Plastics film and resin markets could feel the repercussions of the massive merger between oil giants Exxon Corp. and Mobil Corp.
Exxon of Irving, Texas, and Mobil of Fairfax, Va., announced the merger Dec. 1. Exxon will own 70 percent of the new, Irving-based company, which will be called Exxon Mobil Corp. Exxon and Mobil rank first and second in size, respectively, among U.S. oil companies.
Exxon Mobil officials said the merger will result in the loss of about 9,000 jobs, or 7-8 percent of the new company's overall work force. Officials said the job cuts will be spread out worldwide. Mobil spokeswoman Lauren Kerr said it is too early to predict how many of the cuts will come from the film and resin businesses.
The Federal Trade Commission's review of the proposal is expected to last well into 1999 and could lead to the sell-off of some of the new firm's assets.
``I would be amazed, but pleasantly surprised, if the FTC says we don't have to rationalize some assets,'' Exxon President and Chief Executive Officer Lee Raymond said during a Dec. 2 teleconference from New York. ``But it's premature to say which assets will be affected.''
The deal, which is being driven by overcapacity, declining oil prices and increased international competition, could affect the North American plastic films market, but it was not clear immediately to what extent. Mobil's Pittsford, N.Y.-based films unit, which leads the world in oriented polypropylene film production, was 13th in Plastics News' 1998 ranking of North American film and sheet extruders, with $350 million in sales.
Exxon's films business, which makes polyethylene and PP film, ranked 41st, with $125 million in related sales. Exxon officials, however, said recently that the firm is looking to sell its films business and has hired Chase Securities Inc. of New York to find a buyer. That unit, based in Buffalo Grove, Ill., operates plants in Lake Zurich, Ill., and Pottsville, Pa.
Surinder Bahl, a petrochemicals analyst with Phillip Townsend Associates Inc. of Houston, predicts the deal will not change the films outlook. Mobil's profitable OPP film business probably will be retained, while Exxon's smaller business most likely will be sold, said Bahl, who worked as a researcher for both companies before joining Townsend.
``Mobil's film business has been successful and it could benefit from Exxon's position in polypropylene,'' Bahl said. ``Exxon hasn't been a very efficient manager of downstream products in polyethylene film.''
In resins, the coupling will boost Exxon's presence as the world's largest PE maker. Exxon Mobil will rank second in North America in both high and linear low density PE production, and will move past Westlake Polymers and Chevron Corp. into the third position in LDPE.
``Historically, Exxon has seen higher return on investment from its chemicals business than other oil companies have,'' Raymond said at the news conference. ``That leadership position will be maintained with the addition of Mobil's chemicals business, which lines up nicely with Exxon's.''
Exxon Mobil will have about 11.5 billion pounds of global PE capacity. Planned expansions will take that total to about 13.8 billion pounds by 2002, Bahl said.
In addition to three massive PE production sites in Texas, Exxon Mobil will have PE capacity — either directly or through joint ventures — in Western Europe, the Middle East, Australia, Japan and South America. The Australian and Japanese capacities are in existing joint ventures between Exxon and Mobil.
The merger should have a positive effect overall on the PE industry, said Romeo Kreinberg, vice president for Dow Chemical Co.'s PE, PET and purified terephthalic acid businesses. Midland, Mich.-based Dow is one of Exxon's major competitors in PE, both in capacity and technology.
``There won't be a major change in technology, but the merger will give them critical mass and good integration from an ethylene standpoint,'' Kreinberg said.
Kreinberg pointed out the merger trend already is visible in the PE industry in the formation of Equistar Chemicals LP in North America and Elenac SA in Europe.
``Everybody is looking at their own position and considering their options and opportunities,'' Kreinberg said. ``Cost pressures are putting everyone in a situation where they have to consider size, location, global reach, integration and technology.''
Bahl described Exxon Mobil's combined PE capacity as ``astronomical.''
``This has got to be a concern for [PE makers] like Dow, Equistar, Borealis and Elenac,'' he said. ``Dow is already global, but the others that aren't are going to have to think about it.''
Bahl added Mobil's PE capacity — swing HDPE/LLDPE lines using Union Carbide's Unipol technology — could benefit from Exxon's experience at focusing its product mix and dedicating specific lines to certain grades of resin.
Exxon's chemicals unit, which includes its PE and PP operations, posted sales of about $14 billion last year. That figure represented about 10 percent of Exxon's overall sales. At Mobil, chemical sales totaled $3.5 billion last year, about 5 percent of its total revenue.
Exxon also is a world leader in metallocene catalyst technology, which can improve the performance of standard PE significantly. Mobil has done work in metallocenes, but has not commercialized much metallocene product. Ironically, Exxon Chemical Corp. in August won a $171 million metallocene patent lawsuit against Mobil, which Mobil has appealed.
At the New York news conference, Raymond singled out metallocene catalyst technology as an area in which the new firm will gain through shared research. He added, however, that redundant research projects probably will be eliminated.
The PVC and PET markets also use Exxon and Mobil products. Exxon makes plasticizers for PVC, while both firms produce paraxylene, a key ingredient in PET.