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Phillips Sumika closing Texas PP plant

By: Frank Esposito

September 13, 2011

PASADENA, TEXAS (Updated Sept. 16, 1:50 p.m. ET) — Phillips Sumika Polypropylene Co. is closing its PP resin plant in Pasadena.

The 700 million-pound-capacity plant will close by the end of the year, spokesperson Melanie Samuelson said in a Sept. 13 phone interview. The 19-year-old plant employs 60, some of whom may be redeployed to other businesses operated in Pasadena by co-owner Chevron Phillips Chemical Co. LP, Samuelson added.

The plant is closing because of “an increasingly difficult business environment and continued losses experienced by the partners,” she said.

Phillips Sumika is a 50-50 joint venture between Chevron Phillips of The Woodlands, Texas, and Sumika Polymers America Corp., which is a unit of Sumitomo Chemical Co. Ltd. of Tokyo.

Chevron Phillips’ production of polyethylene and other plastics in Pasadena won’t be affected by the closing of the PP works, officials said in a Sept. 13 news release.

Chevron Phillips will remain in North American PP by marketing resin made at a plant in Al-Jubail, Saudi Arabia, by Saudi Polymers Co., a venture between Chev­ron Phillips and Saudi Industrial Investment Group.

The Saudi Polymers plant is set to begin operating this year with annual capacities of 1.1 billion pounds of PE, almost 900 million pounds of PP and 200 million pounds of polystyrene.

A PP plant operated in Linden, N.J., by Chevron Phillips co-owner ConocoPhillips Corp. won’t be affected by the Pasadena closing, Samuelson said.

The closing is the first to hit the North American PP field since early 2009, when Sunoco Inc. closed a plant in Bayport, Texas. That was part of a wave that saw more than 2 billion pounds of PP capacity — about 15 percent of the region’s total — shuttered between early 2007 and mid-2009.

North American PP demand peaked at 19.3 billion pounds in 2007, but global economic softness has kept that total between 16.8 billion and 17.2 billion pounds in each of the last three years. Demand for 2011 was down 5 percent in the first half of the year, and is expected to finish in that same range again.

The market has been affected by higher prices, driven by higher prices for propylene monomer feedstock, which PP makers have passed on to their own customers. Production of some end products made of PP also has migrated from North America to other parts of the world.

And in the long term, development of new-found supplies of natural gas throughout North America is expected to lead to increased use of ethane as a chemical feedstock. That’s not great news for PP makers, since ethane produces less propylene per unit than crude oil-based naphtha feedstock does.

In addition to the closings, materials makers Sunoco and Dow Chemical Co. recently exited North American PP by selling their businesses to Brazilian newcomer Braskem SA.

The current situation in the North American PP market is unsustainable because of volatile feedstocks, more than enough competition to keep margins low and scant export opportunities, according to Phil Karig, managing partner of Mathelin Bay Associates LLC, a materials consulting firm in St. Louis.

“The process of consolidation in the [North American] PP market will probably go through several stages,” Karig wrote in an email. “But all roads will lead to a smaller, leaner and at least marginally more profitable industry.”

However, the region’s PP buyers, Karig wrote, “can expect to pay more for resin in the future, so it will be very important that alternate suppliers and polymers are available whenever possible.”

Karig added that the current North American PP market is similar to what’s happened to polystyrene in the last few years. North America now has only three major PS suppliers.

“Although history never repeats itself exactly,” he wrote, “we can expect the PP market to generally follow the script from the PS market: There will be fewer PP suppliers a few years down the road due to mergers, acquisitions and outright capacity shutdowns, as we are seeing with Phillips Sumika right now. And when the smoke clears on consolidation in the PP industry, the smaller number of suppliers will benefit in the form of higher margins due to tighter operating capacity and less competition.”

Scott Newell, a PP market analyst with consulting firm Resin Technology Inc., in Fort Worth, Texas, said he wasn’t surprised by the Phillips Sumika closing.

“North American polypropylene is a tough industry anymore,” Newell wrote in an email. “It’s matured over the years and is at the mercy of its feedstock propylene where, as a byproduct of other processes, it has little control over supplies.

“On top of that,” he added “you have an industry with the highest cost structure across the globe at this time ... decreasing demand and excess capacity.”