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Chemical suppliers active in acquisition/merger activities

Year-end production figures from the Canadian Pulp and Paper Association (CPPA) are not yet available, but total pulp output was down by 7% in the first nine months of 1998. Kraft pulp production was down by 4% at the three-quarter mark. Sulphite pulp output fell 26% and mechanical pulp output dropped 8%.

Pulping

Lower pulp production and technological changes caused sodium sulphate consumption to decline in 1998. Pulp mills have been reducing their salt cake purchases for a number of years. This downward trend, combined with reduced demand for sulphate in the detergent industry, created an imbalance in the market. The oversupply in North America was further aggravated by excess by-product sulphate. As a result, prices fell by 10 to 20% in 1998.

Pulp mills can look forward to additional price decreases for salt cake in 1999, although the declines will not be as large. The overcapacity that currently exists in the North American market will likely persist for at least another year.

Ample supplies and reduced demand for lime in the steel industry, the major market for lime, kept prices in check in 1998. Prices are expected to rise 3 to 5% in 1999. The increase is a reflection of higher gas, transportation and production costs. The supply of lime will be balanced for the foreseeable future.

Carmeuse Lime reached an agreement to acquire Dravo late last year. The deal with Dravo came shortly after Carmeuse and Lafarge combined their North American lime operations. The combination of the three firms creates a strong North American supplier of lime with a presence in almost every market segment.

Dravo is the largest publicly owned company in the US lime industry, with a total capacity of over three million tonnes per year (t/y). Carmeuse has eight lime plants in North America with a total capacity of 2.7 million t/y. Northern Lime has a facility in Blind River, ON, while BeachviLime has operations in Ingersoll, ON. Both companies are subsidiaries of Carmeuse. Lafarge has more than 700 kt/y of capacity in North America.

The price of liquid sulphur dioxide rose $10/t last year, or approximately 3 to 4%. The supply/demand balance is tight and should remain snug for most of 1999. This will put upward pressure on prices, leading to an increase of about 3 to 5% later in the year.

Prices for caustic soda also went up in 1998. However, the increase was not as large as originally expected. Chloralkali producers were anticipating significant price increases because markets for chlorine, a co-product of caustic, softened last year. This forced suppliers to lower their plant operating rates and reduce production of chlorine/caustic.

The drop in caustic production did not have the anticipated effect on prices due to lower demand in pulp and other key markets. Caustic suppliers attempted to raise prices in the spring, summer and fall, but met with limited success. In the end, prices went up by only 10 to 15% for the year.

Supply and demand were in balance late in the year and will remain balanced for most of 1999. Consequently, prices will likely remain flat this year.

Additional quantities of sulphur could soon be destined for offshore markets. Sulphur Corp. of Canada plans to build a sulphur export terminal at the Prince Rupert, BC, port.

The project involves construction of a rail receiving area, storage facilities for liquid sulphur, a pelletization plant and enclosed storage and transfer facilities. Sulphur will be shipped by rail from Alberta, British Columbia and Saskatchewan to Prince Rupert. The sulphur will then be exported to offshore countries. The terminal is expected to handle 500 kt of sulphur during its first year of operation.

Bleaching

The decline in bleached pulp production last year resulted in lower consumption of bleaching chemicals, which in turn put downward pressure on prices. According to CPPA, output of bleached softwood kraft for the first nine months of 1998 was down by nearly 5%. Production of bleached hardwood kraft fell 2%.

Despite the decrease in bleached pulp output, production of elemental chlorine-free (ECF) pulp continued to rise in 1998. The Alliance for Environmental Technology (AET) estimates Canadian ECF pulp output grew 4% last year to 9.1 million tonnes. This represents more than 76% of the market. Totally chlorine-free pulp production declined to less than 10 kt.

In the US, another 2.3 million tonnes of ECF pulp entered the market in 1998. The AET believes the ECF technology is now the dominant bleaching process in the US. The same trend is occurring in the rest of the world.

Sodium chlorate demand is benefiting from the trend to chlorine dioxide substitution. Consumption of the bleaching chemical fell last year in response to lower bleached pulp output. The supply of chlorate should be plentiful through most of 1999, but could become tight late in the year.

Sodium chlorate producers attempted to raise prices in the spring and summer of 1998. These increases were largely unsuccessful, resulting in flat prices for the bleaching agent last year. Pulp mills can expect their chlorate costs to remain stable for at least the first few months of 1999. A modest price increase of about 5% can be expected in the second half as supplies become tighter.

Pulp mills that still purchase chlorine took advantage of lower electrochemical unit costs in 1998 as falling chlorine prices more than offset the rise in caustic prices. Chlorine costs declined by 30 to 40% last year because of weakness in the vinyl industry, the largest market for chlorine. Chlorine normally destined for polyvinyl chloride production ended up in the merchant market. This created an excess supply of chlorine and drove down prices.

