harsh reality for the first quarter," OANDA senior market analyst Ed Moya said in a note. "The crude demand outlook over the next few months is bleak as US hospitalizations are at a record high, a new COVID strain could be spreading across Europe, and as skepticism grows over how quickly people will be willing to get vaccinated."

Brent forward structure slid deeper into contango, with the sixth-month contract settling at a 7 cent/b premium over front month, compared with a 3 cent/b discount on Dec. 21. The sixth-month contract had been in 45 cent/b backwardation to front month as recently as Dec. 10.

Europe's latest round of lockdowns had already removed some 900,000 b/d of road fuel demand last month, according to Rystad Energy. This year, European oil demand is forecast to decline by about 15%, or 1.8 million b/d.

"In the short term, we expect mobility restrictions in the US and Europe introduced in Q4 2020 to mostly spill over into Q1 2021, for which we expect oil demand to average 93.6 million b/d," Rystad said in a note.

Meanwhile, a strengthened US dollar added further pressure to oil prices. The ICE US Dollar Index climbed to a six-session high 90.57 in afternoon trading.

As MRC informed previously, global oil demand may have already peaked, according to BP's latest long-term energy outlook, as the COVID-19 pandemic kicks the world economy onto a weaker growth trajectory and accelerates the shift to cleaner fuels.

Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40% in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.

And in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,760,950 tonnes in the first ten months of 2020, up by 3% year on year. Only high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased. At the same time, PP shipments to the Russian market reached 978,870 tonnes in January-October 2020 (calculated using the formula: production minus exports plus imports minus producers' inventories as of 1 January, 2020). Supply of exclusively of PP random copolymer increased.
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MOSCOW (MRC) -- Univar Solutions says it has agreed to acquire the coatings, adhesives, sealants and elastomers (CASE) business of Zhuhai Techi Chem Silicone Industry Corporation (Guangdong, China), a silicones provider, reported Chemweek.

Terms of the transaction, including purchase price, were not disclosed. The deal is a part of Univar’s push to extend its global reach and product offering in the CASE market.

“Our customers throughout China will benefit from Techi Chem's strong relationship with the leading global silicone supplier as well as Univar Solutions' global silicone expertise and network of technical Solutions Centers that will provide comprehensive solutions for the Chinese market,” says Nick Powell, president/specialty chemicals and ingredients at Univar.

Techi Chem was founded in 2001 and is known for an extensive product and service offering within silicones, and a strong logistics footprint in China, according to Univar.

As MRC wrote previously, in late October, 2020, Univar Solutions Inc. and PVS Chloralkali Inc., a wholly owned subsidiary of PVS Chemicals Inc. (PVS), announced a new agreement where PVS will transfer railcars located in Ohio, Illinois and Virginia and sourcing agreements for Hydrochloric Acid (HCL) to Univar Solutions.

According to MRC's ScanPlast report, Russia's October total production of unmixed PVC grew to 86,600 tonnes from 86,000 tonnes a month earlier, SayanskKhimPlast and Bashkir Soda Company increased their capacity utilisation. Overall output of polymer in Russia was 805,100 tonnes in the first ten months of 2020, which virtually corresponds to the last year's figure. Two producers increased their production, whereas two other manufacturers reduced their output.

Univar Solutions is a leading global chemical and ingredient distributor and provider of value added services to customers across a wide range of industries. With the industry's largest private transportation fleet and North American sales force, a vast supplier network, deep market and regulatory knowledge, world-class formulation and recipe development, unparalleled logistics know-how, and industry-leading digital tools, Univar Solutions is a committed ally to customers and suppliers, helping them anticipate, navigate, and leverage meaningful growth opportunities.
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MOSCOW (MRC) -- BASF says it has launched a circular-economy program, under which it aims to double its sales generated by solutions for the circular economy to EUR17.0 billion (USD20.6 billion) by 2030, and process 250,000 metric tons of recycled and waste-based raw materials annually as of 2025, replacing fossil-based raw materials, according to Chemweek.

