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February 27, 1995 01:00 AM

BOREALIS CEO URGES REFORM FOR EUROPEAN RESIN INDUSTRY

Bruce Vernyi
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    Although resin price increases may help European resin makers in the short term, in the long term they will not be a benefit, according to Juha Rantanen. Rantanen is chief executive officer of Borealis Holding A/S and president of the Association of Plastics Manufacturers in Europe. He said he is worried that increases, which have added about 50 percent to polyethylene prices since summer, will lull European resin makers into believing dramatic changes in their industry are not needed.

    Rantanen spoke in a telephone interview from Borealis' head-quarters in Copenhagen, Den-mark. Borealis is the largest producer of PE in Europe. Rantanen began his term as APME president in June and will hold the office until May 1996.

    Rantanen sees the large number of polyolefin makers and the larger number of small PE reactors and ethylene crackers that are supplied by inefficient naphtha-delivery systems as hindrances to Europe's commodity plastics industry's progress.

    Further, Rantanen views the tight dependence of resin manufacturing operations on theirparent corporations as a shield insulating them from the economic pains that their inefficiencies ought to inflict on them.

    According to Rantanen, the European commodity resins business has very clear problems that require difficult decisions and painful solutions.

    The problems must be cor-rected, he said, if the European industry is to survive in a shrinking, increasingly competitive world. There are 16 producers of polyolefins in the European market, and the industry is in dire need of consolidation, he said.

    Borealis, an avant-garde company born of the merger between Neste Oy of Finland and Statoil AB of Norway, is in a good position to earn profit as other resin manufacturers scramble to form alliances and new companies, Rantanen said. His company began operating as Borealis on March 1, 1994.

    ``There are too many globally small players in this industry. When the upturn comes, we will have 14-16 players deciding whether to increase capacity.

    ``Overall, there is inflexibility within the industry, in crackers and in ethylene lines, so we continue to operate uncompetitive units because we have no alternative supplies of monomer to feed polymer lines. So what happens is that we cannot close obsolete and inefficient units when times are good or when times are bad,'' Rantanen said.

    General economic growth through 1994 gave resin makers a dramatic boost in sales and prices, he said.

    ``That was the good news, but the bad news is that the fundamentals of the European petrochemicals and plastics industries have not changed, and [the good results from increased sales and prices] may be a negative in the long term,'' he said. ``Companies may not be eager to close their old facilities, and they won't be eager to invest in new plants as they ought to do. There haven't been any real, fundamental improvements and there are no signs of improvements.''

    In addition to the merger that formed Borealis, there are pending mergers in polypropylene between Royal Dutch/Shell Group of London and The Hague, Netherlands, and Milan, Italy-based Montedison SpA; and ICI Chemicals & Polymers Ltd. of London and BASF AG of Ludwigshafen, Germany. While these deals are steps in the right direction, Rantanen said they are not enough.

    He also cited the proposed joint venture in PE between Italy's Enichem and Union Carbide Corp. of Danbury, Conn., as a positive sign. However, he noted it remains to be seen if the success of that venture promotes industrywide consolidations.

    ``Profitability is a question. We, as an industry, can't be proud of the return on capitalthat we have had for the past 10 years,'' Rantanen said, noting that the slight return on capital may be determined by the structure of the industry. ``I can only make a hypothesis. Mine is that it would help if we take steps to affect the structure of the industry that make it more efficient.''

    Using his company as an example, Rantanen said Borealis adopted measures last year that gave it immediate improvements in operating profit, and now is taking secondary steps to consolidate manufacturing:

    In August, the company said, it will invest $110 million to build a PE plant at Porvoo, Finland, to make 264 million pounds a year.

    In January, Borealis announced it merged its ethylene cracker and PE facilities at Stenungsund, Sweden, to improve efficiency.

    ``Everyone realizes that consolidation and rationalization are needed in Europe, but it takes a determined and a strong owner to do it when the economy is improving,'' he said.

    Rantanen noted that the European petrochemicals industry created a plan for restructuring more than 18 months ago, but the industry later backed away from that plan.

    Regarding environmental concerns, Rantanen said the European plastics industry is facing continuous pressures to improve performance, and is addressing such key issues as the recovery of used packaging and the proper disposal of wastes.

    ``The key is to get these issues addressed correctly now, and to avoid local pressures that can be quite costly,'' he said.

    ``The industry has a good approach: To work hard to get the approval of all the politicians at the European Commission and the Parliament, which will issue guidelines, and at national legislatures, which will issue practical legislation,'' Rantanen said.

    With that approach, he said environmental issues can be addressed rationally and economically.

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