Covestro Invests in AI, Arkema Buys and Sells and Loop Industries is a Fraud?

Academia and Industry Aligning

In an article published in ACS Macro Letters, some academics seems to be aligning with what is happening in the chemical and plastics industry. The concept that we can just make new plastics from biomass and most of our problems are solved is naïve at best for an academic and to those chemists who are actually practicing in the industry we know that to transition completely away from oil would be almost impossible.

To be fair, I feel I am part of this problem as well. My doctoral thesis was about making epoxy resins from biomass competitive with those made from bisphenol A. If anyone is interested in my academic work it can be found here. When I got into the chemical industry the sheer scale, efficiency, and sometimes preposterous inefficiency made me realize that my PhD thesis was a pipe dream. I had multiple people reach out to me after I had graduated interested in the commercialization feasibility, but I often cited the extremely low cost of BPA as being a barrier to market entry.

The ACS Macro Letters paper is worth reading, but if you don’t have time here is the gist. The authors suggest that making materials from biomass isn’t really that sustainable. Synthetic chemists need to look at completely closed loop synthetic methodologies and think at the systems level. We should also use life cycle analysis to determine if we are on going down the right path and continuously question viability.

The paper also had a quote I thought worth calling out here:

Physical scientists seldom venture into social science and public policy, and synthetic polymer chemists are no different. This departure from our comfort zone is unavoidable, however, if we want to envision and successfully build a more sustainable future.

I agree 100% with this statement and its sentiment. Chemists have been concerned for the last century with primarily making new things and making things better. We have been focused on the product and how to obtain the product with more efficiency. Part of the purpose of this newsletter is to expand the horizons of chemists and chemical engineers and to sharpen my own thinking through writing.

I think in order to bring in the future we want to see, one of circularity and sustainability, where science and policy are in agreement, scientists and engineers need to leave our comfort zones. There a really only a few chances to work with policy makers through select fellowships and government positions and these need to be expanded. Further, I think chemists and chemical engineers should attempt to run for office at the local, state, and federal level.

I also hope that chemists and chemical engineers in the industry attempt to make the transition to the business side. Clariant’s CEO Hariolf Kottmann has a PhD in organic chemistry and Solvay’s CEO Ilham Kadri has a PhD in macromolecular physical chemistry; both started in R&D. Having technical people with deep expertise in how the product is made on the commercial side of the business gives these companies a better ability to see around the corner of the future.

The future is circularity where the waste of today is the raw material of tomorrow.

There was a time when the chemical industry was just as innovative if not more innovative than academia and this innovation is what propelled us into the age of plastics and the unique set of problems we face today. I think the 21st century holds the promise of another golden age of sustainable and responsible chemistry. We just need leaders to lead the way.

Business Distillates

Trinseo to buy Arkema’s Methacrylate Business

While poly(methyl methacrylate) is not one of the largest volume plastics in the world it is still very ubiquitous, used in a wide variety of end markets, and is for the most part commoditized. Trinseo is a plastics maker that is seeking to become less cyclical with oil prices and hopes that the acquisition of Arkema’s business at 6.2x projected EBIDTA in 2020 is enough to pull it towards more specialty markets. Arkema on the other hand believes that divesting their PMMA business will enable the company to become a pure specialty chemicals business.

Arkema Buys Colorado Photopolymer Solutions

To compliment the divestment of the PMMA business Arkema acquired Colorado Photopolymer Solutions to strengthen their already vast portfolio of UV cured specialty monomers through their subsidiary Sartomer. Arkema is betting that 3D printing will continue to grow and is betting this acquisition will position them to take advantage of the growing 3D printing market for both industrial and educational markets.

My Analysis on Arkema

I have seen these situations even before I started writing The Polymerist where companies look to focus on their “core” business or wanting to expand into new markets. It just so happens that Arkema has done a divestment and an acquisition in the same week that fits with their strategy. The big question is will this strategy work out for Arkema in the end? If I knew the answer to that question I wouldn’t be writing this newsletter, but I think it will work out for Arkema. 3D printing or additive manufacturing seems to be gaining more traction in the automotive, aerospace, and education end markets. If 3D printing can gain a foothold in another end market like construction or apparel then the executive team of Arkema look like geniuses. Overall low downside risk and a lot of upside for Arkema.

Trinseo on the other hand is looking to move on from being “just a plastics producer” and gain more expertise in specialty markets. They are already starting to form partnerships with their suppliers on chemically recycled plastic and launching mechanically recycled polycarbonate products and recycled polystyrene products for food grade applications. This focus on sustainability is probably enough to keep them competitive in developed western country markets especially if the marketing on sustainability resonates with the end consumer. The only issue I see with the PMMA acquisition is that they may be inheriting a lot of older manufacturing sites that may need heavy investment. If you recall Mitsubishi closed one of their MMA sites, but has plans on opening a new one.

Covestro Pilots Artificial Intelligence For Manufacturing Efficiency

Covestro is exploring how to use artificial intelligence to run more efficiently in the synthesis of polyester polyols and optimization of their production processes. Covestro does not say too much on the details of how they are using AI, but I imagine that this will bring greater efficiency to their operations that will result in lower operating costs. Traditionally the chemical industry has relied on Six Sigma and manufacturing excellence to improve reliability and efficiency.

Loop Industries Looks To Be Vaporware

Hindenburg Research released a report in October claiming that Loop Industries appeared to have no viable product and was essentially defrauding investors. Hindenburg updated their findings with a follow up report released on December 15th, 2020 that further supports the initial report with inclusion of an independent review and Loop’s response. Loop Industries is a publicly traded company and currently has a market capitalization of about 300 million dollars and does not appears to have any significant revenue. Hindenburg also reported that Nikola Motors appears to have been a fraud as well back in September.

My Analysis on Covestro and Loop

Covestro is making a bet on a trend that McKinsey has been pushing for years. Will AI actually be able to make headway in terms of improving efficiency in the chemicals industry that has been the job of chemical engineers for just about the last century? I’m guessing AI will be able to squeeze some additional operating efficiency out of what remains over the next 5-10 years, but eventually these manufacturing assets will deteriorate either from new efficient processes being available (see Mitsubishi above) or just material integrity breakdowns. It would be interesting to see a case study on AI doing scheduling of a specialties plant versus humans. If anyone knows of one leave a link in the comments.

Chemical recycling is white hot right now. Companies like Agilyx are doing deals left and right and more partnerships are seemingly launched every week by anyone involved in the synthesis of and deployment of plastics. It seems understandable that there will be quite a few start-ups looking to raise capital with promises of big dreams that do not deliver. I am surprised VCs in the space do not have more experienced chemists and engineers that might be able sniff these schemes out prior to giving a company millions of dollars.

Perhaps Loop had good intentions at the beginning, but chemical research typically happens on the scale of years and it takes years to scale up. Short term returns within a 5-10 year period in technology are impossible to duplicate in chemicals.

If any Venture Capitalists need help let me know. My rate is negotiable.

Tony

The views here are of my own and do not reflect those of my employer nor should they be considered investment advice.