Saudi Aramco plans further capital spending cuts

MOSCOW (MRC) -- Saudi Aramco plans to cut its capital spending to a range of USD20 billion to USD25 billion this year to pay a USD75 billion dividend it pledged to investors during its initial public offering last year, reported Reuters with reference to the Financial Times, citing people familiar with the matter.

The report here says the new level of capital spending is largely dedicated to the state-owned group's exploration and production business and will hold for the next three years.

Spending has been cut across the board to shore up cash as the oil industry contends with a realization that lower crude prices could be the norm for a long period of time after the coronavirus pandemic sapped fuel demand.

Aramco had said on Sunday it expected capital expenditure for 2020 to be at the lower end of the original USD25 billion to USD30 billion range and the company posted a 73% plunge in second quarter profits.

As MRC informed earlier, Saudi Aramco is continuing with plans to increase its maximum sustained capacity to 13 million b/d from 12 million b/d, despite the market downturn caused by the coronavirus pandemic, said the company's President and CEO Amin Nasser. The capacity hike, which was first announced in March, will not have a significant impact on the oil giant's capex commitments for 2021, as it will be gradually expanded over a period of years, said Nasser, on a call to analysts and investors following the company's Q2 results announcement Aug. 9. The expansion follows Aramco hitting a new maximum production rate of 12.1 million b/d in April.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

Saudi Aramco, officially the Saudi Arabian Oil Company, is a Saudi Arabian national oil and natural gas company based in Dhahran, Saudi Arabia. Saudi Aramco"s value has been estimated at up to USD10 trillion in the Financial Times, making it the world"s most valuable company. Saudi Aramco has both the largest proven crude oil reserves, at more than 260 billion barrels, and largest daily oil production.

North America chemical rail holding steady

MOSCOW (MRC) -- Chemical railcar traffic in North America remain firm, according to data released on 12 August by the Association of American Railroads (AAR), reported Chemweek.

During the week ended 8 August, volume year-to-date (YTD) was down 4.7% from 2019, within the 4.6-4.7% range observed since late June. On a four-week basis, volume decreased 4.5% from 2019 and 7.2% from 2018 (chart).

Weekly volume totaled 43,005 carloads, down 5.6% year-over-year (YOY) and down 2.4% from the previous week.

Chemical railcar traffic in the United States contributed 31,297 carloads to the total, down 2.5% YOY and up 0.1% from the previous week. For the year to date, US chemical railcar traffic is down 5.0%.

Canadian chemical rail traffic totaled 10,763 carloads, down 12.2% YOY and down 10.1% from the previous week. For the year to date, Canadian chemical railcar traffic is down 3.7%.

Chemical railcar traffic in Mexico totaled 945 carloads, a YOY decrease of 20.3% and a sequential increase of 12.1%. For the year to date, Mexican chemical railcar traffic is down 7.4%.

As MRC informed before, in early July, 2020, Dow agreed to sell the rail infrastructure assets and related equipment at six major sites in North America to Watco Companies (Pittsburg, Kansas), a transportation services company operating in North America and Australia. Dow expects the deal, which is slated to close in the fourth quarter, to yield over USD310 million in cash. Watco will provide Dow with rail services from the assets under a long-term agreement.

We remind that Dow Chemical restarted three polyethylene (PE) plants it shut in April on improving demand after widespread economic shocks in April and May, confirmed a company spokeswoman July 23.

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports.

LG Chem records substantial rise in net income, improved petchems performance

MOSCOW (MRC) -- South Korea’s LG Chem Ltd. reported more than doubled operating profit in the second quarter as electric vehicle demand stayed robust despite virus pandemic and further cemented the leadership of the world’s battery bestseller, with the order book packed for the third quarter, said Chemweek.

In its regulatory filing on Friday, LG Chem announced its consolidated operating profit in the April-June period reached 571.6 billion won (USD480 million), sharply up from 206 billion won a quarter ago and 247 billion won a year earlier.