The company says it is concentrating on three action areas to achieve its circular-economy targets: circular feedstocks, new material cycles, and new business models.

“The path to a circular economy will require enormous efforts on our part. But we have taken on this challenge with commitment and creativity and we can build on our innovative strength,” says Martin Brudermuller, chairman and chief technology officer at BASF. “Companies that can provide solutions for the transformation to a circular economy will have a crucial competitive advantage.”

In a circular economy, the aim is to avoid waste, reuse products, and recover resources, BASF says. As a result, the company's circular-economy program focuses on battery recycling, to develop processes that reduce carbon footprint; the development of additives to improve plastics recycling; chemical recycling that can turn plastic waste into feedstock for the chemical industry; and increasing the volume of renewable raw materials from sustainable sources in the company's production.

As MRC reported before, German chemicals maker BASF said in early November it had put a project to build a petrochemicals complex in India worth up to USD4 billion on hold due to the economic uncertainty caused by the COVID-19 pandemic. BASF signed a memorandum of understanding with Abu Dhabi National Oil Company (ADNOC), Adani Group and Borealis AG in October 2019 to evaluate a collaboration to build the chemical site in Mundra, in India’s Gujarat state.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,760,950 tonnes in the first ten months of 2020, up by 3% year on year. Only high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased. At the same time, PP shipments to the Russian market reached 978,870 tonnes in January-October 2020 (calculated using the formula: production minus exports plus imports minus producers' inventories as of 1 January, 2020). Supply of exclusively of PP random copolymer increased.

BASF is the leading chemical company. It produces a wide range of chemicals, for example solvents, amines, resins, glues, electronic-grade chemicals, industrial gases, basic petrochemicals and inorganic chemicals. The most important customers for this segment are the pharmaceutical, construction, textile and automotive industries.
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MOSCOW (MRC) -- Showa Denko has announced a long-term strategy covering 2021-30 following the company’s acquisition of Hitachi Chemical, renamed Showa Denko Materials, earlier this year, reported Chemweek.

The acquired company became a consolidated subsidiary of Showa Denko in April. A “long-term vision” is needed to “integrate the two companies as soon as possible and establish a foundation for future growth” in the face of intensifying worldwide competition and expected changes in market structure, Showa Denko says. The strategy includes sales and earnings targets as well as restructuring measures such as divestments and job cuts.

Showa Denko has split the two companies' portfolios into four business categories: core-growth businesses, next-generation businesses, stable-earnings businesses, and fundamental technologies/materials businesses. Each will have “a competitive advantage commensurate with their respective roles,” Showa Denko says.

The core-growth and next-generation businesses will drive the Showa Denko group’s future growth, the company says. Core-growth businesses consist of electronics and mobility, including advanced materials, which possess “overwhelming scale/top-share products in growing markets and which will sustain the group’s future growth,” Showa Denko says. The next-generation businesses are life sciences, which are “in an advantageous position that can lead to future growth in promising markets, and that will be developed into a next-generation pillar,” Showa Denko says.

The stable-earnings businesses include carbon, petrochemicals, device solutions, industrial gases, basic chemicals, coating materials, electronics materials, energy. These activities “earn a stable profit and generate investment capital with competitiveness and a high share in markets where the competitive landscape is stabilizing,” Showa Denko says.

The fundamental technologies and materials business include ceramics and functional chemicals, “with a wide range of inorganics, organics, and aluminum technologies that support the competitiveness of the other three business categories,” Showa Denko says.

Showa Denko expects the electronics market to “remain fiercely competitive,” but says the “direction of technological development is set and rapid structural changes and new entries in the industry are less likely to occur.” The company highlights its position as the world’s biggest manufacturer of semiconductor materials with annual sales of about ?200.0 billion ($1.9 billion). “The Showa Denko group is in the top position, far ahead of all other players in terms of business scale and offers a broad product portfolio that boasts global top-level competitiveness and share in both wafer and packaging processes,” the company says.

