Piecing Together the Petrochemicals Market Puzzle

agreementIs this the end of the fully integrated and diversified chemical majors in the United States and, in fact, globally?

Dow Chemical and DuPont have merged to a $125-billion conglomerate. The Dow-DuPont merger is expected to be followed by a three-way split.  It will probably be broken down to agchem, basic chemicals and polymers, and advanced materials.

Such a split would mark closure for the broadly diversified chemical business model in the United States and leave BASF as the only notable exception elsewhere. The deal caps the shift, accelerated in the last few years by the interference of activist investors, toward simpler and more focused portfolios. The reshuffle of Dow’s and DuPont’s non-agchem operations would nearly complete the split between basic petrochemicals and feedstocks. A recent IHS update Overview of the Specialty Chemicals Industry identified 30 or so market segments ranging from more than $40 billion/year in revenue (specialty polymers, construction chemicals, cleaning ingredients, and electronic chemicals) all the way down to thermal printing chemicals, valued at $670 million. Basic chemicals will likely be dominated by integrated oil companies, state-owned enterprises, emerging players in Asia, and a few remaining regional players in the United States and Europe. The last group would include a Dow-DuPont combination, LyondellBasell Industries, INEOS, and Westlake.

The rest of the industry is following targeted and more specialized niches spread across those 30 segments. Upstream integration is not essential, and maybe even scale is a hindrance. Focus and ambition have shrunk as R&D emphasis narrows on developing applications and extending product lines rather than invention and developing new products.

Perhaps this is the natural order of things in an industry that has seen giants such as Hoechst, Union Carbide, ICI, and others disappear over the past 20 years.  But this is the end of the diversified chemical company era in the West.  However, in the East, state-owned enterprises and large nationals surely won’t limit themselves to basic chemicals over the long haul.

Gain further insight into concepts and the evolution of the industry by joining us on our Understanding the International Petrochemicals Business - Technology, Markets and Economics course upcoming in Oxford this April.  Learn more about this exciting offering below!

Alan Fisher & Rob Parry  l  Course Directors

Understanding the International Petrochemicals Business - Technology, Markets and Economics
25-27 April in Oxford, UK
The organic chemical industry centres on the relationships between raw materials, intermediates, end products and applications. Basic to these relationships are chemical reactions, and fundamental to the total business is economics. To be able to work successfully within this complex industry requires a combination of practical experience with an understanding of chemistry, markets and economics. The course offers an organised overview of the industry that is essential for the successful operations within it. There are no pre-requisites for this course, nor is any advanced preparation required. Register Now!

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Options Strategies is an online training course about how options contracts can be used to achieve objectives in both hedging and for-profit trading.  After introducing some useful terminology, the course explores the features that make options valuable for hedging and trading.  We discuss the disadvantages of simple options strategies, and how these can be overcome by using combinations of bought and sold options contracts to create options spread strategies.  You will learn about collars, three-way collars and other common options spread strategies for hedging.  We will explore the use of spreads in directional trading, and you will see how spreads like butterflies and condors can be used in volatility trading.  You will also learn about costless hedging structures that provide partial participation in favorable price moves.

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Will U.S. gas come to Europe? Faculty Member Malcolm Johnson Discusses with Bloomberg Business

Five Questions for Europe's Gloomy Natural Gas Market in 2016

As seen on Bloomberg Business
By: Kelly Gilblom, Anna Shiryaevskaya & Rob Verdonck

Will U.S. gas come to Europe?

Europe, with its accessible trading hubs and underused import infrastructure, may lure U.S. LNG, which has no restrictions on destination and would have to compete with pipeline supplies from Russia and Norway.

“Given the volumes of gas shipped to Europe, the marginal cost of additional Russian gas is low and they should be able to compete with U.S. LNG supplies,” said Malcolm Johnson, a Guildford, England-based faculty member of The Oxford Princeton Programme, an energy training provider. “However, it is clear that in certain countries there is a desire to diversify supplies for supply security.”

That desire to diversify away from Russian dependence has motivated countries such as Lithuania to sign supply agreements with U.S. exporters including Cheniere Energy Inc. U.S. LNG will probably be able to compete on European hubs this winter, Bloomberg New Energy Finance said earlier this month.

Click here for the complete article

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