Specialist
Former senior executive at Nouryon Chemicals Holding BV
Agenda
- Reliance on Russian gas and ramp-down expectations across chemicals
- Cost pass-through dynamics and expectations for most challenged end markets and chemicals
- Long-term competitive positioning, including speciality chemicals' import-export dynamics in Europe, focusing on players such as BASF (ETR: BAS), Lanxess (ETR: LXS), Covestro (ETR: 1COV), Croda (LON: CRDA), Evonik (ETR: EVK), Nouryon and Ineos
Questions
1.
How are you thinking about the complex and large problem of Russian gas closure? Where is your thought process taking you?
2.
We’ve seen relatively meaningful announcements from Covestro and BASF in terms of the risks associated with Russian gas closure. Could you comment on the likelihood and severity of these announcements playing out?
3.
How easy is it for a company using natural gas for energy to switch to just using the electricity grid? Is that capacity or capability there? Does it take CAPEX or time?
4.
What are the CAPEX options after switching 10-30% to the electricity grid in the mid-to-longer term? Can a company shift over 100% within 2-3 years? How does that play out?
5.
What dynamics does using gas as a feedstock bring to the market? Is that ramped down? Can you shift into different production methods or will there be substitutions on a product basis? Could you give some examples and the magnitude to which you can account for reduced gas on the feedstock side?
6.
Goldman Sachs says German and Italian industries such as chemicals may have to cut their gas usage by as much as 80%. How much of that is possible without ramping down the output?
7.
Do your comments mean small customers might actually be in a better position than large customers in terms of the supply stability outlook?
8.
Could you rank the chemical chains from most to least at risk in order of severity?
9.
Which chemical manufacturers do you think are most at risk? You touched on BASF, Covestro and Evonik. Would you add any more to the list?
10.
Your commentary on BASF seems to align with a previous Forum Interview [see BASF – Russian Gas Reliance & Value Chain Impacts – 27 July 2022], but how does this enormous boom for the industry impact margins over time? Does it just reduce the cyclicality of margins or increase trough margins?
11.
Are you expecting cost to be able to be passed through? Some in the US have mentioned cost pressures falling – Cummins VP Christopher Clulow mentioned commodity costs and freight costs, at least on the spot basis, coming down. I’m not sure if this is the same for Europe, but do you see there being slightly more room for cost pass-through in chemicals and the more energy-related element?
12.
What would be your cost pass-through expectation for Nouryon if there were another 20% hike in energy cost? How much could be passed through, and what would turn to either demand destruction or margin reduction?
13.
To what extent do customers step in and support chemical companies through this period, or do they remain free market competitive actors?
14.
What margin impact would you expect a 20% energy price increase to have on a player such as BASF or Covestro?
15.
How are you thinking about the longer-term competitive positioning of European chemicals? You mentioned there could be a boom in terms of the operations, but there are still pretty meaningful questions around gas supply. We’ve got the re-gasification volumes coming in, which doesn’t seem to be enough to offset total Russian volume decline. There’s also nuclear growth, coal ramping up and renewable growth. Could European chemicals become too costly and exports from China start to take over an increasing share? This seemed to be the main topic of discussion in 2018-19 but has slowed down. How much market share might China-based players take?
16.
Does North America have the capability to import or export to Europe with its cheap shale?
17.
Do you think the European chemicals output will be structurally lower? You mentioned there’s not as big a risk of exports from other countries in many cases.
18.
Which players are best-positioned to benefit from Europe increasing sustainability and green chemicals? Is it those who have biosurfactants such as bioethylene oxide?
19.
How do you think about making the decision to accelerate CAPEX into a crisis?
20.
Which players are best-positioned to execute on accelerations into circularity and sustainable non-gasrelated solutions?
21.
How do you think about some of the more challenged areas? What do you think about Nobian or chloralkali’s European position over the coming years?
22.
Do you have a view on TiO2 [titanium dioxide] and its European positioning over time?
23.
In our previous Forum Interview [see Nouryon – Speciality Chemicals M&A & Fundamentals Outlook – 1 June2021], we discussed Lanxess’s M&A positioning. Since then, the company has bought DSM’s Engineering Materials business in a JV with Advent and acquired a flavours business. How do you see Lanxess’s strategic positioning changing as a result? It seems to have been in quite a difficult position for a while trying to get the portfolio right. Do you think this achieves that?
24.
Do you have any views on likely M&A or reasonable consolidation to come out of the challenges facing the European chemical space?
25.
Covestro has stated Russian gas switch-off could result in partial lowered operation or a complete shutdown of individual Covestro production facilities depending on the level of cutback, due to the close links between the chemical industries and downstream sectors. A further deterioration of the situation is likely to result in the collapse of the entire supply chain and production chains. You said it’s extremely unlikely that BASF closes the Ludwigshafen site. Is it similar for Covestro?