Net profit ballooned more than 11-fold from the previous quarter and five-fold from a year-ago to 419.1 billion won. The three-digit gains in bottom line overwhelmed the number in the top, pushing the operating margin 8.2 percent, its best since the third quarter of 2018. Sales added 3.1 percent from three months ago and 2.3 percent against a year earlier to total 6.94 trillion won in the period.

The second-quarter operating profit was way above market consensus of 429.9 billion won compiled by Seoul-based financial data provider FnGuide on July 1. For the first six months, LG Chem’s operating profit rose 52.4 percent to 777.5 billion won from the previous year. Net profit also gained 54 percent to 455.4 billion won, and sales up 4.8 percent to 13.66 trillion won.

The stellar performance in the second quarter was mainly driven by solid demand for electric vehicle batteries despite the coronavirus spread. LG Chem which commanded 27.1 percent of the global EV battery market is expected to maintain a comfortable lead.

Battery division delivered an operating profit of 155.5 billion won on revenue of 2.82 trillion won, making the best-ever earnings for its battery business upon rising demand for EV batteries in China and Europe amid stricter environmental regulations.

During an earnings conference call, the company projected its battery sales in the third quarter would surge more than 25 percent from the second quarter on expectation for higher demand from anticipated releases of new EV models by European major customers, including Volkswagen, and small batteries amid strong demand for IT devices. The company also forecast its sales for 2020 should top 13 trillion won. Profitability of the petrochemical business also improved in the second quarter.

The petrochemical business posted an operating profit of 434.7 billion won on sales of 3.31 trillion won. Sales slid from the previous quarter due to low oil prices but operating margin recovered to double-digits of 13.1 percent for the first time in five quarters thanks to a recovering spread from expanded orders from China. The advanced materials business reported 35 billion won in operating profit, with sales of 789.2 billion won. Overall market demand for IT and displays slowed but profitability improved on lower prices of raw materials and cost-reducing efforts.

The life science business raised 14.1 billion won in operating profit on revenue of 160.3 billion won. Its pesticides and fertilizer making subsidiary Farm Hannong raised 11.6 billion won in operating profit on sales of 177.8 billion won during the same period.

"In the third quarter, the company will keep up growth momentum by maintaining profitability in the petrochemical business and brining more growth in the battery division to establish a strong business structure for stable earnings,” said Cha Dong-seok, chief financial offer at LG Chem.

As MRC wrote previously, LG Chem, a South Korean petrochemical major, reduced its operational rates of its cracker to around 90-95% starting January 2020 due to weaker economic fundamentals. Based in Daesan, South Korea, the cracker is able to produce 1.27 million tons/year of ethylene and 650,000 tons/year of propylene. The company increased capacity utilisation at this cracker to 100% on 10 March, 2020, in order to supply ethylene to Lotte Chemical.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

LG Chem Ltd., often referred to as LG Chemical, is the largest Korean chemical company and is headquartered in Seoul, South Korea. According to ICIS report, it is 15th biggest chemical company in the world in 2011. It has eight domestic factories and global network of 29 business locations in 15 countries. LG Chem is a manufacturer, supplier, and exporter of petrochemical goods, IT&E Materials and Energy Solutions.

COVID-19 - News digest as of 12.08.2020

1. ExxonMobil to ease shut-ins to 200,000 boe/d in Q3 on recovering demand

MOSCOW (MRC) -- ExxonMobil aims to ease global oil and gas production shut-ins by about 40% to 200,000 b/d of oil equivalent as demand for transportation fuels slowly recovers from a second-quarter plunge, according to S&P Global. About 70% of the shut-ins expected to persist into Q3 are from government mandates, with the rest being market-based cuts, the company said. ExxonMobil sees global gasoline and diesel demand returning to year-ago levels by Q4, while jet fuel demand will take much longer to recover.


