Solvay SA of Belgium announced three major changes to its global plastics businesses Oct. 2, including a PVC partnership with BASF AG of Ludwigshafen, Germany, which will create the world's fourth-largest PVC maker.
Solvay also will create a partnership for a portion of its high density polyethylene business and technology with Petrofina SA of Belgium and close a PVC plant in Ferrara, Italy.
Solvay will own 75 percent of the BASF joint venture, which will be headquartered in Brussels, Belgium, and will be managed by Solvay. BASF will contribute about 660 million pounds of annual PVC capacity to the deal, with Solvay adding almost 2 billion pounds of capacity.
The BASF facilities are located in Ludwigshafen and Antwerp, Belgium, while Solvay's European PVC production is in Jemeppe, Belgium; Rheinberg, Germany; and Tavaux, France.
The venture will be Europe's second-largest PVC maker, trailing only the recent merger of EVC International NV and Norsk Hydro ASA. Globally, Solvay/BASF will trail only Taiwan's Formosa Group, the recently announced U.S. merger of Geon Co. and Occidental Chemical Co., and Shin-Etsu Corp. of Tokyo.
Solvay officials said the move will reinforce the company's competitiveness and low-cost position in commodities.
``It is worthless being a leader in commodities without being the lowest cost leader,'' Solvay's Alois Michielsen said at an Oct. 2 news conference. ``You don't run commodities with the cost structure of specialties.'' Michielsen is the chairman of the executive committee of Solvay Group.
The joint venture, which also includes several of the company's European polyvinyl dichloride, vinyl chloride monomer, chlorine and vinyl dichloride assets, will employ 2,240.
BASF officials described the deal as ``the ideal solution.''
BASF polyurethane/PVC group leader Jean-Pierre Dhanls said in a news release the venture will enable BASF to strengthen a relatively small business and guarantee continued involvement in the positive development of PVC.
Company officials also pointed out PVC is ``not a core business for BASF.''
In HDPE, Solvay and Fina will share production at a pair of plants that are planned for Belgium. Solvay will build a plant to open in 2002, while a Fina-built plant is set to open in 2005. Each plant will have annual capacity of 550 million pounds.
Fina also will provide Solvay a global license for its metallocene technology, while Solvay will do the same for Fina with its chromium catalyst HDPE production.
The deal should provide both companies with economies of scale and allow for increased utilization rates. Solvay controls 2.8 billion pounds of global HDPE production, ranking second globally behind Equistar Chemicals. Fina expects to control 2 billion pounds by 1999.
Solvay's Ferrara PVC plant, which employs 150 and has capacity of 210 million pounds annually, is being closed because it doesn't match international standards for size and VCM access. Solvay officials said market conditions don't justify the investment needed to integrate and expand the site to meet these standards. Industry consultant Pat Duke of DeWitt & Co. in Houston said the Solvay/BASF PVC deal had been rumored for some time and made sense for both companies, particularly in light of the sagging prices and profits of the European PVC market.
The Solvay/Fina HDPE partnership is a little harder to understand, Duke said, since it doesn't include the companies' existing HDPE businesses and, since both plants would be in Belgium, does not add anything from a logistics angle.
``This just looks like a piece of a puzzle,'' Duke said. ``We might see something going on on a larger scale between Fina and Solvay that would make sense on a global basis.''