Arco Products Co. is swimming against the polypropylene tide by forming a joint venture that targets Asian export markets, which have been depressed for most of the last year.
Arco will own two-thirds of a PP business that will be supplied by a 440 million-pound-per-year plant that Arco is building in Carson, Calif. The remaining one-third will be owned by Itochu Corp., a Tokyo-based firm described as Japan's largest trading company.
Itochu also is one of Japan's largest PP marketers, selling about 550 million pounds of PP in that region last year.
The total capital investment in the project is around $200 million. The plant, which is scheduled to open in October 1999, will create 50 full-time jobs and 15-20 contract jobs in packaging and trucking.
The plant initially will produce only homopolymer PP, but will have the capability to produce copolymer PP as well, Arco PP general manager Don Strenk said in a Sept. 23 telephone interview from Carson.
Targeted markets will include fibers, caps and closures and other injection molding applications. Strenk said more than half of the West Coast's homopolymer PP demand is in the injection molding market.
The Arco/Itochu move comes at a time when Asian export demand has dropped as the region struggles with currency devaluation and slumping stock markets. North American PP resin exports have dropped almost 12 percent through June, according to the Society of The Plastics Industry Inc. in Washington.
But Strenk said the company is looking beyond the current Asian economic crisis.
``We see the Asian market as a strong market in the long term,'' Strenk said. ``It will come back at some point in time and be an important piece of our business given our proximity to that area.''
Arco/Itochu eventually hopes to export one-third or more of the Carson plant's output to Asian markets.
As the only PP plant on the West Coast, the Carson site will provide Arco/Itochu with a geographic advantage, according to Strenk.
``Being on the West Coast gives us a tremendous advantage over Gulf Coast producers,'' Strenk said. ``It also gives us a transportation advantage, since half of the West Coast demand for homopolymer polypropylene is within trucking distance of our facility.''
This strategic advantage may also have fueled industry rumors that the Carson plant may be delayed because of market overcapacity and declining resin prices.
``Our competition would just love to think [the plant] is postponed because they know they can't compete on the West Coast,'' Strenk said. ``Most producers treat West Coast customers as stepchildren, especially when the market's good.''
The Carson plant will use propylene produced by an Arco petroleum refinery, which also is based in Carson. But Strenk said Arco's entry into the PP market wasn't based on its need to find a home for the refinery's propylene.
``We decided a couple of years ago to recover our propylene, which was being burned in our fuel gas system,'' Strenk said. ``After studying it, we decided we could financially justify a resin plant.''