German chemical giant BASF SE has offered a remedy package to the European Commission to win approval for its €1.6bn acquisition of Solvay SA’s polyamide business.
As part of the package, BASF will refrain from acquiring some of the assets and certain technologies and Solvay will divest those operations separately, Juergen Becky, BASF senior vice president for performance materials Europe, said in an interview.
“We are at a so-called phase two stage of the process. This is a typical merger clearance process where concerns about an M&A activity are being investigated. And here there is a concern that BASF may become too big a power [in the market],” Becky said.
At this point, the European Commission will need to go to another market test to gauge the opinions of customers. BASF expects a response in early 2019.
Becky did not specify the assets that will not be acquired, but he said that it would include “innovation capabilities and manufacturing assets of Solvay’s intermediate and engineering plastics business in Europe.”
Parts of the deal that cover businesses in Asia and South America will not be impacted by the remedy package.
The announcement comes amid severe tightness in the market for polyamide 6.6, mainly due to insufficient supply of essential precursor adiponitrile (ADN).
“The whole chemical process for PA6.6 starts with ADN, which is the most decisive molecule in the whole value chain. The next step would be to make hexamethylenediamine (HMD), which is what we are doing at our plant in Seal Sands in the UK,” Becky explained.
The process then moves forward by adding adipic acid and diamine making AH salt, which will then produce the PA6.6 base polymer.
“We at BASF have all the processes in-house apart from ADN,” said Becky, who took the SVP position a year and a half ago.
In the short term, BASF expects the supply of ADN to be short due to lack of capacity.
In Europe, Butachemie — a Solvay-Invista joint venture — is producing 520 kilometers per year (ktpa) of the basic material. Invista also runs two other plants in the US with capacities at 420 ktpa and 320 ktpa, while Ascend produces 360 ktpa of the material in the United States.
While demand for PA6.6 has grown by 4-5% annually for the past 10 years, global capacity for ADN has remained almost unchanged.
There have, however, been announcements in further ADN capacities in recent months.
Invista is building a 300-ktpa plant in China to be operational in 2023, and Ascend plans to build a 200-ktpa plant set to come to operation in 2023.
Butachemie is also completing an expansion project to add 80-90 ktpa of capacity by 2020, which, according to Becky, will be absorbed by the market “almost immediately.”
As a company with strong reputation in vertical integration, the acquisition of Solvay’s polyamide business is of strategic importance as it offers BASF access to the only European production site for ADN.
“We want to complement our engineering plastics portfolio, enhance access to key growth markets in Asia and South America and strengthen the value chain through backward integration into key raw materials such as ADN. That way, we would still achieve our key strategic objectives,” Becky said.
The European Commission’s concerns regarding BASF’s exclusive rights to European ADN production does not faze the company. The rationale is that the basic precursor’s production in Europe has been exclusive to Solvay until now, and it will only change hands between the two companies.
“We continue to work closely with the EU Commission, and we hope that we will be able to address all the concerns,” Becky added.
In addition to the shortage of ADN supply in the market, BASF’s nylon 6/6 business was also hit by two force majeures at its HMD production plant in Seal Sands in 2018.
BASF divested its Seal Sands site, with the exception of the HMD unit, to Ineos in 2008.
“The HMD plant at Seal Sands is being operated by Ineos. The whole site experienced two different unexpected failures, which also led to shutdowns of the HMD plant in January and May,” Becky said.
“At the moment, we are stabilising the situation and have sent our own people to the site to oversee the operation of the plant,” he said.
The 100-ktpa unit is BASF’s only HMD production unit in Europe.
“It is a strategic plant, of course, and we will do everything in our power to ensure its reliability,” Becky noted.
Polyamide 6.6 is used extensively within the automotive industry, particularly due to its high heat resistance. With the tightness in the market, the base polymer prices have currently reached a peak of €3,800 per tonne, compared to €2,800 per tonne last year.
Amid industry calls for alternatives, BASF unveiled this year at Fakuma a new group of polyphthalamide (PPA) compounds.
Ultramid Advanced T1000 is based on PA 6T/6I and within the Ultramid family has the highest strength and stiffness and has constant mechanical properties at temperatures of up to 120° C.
Thanks to its semi-aromatic chemical structure, it offers high resistance to moisture and to aggressive media, outperforming conventional nylons and many other PPAs.
While the compounds can offer an alternative to PA6.6, they still share the same precursors and have ADN, for instance, as their building block.
Despite that, the new materials are expected to play key role in developing next generation of lightweight, high-performance components.