Styrolution CEO Plots Next Phase of Plastics Growth in Asia
Styrolution, the $8 billion plastics venture formed by BASF SE (BAS) and Ineos Group AG, is working on plans to expand in Thailand and other emerging markets, Chief Executive Officer Roberto Gualdoni said.
The plastics maker is already expanding sites in Vadodara, India, and Ulsan, South Korea, to advance in specialty products such as copolymers. The next wave of expansion, to be announced in coming months, will probably be in southeast Asia, including Thailand, the CEO said in an interview.
“We are now starting to kick off a discussion on our more long-term strategy,” said Gualdoni. “This will probably come in the second half. We’ve done the most accessible things and now we have to do the more complex work.”
Three weeks after Frankfurt-based Styrolution was formed in October 2011, its managers went to a retreat in Mainz on Germany’s Rhine river to work on integration and synergies at a time of slowing demand in Europe. Three days later they emerged with an integration plan that included closing an operation in Marl, Germany, and growth in specialty products.
The company is “very keen” on developing its Map Ta Phut plant in Thailand and has taken a “deeper look” at several other emerging markets that could benefit from Styrolution’s global network, Gualdoni said.
Styrolution can compete with local Asian companies, such as Taiwan’s Chimei Materials Technology Corp. (4960) and Formosa Petrochemical Corp. (6505), by unlocking patents and technologies acquired by Ineos and BASF, which respectively bought units from Lanxess AG (LXS) and Royal DSM NV, according to the CEO. Meanwhile, western producers such as Royal Dutch Shell Plc (RDSA) and Total SA, are channelling investment into exploration for new reserves of oil and gas.
Styrolution is ahead of schedule integrating Ineos and BASF plants to achieve initial savings of at least 200 million euros ($267 million), and this program will be extended in the months ahead, Gualdoni said. After a “particularly negative year” for trading in 2012 because of Europe, North America has stabilised while Asia “isn’t on the same growth path” of a few months ago. Europe remains a “question mark” as the automotive market slows, he said.
Two-thirds of the planned cost cuts should be achieved by the end of 2013, Gualdoni said. Pro-forma sales last year probably fell by a single-digit percentage from the 6.6 billion euros of 2011, weighed down by Styrolution’s voluntary cancellation of procurement contracts in styrene monomer, he said.
Styrene monomer is an oily liquid used to make polystyrene and copolymer plastics. Styrene plastic is used in products from clear sheets and CD cases to toys.
“A big chunk” of the planned savings were obtained in 2012, which was probably Styrolution’s second-best year on a pro-forma basis, said the CEO, an industrial engineering graduate with an MBA from the INSEAD business school in Fontainebleau, France.
The challenge is to improve businesses and retain the cost advantages that come from being part of the large integrated chemical complexes of Ineos and BASF, he said.
“That was and still is what we’re working on, that’s still a main focus to bring home the synergies that this business can,” said Gualdoni, who joined BASF in 1987 and went on to oversee procurement of raw materials and later plastics. “We knew we were going to confront a very significant and severe build-up of capacities in Asia, particularly in China, in ABS.”
In acrylonitrile butadiene styrene, or ABS, a lightweight, robust plastic used in golf-club heads, canoes and appliances, the industry will have an extra 2 million tons of capacity coming on stream over the next few years, Gualdoni said.
For now, the future of Styrolution’s shareholder structure is off the agenda even as BASF plans to exit at some point. Options include Ineos or another party taking over BASF’s share, or an initial public offering.
Trinseo SA, a styrene manufacturer carved out of Dow Chemical Co. (DOW), abandoned plans for an IPO because of market volatility. Styrolution may not be a fit for Saudi Basic Industries Corp. (SABIC) or Saudi Arabian Oil Co., known as Saudi Aramco, as they don’t use complementary feedstocks to a large degree, restricting potential savings.
BASF and Ineos have an equal stake in Styrolution.
“Everything is open and there is no particular or preferred exit option,” Gualdoni said. “We have a lot of things to do ahead of us. The exit possibilities are many. The only one that is excluded is BASF remaining in the long term.”
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