Evonik Q2 net income falls by 50%

MOSCOW (MRC) -- Evonik Industries says its net profits in the second quarter of 2020 were 50% lower on a year-on-year (YOY) basis, at EUR114 million (USD134 million), on sales of EUR2.83 billion, 14% down on the same period of the previous year, said Chemweek.

This result is attributed to significantly weaker demand in some markets, the company says. Adjusted EBITDA beat analysts’ consensus estimate by 9.5%, but was 19% lower YOY, at EUR456 million, it says. Adjusted EBIT fell 41% YOY, to EUR202 million, Evonik says.

"In the second quarter we felt the effects of the pandemic. However, the strategic portfolio changes and the implementation of our efficiency programs contributed to the fact that we got through the first half of the year better than initially expected. This is especially true for our strong growth segments," says Christian Kullmann, chairman of Evonik.

The company’s nutrition and care business recorded a 4% YOY decline in sales, to EUR1.09 billion, and adjusted EBITDA rose by 14%, to EUR217 million, Evonik says. Higher selling prices and increased demand benefited essential amino acids for animal nutrition, it says. The healthcare segment “once again recorded a pleasing development in pharmaceuticals and food ingredients, as well as pharmaceutical polymers. However, additives for polyurethane foams experienced a decline in demand,” Evonik says.

Sales of the resource efficiency business fell by 14%, to EUR1.24 billion compared with EUR1.44 billion in the second quarter of 2019, the company says. Adjusted EBITDA declined 22% YOY, to EUR255 million. Most of the business’s segments were significantly affected by the decline in demand, Evonik says. With the exception of crosslinkers and active oxygen products, “the global economic slowdown and cutbacks in production by customers, especially in the automotive sector, led to a decline in sales volumes of high-performance plastics, silica, and silanes for the tire industry. Demand for oil additives also declined while others remained stable," the company says.

The performance materials business posted a significant YOY drop in sales of 42%, to EUR319 million that led to an 85% decrease in adjusted EBITDA, to EUR11 million, the company says. The massive drop in the oil price had an overall negative impact on the business, and the decline in demand, especially from the automotive and oil industries, hurt functional solutions, with performance intermediates the segment affected the most, Evonik says.

"Free cash flow was significantly positive at €96 million. Lower bonus payments and tax reimbursements more than compensated for the effects of lower operating profit and an increase in net working capital," the company says.

During the crisis, "we have shown high cash- and cost discipline," says Ute Wolf, CFO at Evonik. "We are starting to see initial signs of recovery in some markets. However, there is still no question of a general economic recovery. The corona crisis is not yet over," Wolf says.

For the full year 2020, Evonik has confirmed its outlook published on 7 May and expects sales of EUR11.5-13.0 billion as well as adjusted EBITDA of EUR1.7-2.1 billion.

We remind that Dow plans to install a new furnace in its steam cracker at Fort Saskatchewan, Alberta, Canada, increasing its ethylene capacity, currently 1.42 million metric tons/year (MMt/y), by 130,000 metric tons/year. Dow will split the cost of the project and the incremental volume equally with an unnamed regional customer, according to CEO Jim Fitterling, who announced the news during the company's fourth-quarter earnings call. Start-up is slated for the first half of 2021.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 595,170 tonnes in the first five month of 2020, up by 10% year on year. Deliveries of all ethylene polymers, except for linear low density polyethylene (LLDPE), rose partially because of an increase in capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market was 457,930 tonnes in January-May 2020 (calculated by the formula production minus export plus import). Deliveris of exclusively PP random copolymer increased.

Evonik is one of the world leaders in specialty chemicals. The focus on more specialty businesses, customer-oriented innovative prowess and a trustful and performance-oriented corporate culture form the heart of Evonik’s corporate strategy. They are the lever for profitable growth and a sustained increase in the value of the company. Evonik benefits specifically from its customer proximity and leading market positions. Evonik is active in over 100 countries around the world with more than 36,000 employees.