Chlorine prices will likely remain stable or decline slightly in the first half of 1999. Improving market conditions will begin to put upward pressure on prices by mid-year, leading to a modest increase in the second half.

Chlorine producers signed a ground-breaking labor/management agreement in Montreal in the fourth quarter of 1998. The agreement commits unions and companies to improve labor relations and continue the development of environmentally-sustainable practices.

Elf Atochem, Solvay Chemicals, CXY Chemicals Canada, Dow Corning, Olin, Pioneer, Geon and Georgia Gulf all signed the accord. Signing for the union side was the International Fdration of Chemical, Energy, Mine and General Workers’ Unions (ICEM). A number of unions are affiliated with the ICEM, including the Communications, Energy and Paperworkers Union of Canada and Fdration des Travailleurs et Travailleuses de Papier et de la Fort.

Pulp mills benefited from declining hydrogen peroxide costs over the past two years, but prices will increase in 1999. Virtually all of the major North American producers are raising prices by $170/t (100% basis) early this year. Peroxide suppliers are attempting to restore profit margins and bring prices up to the levels needed to justify future investments. A similar increase is expected in the second half of 1999 in response to improving market conditions.

Hydrogen peroxide prices declined last year due to an imbalance in supply and demand. Plant expansions, combined with lower pulp output, created overcapacity for the bleaching chemical. Producers responded by eliminating capacity. Degussa and Eka Chemicals shelved plans to build new peroxide plants in Quebec, while FMC shut down a facility in the US. Despite the reduction in North American capacity, there is ample peroxide available to satisfy pulp mill requirements. Markets will not be tight for at least another two years.

Last year was eventful for mergers and acquisitions in the peroxide sector. Elf Atochem purchased Air Liquide’s interest in their peroxide venture. The two companies have been partners for a number of years. The firms have joint venture plants in Europe and Asia, as well as a 73-kt/y (100% basis) facility in Bcancour, QC.

DuPont sold its Gibbons, AB, plant to Degussa. The facility has capacity to produce nearly 80 kt/y (100% basis) of peroxide. Degussa has been supplying the domest
ic market for a number of years, but the deal gives the company a manufacturing presence in Canada.

DuPont also reached a deal to sell its Maitland, ON, and Memphis, TN, plants to OCI Chemical in 1998. This transaction fell through because OCI failed to reach a satisfactory agreement with its lender. DuPont then sold the Memphis facility to Elf Atochem. The Maitland plant was recently purchased by Kemira Chemicals.

The supply of sulphuric acid improved in 1998 due to the absence of labor difficulties. Strikes at Inco’s Sudbury, ON, operations and at Falconbridge’s Sudbury facilities affected acid production the previous year. Markets returned to normal in 1998 and prices were stable throughout the year. Acid suppliers have more than enough capacity to meet the needs of the pulp and paper industry in 1999.

Two major sulphuric acid suppliers hope to improve efficiencies by joining forces. DuPont and Noranda formed a 50:50 joint venture last year to market, transport and distribute acid.

The new venture is called Noranda DuPont and has sales offices in both Canada and the US. The parent companies will continue to manage their own manufacturing operations. The newly created firm is purchasing and reselling the sulphuric acid produced by DuPont, Noranda and Falconbridge in North America.

Noranda operates acid plants in Rouyn-Noranda, Murdochville and Valleyfield, QC, and in Belledune, NB. In addition, the company was the exclusive sales agent for the acid produced at Falconbridge’s plants in Sudbury and Timmins, ON. DuPont’s acid facilities are located in the US.

While many pulp producers have an on-site source of oxygen, mills that purchase oxygen on the merchant market had to cope with snug supplies in 1998. Additional capacity will come on stream next year to satisfy growing demand in metal smelting, metal working, chemical production and pulp bleaching.

Prices for oxygen rose by 5 to 8% in the second half of 1998 because of higher distribution costs. Another modest price increase is projected for mid-1999.

Air Products and Chemicals and Kvaerner Chemrec have entered into a cooperative agreement to supply oxygen-based black liquor gasification technology to the North American kraft pulp mills. The technology will be marketed under the Chemrec Systems trade name. Kvaerner will design, build and install Chemrec Systems based on its proprietary gasification and pulping technologies, Air Products will provide oxygen and nitrogen supply.

Prices for sodium silicates went up by about 5% late last year. Suppliers of the chemical raised prices to offset higher raw material, transportation, manufacturing and overhead costs. A similar increase is expected in the second half of 1999.

Papermaking

Newsprint output mirrored the declines in the pulp sector. Nine-month production was down 7%, a reflection of labor disruptions at Abitibi-Consolidated and Fletcher Challenge. The settlement in the Abitibi-Consolidated strike had a positive effect on newsprint production in the fourth quarter, but not enough to offset the decreases recorded in the first nine months.

