Arlanxeo: Mixing oil and rubber

Based on feature article published in ERJ’s November/December issue:

Patrick Raleigh interviews Jan Paul de Vries, head of the new Arlanxeo joint venture during the K2016 trade fair in Düsseldorf

With annual sales of around €2.8 billion in 2015 and 20 production sites worldwide, Arlanxeo is one of the world’s largest suppliers of SR, which its develops, manufactures and supplies mainly to the tire, automotive components, construction and oil & gas industries.

Arlanxeo’s production slate includes: Butadiene and styrene-butadiene rubber, over 1,000 kilotonnes per annum (ktpa); EPDM, 450ktpa; butyl rubber, 400ktpa; nitrile rubbers, over 130ktpa; chloroprene rubber, over 60ktpa; EVM rubber, around 15ktpa. Its main production sites include: Geleen, The Netherlands; Dormagen, Germany; Orange, Texas; Jurong Island, Singapore; and Changzhou, China.

For state-owned Saudi Aramco, the world’s biggest oil company, its €1.2-billion purchase of a 50% stake in Lanxess’ SR business, is just one small step in a strategy to push downstream and become a global top-three supplier of petrochemicals by 2020.

Aramco’s strategy to turn oil & gas resources into petrochemicals and polymers has already seen it establish massive projects in Saudi Arabia including: Satorp, with Total; Petro Rabigh with Sumitomo Chemical; and Sadara, with Dow Chemical Co.

Lanxess, meanwhile, believes that integration with hydrocarbon feedstocks of monomers such as ethylene, propylene and butadiene, from these Saudi projects will make the SR business more competitive – particularly in high-volume rubber markets, which are largely blighted by oversupply.

Another aspect of the Arlanxeo pairing is that – according to a Lanxess pre-launch presentation – the JV will become a platform for future organic investments, especially in Saudi Arabia, and further mergers or acquisitions.

Meanwhile, Arlanxeo is still closely tied to Lanxess and De Vries has set a target of three-to-five years to establish the JV as an independent, stand-alone organisation.

Since its formal launch on 1 April, Arlanxeo has set up headquarters in Maastricht and established group functions including HR, communications, finance, IT and legal. These departments report to a board comprising two members each from Aramco and Lanxess.

“What we are doing now is building the organisation,” said de Vries. “Two companies are coming together, who did not have any experience with each other before starting this joint venture. Aramco is of a different magnitude, different part of the world, different culture.”

Aramco’s business is clearly different from what Arlanxeo is doing, continued de Vries: “it is for them a learning process in forward integration. So [an area] like technical service is something that is not well known in the commodity sector.”

For the Lanxess side, he added, it is about learning how a commodity oil operation works: “It is not as fast as we are maybe [used to] due to the magnitude or scale of the business.”

Saudi feedstock

A three-to-five-year timeframe is also envisaged for Arlanxeo to start receiving feedstock in significant quantities from its partner, though de Vries declined to say how much Saudi feedstock would reach Arlanxeo’s plants which are all located in other parts of the world.

“Every figure I put on the table right now would be meaningless,” he said. “We have not made such calculations because it depends very much on Aramco’s next steps. Aramco is very busy with developing this petrochemical company and how that develops is up to [them]. It is not up to us.”

De Vries did add: “It is clear that, over time, we will also get materials from Aramco. My personal opinion is that it will not be 100%. Not every raw material can be supplied everywhere, standalone, in the world by Aramco.”

“With Aramco as a partner, you see a difference when you negotiate with your raw materials suppliers,” the CEO explained. “We have different discussions, not because we say ’hey, we want to get rid of you as a supplier’. Not at all. We have 20 production facility across the world, South America, North America, Asia and Europe and everywhere we need raw materials.”

For now, so, there are other priorities, including making sure the SR business runs as it did before without any interruption to customers in terms of product-supply, support and services.

Arlanxeo is currently ramping up two new plants in the Far East – a 160ktpa EPDM facility in Changzhou, Jiangsu Province, China and a 140ktpa neodymium butadiene rubber (Nd-BR) plant next to an existing butyl rubber plant on Jurong Island, Singapore.

The Changzhou EPDM plant is based on ACE technology, first implemented at the company’s Dutch EPDM plant in Geleen. According to Arlanxeo, the post-metallocene technology yields polymers that are purer and offer better processing and performance properties than conventional materials.

The CEO said the company was “very happy” with the start-up of the two new plants and the way they are running.

“That is a new experience: we havn’t built a plant of that size before in China, we have not built a plant like that in Singapore before. Even if we have the experience and the knowhow, it still has to happen,” he commented.

Arlanxeo, noted de Vries, now has to grow demand for materials from these new facilities at a time when other companies are also bringing on new capacity in the region.

In EPDM, these include a 70ktpa Sinopec-Mitsui plant in Shanghai, a 50ktpa plant in Ningbo, China by South Korea’s SK Global Chemical and Kumho Polychem’s 50ktpa unit in South Korea.

Trade show

The Düsseldorf event, said de Vries, offered an important opportunity to present the Arlanxeo business. The message, he said, was: “Within Lanxess we were only part of a chemical company. Now we are only rubber and that is a good signal to our customers. We are a rubber company: all our focus is on rubber, all our investment is on rubber.

“Everyone can see now that we are a company that is here to stay and one of those most likely to resist any downward (market) cycle. We are a long-term partner.”