Taiwan explosions under investigation, chemical supply chain under pressure

By Nina Ying Sun
Assistant Managing Editor

Published: August 7, 2014 2:01 pm ET
Updated: August 7, 2014 2:31 pm ET

Image By: Kaohsiung city government Kaohsiung city officials have asked a local court to freeze LCY's assets.

Related to this story

Topics Materials, Public Policy, Asia, Materials Suppliers

The deadly pipeline explosions in Taiwan’s second largest city have put resin producers in the public spotlight and will likely cause pressure on the supply chain of plastics resins.

The underground blasts, caused by leaks of propylene gas, ripped through Kaohsiung’s streets on the evening of July 31, killed 30 people and injured more than 300, and buried cars and emergency vehicles.

Before the explosions, local residents reported chemical smells, and the China General Terminal and Distribution Corp. (CGTD) detected a pressure drop in the pipelines that transported the feedstock gas to resin maker LCY Chemical Corp., city officials said in a written statement. CGTD initially shut off the lines, but quickly resumed the flow at LCY’s request.

LCY apologized to the public and said in an Aug. 3 statement that it has been “forthcoming on all information available” and will not “evade any responsibility chargeable.”

The company is not responding to media inquiries, saying it cannot comment on the particulars before the government announces the results of its ongoing investigation.

Kaohsiung city has asked a local court to freeze 1.9 billion Taiwan new dollars (US$63.4 million) of LCY’s assets as the investigation continues. The city said in an Aug. 6 statement that victims and their organizations are also seeking similar actions.

LCY is one of the three major polypropylene producers in Taiwan, together with Formosa Chemicals & Fiber Corp. (FCFC) and Formosa Plastics Corp. (FPC).

FPC said in an Aug. 1 statement that its feedstock lines (one for ethylene, one for propylene and a third one for backup) do not go through the explosion site. The lines were last inspected on May 6 and passed all tests. It added that its two FPC production facilities in Kaohsiung continued normal operation.

LCY said Aug. 6 that its operations and ongoing investment plans are largely unaffected, according to the China Post. However, an earlier China Times report said LCY reduced its PP production by 37.5 percent after the explosions. Ethylene supply was also affected for other resin makers in the area.

Chemical companies have resorted to trucking transport feedstocks to their plants as an emergency backup. The Kaohsiung government said it is inspecting the tanker trucks going through the city to ensure safety.

China Petrochemical Development Corp. and CPC Corp., for instance, are transporting 200 tons of propylene every day by truck to Kaohsiung, according to an Aug. 7 China Times report.

More safety violations in the chemical industry are being uncovered, as the government conducts a comprehensive review of the underground petrochemical pipeline systems, in hopes to address public fear about the condition and the layout of the gas lines.  An Aug. 7 memo from the Kaogsiung government said it found CPC was transporting ethylene in a pipeline that was registered to move diesel.

While the upstream industry tries to maintain operation and address increasing scrutiny, the downstream plastics industry may already be feeling some impact of supply disruption.

An OEM executive told Plastics News that his company has been informed by its suppliers (injection molders) to expect delays of PP parts.

The shortage could also affect Taiwan’s export markets, including mainland China. Taiwan exports more than half of its PP production, much of it going to mainland China, according to previous reports.

Meanwhile, Houston-based Kraton Performance Polymers, which has been negotiating a merger deal with LCY, said on Aug. 6 that its board of directors withdrew its prior recommendation that Kraton’s stockholders approve the deal.

LCY notified Kraton on Aug. 4 that it would not renegotiate the terms, despite “numerous discussions” since June 30 regarding possible revisions to the terms, according to Kraton.

The deal, first announced in January, would have combined Kraton with LCY's styrenic block copolymer (SBC) operations, ranked the third-largest SBC maker in the world.

Kraton said it would not have to pay a $25 million break-up fee to withdraw from the deal. A provision in the original agreement had that said the fee would not be required if LCY had a “material adverse effect” — and Kraton’s board said the July 31 explosions qualify.

LCY has seen its stock price fall more than 35 percent since the blasts.


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Taiwan explosions under investigation, chemical supply chain under pressure

By Nina Ying Sun
Assistant Managing Editor

Published: August 7, 2014 2:01 pm ET
Updated: August 7, 2014 2:31 pm ET

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