Better performances were turned in for other paper products. Output of printing and writing papers was up 3% at the nine-month mark. Kraft paper and sanitary and specialty papers also recorded small increases.

Paper mills had to cope with significantly higher titanium dioxide costs in 1998. Suppliers raised prices early in the year and again in the summer and fall for a total increase of about $0.25/lb. These increases offset the erosion of previous years.

Strong demand for titanium dioxide, particularly in North America and Europe, was the driving force behind the price increases. Capacity is currently sufficient to meet the needs of paper mills and other customers. However, pigment producers believe more capacity will be required early in the next century and price recovery is needed to justify capital investments. As a result, prices will continue to climb in 1999, but not at the same rate as last year.

The rise in titanium dioxide prices reflects increasing use for the pigment in plastics and coatings. In the paper sector, titanium dioxide has been losing market share to other papermaking pigments because of its poor performance-to-cost ratio.

Despite improving prices and tighter supplies, ICI continued to withdraw from the titanium dioxide market in 1998. The company reached an agreement to sell its titanium dioxide businesses (Tioxide) in the Americas to NL Industries for US$250 million. In 1997, DuPont reached a deal to purchase ICI’s pigment operations outside North America.

Last year’s deal with NL Industries included Tioxide’s 50% stake in Louisiana Pigment, a manufacturing venture between NL and Tioxide that operates a 120-kt/y titanium dioxide plant. NL will also acquire Tioxide’s 52-kt/y finishing plant in Tracy, QC.

Consumption of kaolin grew significantly last year and should continue to rise in 1999. The increase reflects the startup of Stora’s new 350-kt/y supercalendered paper line at Port Hawkesbury, NS. Kaolin for the facility will be imported from England. Kaolin supply is good and paper mills will have no difficulty purchasing the mineral this year.

Kaolin prices were relatively flat in 1998. No major price changes are anticipated for this year. Selected grades could rise by a modest 2 to 3%.

The price of liquid alum rose $5/t in 1999. Further increases can be expected in 1999, probably in the $4/tonne-$5/tonne range. Supply is plentiful, even with alum’s growing use in water treatment. The Montreal Urban Community decided to use alum in water treatment last year. The city had been using ferric chloride to treat its water.

The drop in corn prices last year drove down the price of starch in the US. Since corn is priced in US funds, the lower value of the Canadian dollar offset the decline in corn prices. This led to stable starch prices for Canadian mills in 1998. There should be a small jump in the price of starch for 1999.

The supply of starch will not be a problem this year. Additional capacity is scheduled to come on stream in North America in the short term.

Stability can best describe the current pricing environment for styrene-butadiene latex. Prices were flat last year. The best paper mills can hope for in 1999 is continuing stable prices because SB latex is believed to be near the bottom of the current cycle. The good news for paper mills is that no major increases are expected this year. The cost of styrene raw material has the greatest impact on SB latex prices. Prices for styrene are forecast to start climbing in 2000.

The supply of SB latex is balanced to tight. Although domestic capacity will not change, growing U.S. capacity will prevent any shortages from arising.

Paper mills should benefit from a recent joint venture between Mintech Canada, JM Huber and Groupe Laperrire & Verreault. The three firms will build and operate a new facility in Trois-Rivires, QC, to test and evaluate coating formulations.

The facility will be called Centre International de Couchage and will require a capital investment of $31 million. Mintech, Huber and select paper industry customers have already committed to 33 weeks of testing per year for a 10-year term. The CIC is scheduled to be operational in the winter of 1999.

Specialties

Vinings Industries of Atlanta, GA, purchased the paper and mining chemical operations of Rhodia in 1998. The acquisition will enable Vinings to better serve existing and new customers in both Canada and the northeastern US.

Rhodia was formed on Jan. 1, 1998, following the merger of Rhone-Poulenc’s fibres and polymers business with the chemical operations. The company’s line of paper chemicals included polyacrylate dispersants, defoamers and related raw materials, digester additives and deinking products. The transaction included Rhodia’s manufacturing plants in St Catharines, ON, and Cobb County, GA.

Hercules increased its product offering last year with the purchase of BetzDearborn. Prior to the acquisition, both companies marketed paper chemicals and had operations in Canada. Hercules Canada’s
Burlington, ON, plant manufactures paper technology chemicals, as well as tall oil rosin and tall oil fatty acids. The firm’s St-Jean, QC, facility makes paper technology chemicals. BetzDearborn’s plants are located in Edmonton, AB, Mississauga, ON, and Pointe-Claire, QC.

Joe Piccione is vice-president, Camford Information Systems, Toronto, ON.

TABLE I. Markets for major pulp and paper chemicals in Canada.

Some of the chemicals listed above have more than one application. The figures represent total mill consumption.