While questions loom about how Asian PET film extruders will fare in the region's financial crisis, the industry is set for another major consolidation move.
Mitsubishi Chemical Corp. agreed last week to buy Hoechst AG's interest in the firms' Diafoil joint venture, a business with annual sales of more than $600 million and production capacity that will reach 375 million pounds by the end of 1998. The partners hope to complete the deal by midyear but did not disclose terms.
The acquisition could occur about four months after a blockbuster deal in which DuPont Co. became the top global PET film supplier. In February, DuPont bought Imperial Chemical Industries plc's PET business, boosting its PET film sales to about $1.5 billion annually and its capacity to 550 million pounds a year.
Hoechst and Mitsubishi claim Diafoil is the second-largest global manufacturer, but DuPont estimates Diafoil and Japan's Toray Industries Inc. are tied for second.
Further consolidations are likely, according to Francine Cheeseman, vice president and general manager of DuPont Polyester Films. She also predicted business failures among Asia's PET film producers because of currency crises, but she did not disclose which companies might fail.
Most PET film producers are expanding capacity. Although market growth is generally good, Asian troubles have curtailed demand there, leading some producers to export low-priced film to North America, according to Cheeseman.
Dennis Trice, business director for PET films for Hoechst Diafoil Corp., said Asia's short-term PET film demand has been hurt, but is bullish in the long term.
North American film supply is slated to jump when SKC Inc. starts up a new plant in Coventry, Ga., in the fourth quarter. SKC Chief Operating Officer Hank Arvanites said his firm will bring on stream about 110 million pounds per year, but he downplayed any potential oversupply problem.
``We've been developing our U.S. market for five years from [South] Korea,'' Arvanites said in a telephone interview from Coventry. ``Production [from Korea] will be targeted to other markets.''
Two years ago, SKC had hoped to have the Georgia facility on stream in early 1998. But Arvanites denied Asia's financial troubles caused SKC's South Korean parent to delay opening the Coventry plant.
He said the PET film operation was designed in Korea and engineering changes needed for local compliance made late 1998 a more realistic target.
New capacity probably will continue downward pressure on prices, said Len Segall, vice president of operations support for Printpack Inc., a major extruder, converter and PET film buyer in Atlanta. Segall said supply ``is comfortable now.''
Cheeseman said chances of oversupply this year will depend on how well start-ups go and whether some suppliers drop out of the business. DuPont is expanding ``in a responsible way'' and will shut down outdated lines in favor of new products if oversupply looms, she said in an interview from Wilmington, Del.
DuPont will start up a fifth line at Luxembourg in a few months and began production on a new line in Dumfries, Scotland, a few months ago.
Hoechst Diafoil GmbH opened a large PET film line in Wiesbaden, Germany, in December and a Diafoil joint venture in Indonesia will start up a similar line by the end of the year, Trice said in an interview from Greer, S.C.
Hoechst AG has been dropping out of plastics to focus on pharmaceutical and agricultural markets. Its Diafoil interests include two-thirds shares of Hoechst Diafoil Corp. of Greer and Hoechst Diafoil GmbH of Wiesbaden, and one-third of Diafoil Hoechst Co. Ltd. of Tokyo, Trice said. The Diafoil partners also own 95 percent of a PET film venture in Merak, Indonesia, with local investors holding the rest.
Mitsubishi spokesman K. Yamamoto said his firm will operate Diafoil's three companies ``under a uniform strategy.'' He said Mitsubishi has no plan now to close any Diafoil plants, to open new ones or to buy competing operations.
Mitsubishi said in a news release that polyester is a core business and that the firm will benefit from its vertical integration, from raw materials production through PET film extrusion. It predicts global annual growth of PET film exceeding 5 percent.
Cheeseman predicted Mitsubishi will run Diafoil operations on an integrated global basis, but she expects the Japanese firm will face challenges bringing various cultures together under its ownership. Printpack's Segall doesn't expect any big changes on how Diafoil markets its film in North America.