Chemical sector, and more particularly the petrochemical sector, is expected to be flush with higher numbers of mergers and acquisitions in 2007. Consolidation is one of the major factors affecting mergers & acquisitions, the second reason being establishing a global presence. However, the most important factor is to gain a foothold in the areas with abundant availability of cheaper feedstock, particularly the Middle Eastern region. Future deals would be essentially affected by a series of transactions triggered by high hydrocarbon prices, fast-growing emerging markets and cash surpluses held by manufacturers and private-equity firms.

The companies that are considered as likely targets are the bulk chemicals producers like Nova Chemicals Corp. as well as companies in the fragmented coatings, or paint-sector and manufacturers of industrial gases. Nova, the U.S.-Canadian Company has an advantage over U.S. Gulf Coast producers because it has access to cheap natural gas from Alberta, Canada.

Dow Chemical Co. alone has been juggling about 60 joint ventures and acquisitions. The company wants to increase production in countries that have lower-cost petroleum and other raw materials � mainly locations close to the fast-growing markets like Asia. Dow Chemical or other large chemical companies have turned to joint ventures in countries that have deep resources of raw materials used to make chemicals. Dow has plans for a US$20 billion joint venture to operate a petrochemicals complex with Saudi Aramco, the world's largest holder of oil reserves. Dow also plans to build a US$1 billion plus PE plant in Brazil with local partner Crystalsev, with plans to sell the raw plastics into the fast-growing Brazilian market and maybe export to others. In an unusual twist, sugar cane, rather than crude oil or natural gas, will supply the raw material that Dow Chemical needs to make polyethylene. Ethanol based on sugar cane is a cheaper input for PE than petroleum-based feedstocks because a byproduct from ethanol production can power the chemicals plant. Dow has signed an agreement with Sealed Air Corporation to purchase certain assets of Dow's ETHAFOAM� performance foam business. The divestiture of Dow's ETHAFOAM assets will enable the major to pursue additional projects that deliver value to customers and to the Company.

Netherlands based Basell agreed to buy Houston-based ethylene maker Lyondell Chemical Co. for US$19 billion; Apollo Management's Hexion Specialty Chemicals agreed to buy polyurethane maker Huntsman Corp. for US$10.6 billion; Saudi Arabia's Sabic has acquired GE Plastics in US$11.6 billion agreement.
PPG Industries (PPG) offered to buy Dutch coatings producer SigmaKalon Group for US$3 billion. Chemical giant BASF has been considering options for its styrenics units. La Seda de Barcelona SA has launched a E180 mln binding offer for Eastman Chemical Company�s PET and PTA plants in Rotterdam, Netherlands, and Workington, UK. Borealis has completed the sale of its Norwegian polyolefins business and share of the Noretyl gas cracker to Ineos. The deal is estimated at EUR 290 mln.

The strategy underlying the deals for Lyondell, Huntsman and GE Plastics is to expand products or geographic markets by established chemicals firms. Chemical makers such as SABIC are also scouting for manufacturers of specialty-material makers that could hedge against the cyclical nature of raw-commodity chemicals. With Lyondell, Basell's parent Access Industries becomes the world's largest maker of polyolefins. With GE Plastics, Sabic not only gains clients in North America but also get an entry into ETP business.

In Asia, two of Indias� oil and petrochem majors - RIL and GAIL have entered into general memoranda of understanding. As part of the MoU with RIL, it would be taking up natural gas (including city gas and marketing) and petrochemical projects within and outside India, including countries like Russia and Iran.
Vinythai Public Co. Ltd. has acquired assets of Apex in a move aimed at expanding production to meet economies of scale, which would increase its cost competitiveness in the global market. Vinythai Public Co. Ltd., Southeast Asia's third largest polyvinyl chloride (PVC) producer, plans to expand capacity by acquiring the operating assets of Apex Petrochemical Co. Vinythai's major shareholders are Belgium's Solvay SA (49.99%), PTT Chemical Plc (24.98%) and the Charoen Pokphand (CP) Group (11.85%).
Mitsubishi Chemical Corporation and Sasol Chemical Industries Limited have agreed to dissolve the joint venture for acrylic acid and acrylates business in the Republic of South Africa, established on September 30, 2003.

The matchmaking comes ahead of an expected onslaught of petrochemicals in the Middle East, where producers building new facilities will have an edge over North American chemical manufacturers because of the region's cheaper oil and gas