In mobility, Showa Denko envisages that competition for the top position among multiple manufacturers of advanced materials will continue. The group “will manage certainty and uncertainty with its portfolio of businesses, by leveraging global top-share products and its product line-up, enhanced through integration,” it says. These include meeting demand from the trend toward vehicle-weight reduction and the shift to vehicle electrification.

Showa Denko expects the life sciences business to grow “significantly.” The company plans to leverage its contracting business, based on a worldwide production structure that includes three sites across Europe, Asia, and North America.

Cumulative sales for the core-growth and next-generation businesses totaled approximately Yen 230 billion in 2020, and the group will seek to expand this to Yen 600 billion by 2030, achieving a compound annual growth rate of 10% mainly through innovation. Together they will generate an additional Yen 18 billion and ?48 billion in operating income in 2025 and 2030, respectively, Showa Denko says.

Showa Denko says the integrated company will aim to be in the worldwide chemical industry’s top quartile over the medium- and long term, in terms of sales and profit. It is targeting an increase in overall sales from Yen 1.2 trillion in 2020 to Yen 1.6 trillion in 2025 and ?1.8-1.9 trillion in 2030. The company is aiming for an increase in EBITDA from Yen 900 million in 2020 to Yen 3.2 billion in 2025 and an increase in its EBITDA margin from 8% this year to 20% in 2025.

Showa Denko plans to restructure its portfolio steadily through 2023. The company says it is “considering and negotiating” the sell-off of multiple business. It envisages divestment proceeds totaling ?200 billion on an enterprise value basis.

The company is also planning profit-improvement and asset-streamlining measures. This includes synergies arising from the integration of Showa Denko and Showa Denko Materials. The company is considering six initiatives including reducing procurement and logistics costs, improving productivity, and cutting about 1,500 jobs. The aim is to boost annual profit by ?28 billion by the end of 2023.

Showa Denko, meanwhile, will consolidate its operating sites and says that these measures are not included in the profit-improvement initiatives. The company forecasts that asset streamlining will yield Yen 50 billion in additional profit through 2021.

Other measures include reducing working capital, which the company expects to yield about Yen 25 billion in additional profit and selling marketable securities, which is expected to generate about Yen 20 billion.

The group is due to complete construction of a worldwide R&D hub at Kanagawa in Yokohama, Japan, in spring 2022. It envisages an ESG-oriented R&D focus at the new facility based on the expertise of Showa Denko and Showa Denko Materials.

Showa Denko expects to complete the integration of the two companies into a single entity in January 2023, following “substantive integration” through July 2021 and the integration of head offices in October 2021.

As MRC informed earlier, Japanese firm Hitachi Chemical Company changed name to Showa Denko Materials on 1 October 2020.

MRC also wrote before that Showa Denko (SDK) expanded production lines to produce vinyl ester resin (VE) and synthetic resin emulsion (EM) in the premises of Shanghai Showa Highpolymer Co., Ltd. (SSHP), a Chinese subsidiary of SDK, and has increased production of VE and EM there, aiming to expand the Showa Denko Group’s functional resin business in China.

According to MRC's ScanPlast report, October total production of unmixed PVC grew to 86,600 tonnes from 86,000 tonnes a month earlier, SayanskKhimPlast and Bashkir Soda Company increased their capacity utilisation. Overall output of polymer was 805,100 tonnes in the first ten months of 2020, which virtually corresponds to the last year's figure. Two producers increased their production, whereas two other manufacturers reduced their output.

Showa Denko K.K. Mainly engaged in the petrochemical business. The company's petrochemical division produces and markets industrial gases, olefins, organic chemicals, and others.

Hitachi Chemical is a consolidated subsidiary of Showa Denko and is involved in the manufacturing, processing and sales of functional materials and advanced components and systems.
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