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Akzo’s $200 Million Chlorine Revamp to Soak Up Orders

Akzo Nobel NV (AKZA) will today inaugurate a revamped chlorine factory in Germany, betting the $200 million upgrade will help it win orders as new regulations loom.

Production in the industry is poised to fall as not all competitors will be prepared to invest in those sites that are less economically viable, Akzo Chief Executive Officer Ton Buechner said in an interview. Chlorine makers are faced with stiffer European regulations on manufacturing coming into force in 2017 in an effort to phase out the use of mercury in favor of membranes.

“Others are looking at their plants and see that in some plants in Europe a switch right now isn’t justifiable in economic terms,” Buechner said. “Those that find the switch in technology not worth it, will see their capacity disappear.”

Demand will then flow in Akzo’s direction, the CEO said. Production capacity in Frankfurt is increasing to 250,000 tons annually from 165,000 tons, allowing Akzo to soak up orders from those older plants that are phased out.

Preparations for the new legislation are coinciding with a period of stagnation in the chlorine market. There’s few indications of European demand picking up, Akzo Chief Financial Officer Keith Nichols said in an interview.

Merger

While Akzo has made one of its biggest European investments to date in chlorine, Dow Chemicals is selling its chlorine division after more than 100 years in the trade. Prospects for some in the industry has weakened in Europe amid higher energy prices and a clientele in the commoditized market of polyvinyl chloride, or PVC, used in plastic window frames and doors.

Ineos Group Holdings and Solvay SA are seeking a merger of their PVC operations instead of fighting for market share, in a 4.3 billion-euro ($5.8 billion) transaction. The two companies will need to find a buyer for four older-technology Ineos sites to get the transaction past European antitrust regulators.

“Akzo isn’t as exposed to PVC,” said Canaccord analyst Paul Satchell, adding that a broader customer base helps differentiate its operation from Dow’s.

Having buyers of chlorine in industries such as epoxies, resins and titanium dioxide helps stabilize earnings, Buechner said. As PVC exposure in Frankfurt’s industrial cluster is relatively small, so is Akzo’s, the CEO said.

“You always want to be in the most competitive cluster, and the most competitive clusters of Europe is Antwerp, Rotterdam, Frankfurt,” Buechner said.

To contact the reporter on this story: Elco van Groningen in Amsterdam at vangroningen@bloomberg.net

To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net Andrew Noel

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