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July 06, 1998 02:00 AM

FORMOSA UPPING PE CAPACITY WITH TEXAS EXPANSION PROJECT

Frank Esposito
Senior Staff Reporter
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    Formosa Plastics Corp. USA plans to raise its profile among North American high density polyethylene makers by adding 880 million pounds of annual capacity at its Point Comfort, Texas, site through new construction and expansion.

    The project will add a new, 550 million-pound-per-year plant and a 330 million pound-per-year high-molecular-weight HDPE production line to Formosa's existing HDPE plant. That plant produces 500 million pounds of HMW HDPE annually. The new capacity will be aimed at blow molding, sheet and pipe markets.

    The new plant will use loop-slurry technology licensed from Phillips Petroleum Co. of Bartlesville, Okla., while the new line will use technology from Nippon Petrochemical Co. Ltd. of Tokyo. Both expansion projects are scheduled to be completed in late 2000, according to a news release from Livingston, N.J.-based Formosa.

    Formosa is North America's third-largest PVC maker but has had a much smaller North American presence in HDPE. The planned expansions would give Formosa almost 1.4 billion pounds of total annual HDPE capacity, moving the firm closer to market leaders such as Equistar Chemicals and Solvay Polymers, both of Houston.

    Formosa also produces 550 million pounds of linear low density PE and 730 million pounds of polypropylene each year in Point Comfort. A 660 million pound-per-year PP expansion is already under way at the site.

    About 80 percent of Formosa's Point Comfort production is sold in the North American merchant market, officials said.

    ``The expansion projects demonstrate Formosa's commitment to be a reliable and versatile supplier,'' said Paul Huang, vice president of Formosa's olefins/polyolefins business division.

    But industry consultant Rob Harvan expressed concern at the effect the new capacity would have on profitability and operating rates, especially when combined with pending HDPE expansions from market leader Equistar Chemicals, Phillips and Houston-based Exxon Corp.

    ``You know from history that these companies will do something like this but you still feel a little despairing when you see it,'' said Harvan, who works for Houston's Bonner & Moore Associates Inc. consulting firm. ``This [new capacity] could reduce operating rates to the mid- to high 80s and have a drag effect on profitability and margins for the next five or 10 years.''

    Some commodity plastics markets are suffering from overcapacity that is being heightened by lack of demand from depressed Asian markets. HDPE market prices have dropped an average of 4 cents per pound so far in 1998.

    Harvan added that the expansions could move Formosa into ``center stage'' with other major HDPE makers.

    ``In this day and age, having only 550 million pounds of capacity means you're at second- or third-tier status,'' he said.

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