Specialty Chemicals - Economics Changing?

[BG2008]

I have noticed a lot of specialty chemical companies getting high valuations lately.  Is there a fundamental shift in the pricing power and return on capital on specialty chemicals industry in recent years?  Any chemical engineers on this board who can help with this?

[ZenaidaMacroura]

I work in this industry!

 

Among diversified Chem producers the biggest boom since 2011 is in the ethylene cracking plants- it seems everyone has a few 1mil+ short ton facility coming online in 2015-17.  There is an unbridled optimism due to the cheap shale/natty gas feed and everyone is scrambling to up their capacity. 

 

We've had to re- apply for a permit to break ground 3 times because the c-suite wanted the design capacity increased (the latest iteration is capable of twice the original capacity).  It seems there is pricing power now but once everyone's post financial crisis facility comes online in the next half decade the business may become more commoditized. Some of the more "specialty" stuff such as spvc might maintain their pricing power but it is difficult to keep the product spec and the capex is quite high.

 

East Asian producers took it to the chin as they don't have the pipeline infrastructure nor ready availability of cheap shale gas...  most of the margin is captured in the downstream processes but these plays really embrace vertical integration.  So it's somewhat hard to determine whether its the specialty nature/R&D aspect that is driving the high multiple - or if it's just firm's anticipation of being able to produce their end products at a fraction of the cost of competitors (located in Asia/Europe).

 

I'd say still highly cyclical but about to enter the boom phase.

[BG2008]

Great feedback.  Is there a way that you can provide an overview of the chemical space.  All I know about the chem space is from what I remember back in HS chem classes.  I guess we can start with what's in the generic camp and what's in the specialty.  Is the space divided by the molecules, i.e. organic vs inorganic, etc.  Is it know how?  Is it barriers of entry due to permitting?  What makes something generic and what makes something specialty?  Is it fair to include something like Lubrizol and Valvoline in this category?  How much does cheap shale gas improve profitability?  With nat gas being at $5+ recently, is the advantage still there?  Your feedback would be greatly appreciated. 

[BG2008]

Z,

 

Would love to hear your thoughts on the economics, barrier to entry, pricing power etc of producing the following products from crude:

 

1) Solvent

2) Base oil

3) Wax

4) Branded synthetic lubricants

5) White Oils and Esters

6) Petrojelly, Parafin wax

 

I hope you see this