CHICAGO (July 17, 4 p.m. EDT) — Montell Polyolefins is looking at the pending merger of the polyolefins units of parent firm Shell Chemical Co. and BASF AG as a means of bringing better products to its customers.
"We've got two companies coming together who employed the people who invented polyolefins," Montell North America President Charles Platz said in an interview at NPE 2000. "They had (Karl) Ziegler and (Giulio) Natta and over the years they've absorbed (companies) like Hercules and ICI who were among the original licensors of polyolefin technology.
"It's going to be a technology powerhouse."
That powerhouse won't change Montell's polypropylene operations in North America, but European regulatory officials have told Shell and BASF they need to sell off 1.3 billion pounds of PP capacity and 286 million pounds of PP compounding capacity for the merger to go forward.
The sell-offs will come from Montell and from Targor, BASF's PP business. Decisions on some of the sell-offs could be made by the end of the year, Platz said.
Meanwhile, new fifth-generation Ziegler-Natta technology developed by Montell has been introduced at its PP works in Bayport, Texas, and Lake Charles, La., and will be added in Sarnia, Ontario, by 2002.
The new technology is aimed at producing PP with higher melt-flow rates and better stiffness/impact balance that should find new applications in thin-wall molding and other markets.
Montell also plans to add 50 million pounds of capcity via a small debottlenecking at its plant in Varennes, Quebec, by 2002. The firm's last major expansion was a 250 million-pound debottlenecking at Lake Charles in 1998.
In North America, Montell and other PP makers continue to struggle to improve their margins in the face of a flurry of propylene monomer price increases that have lifted prices from 12 cents per pound a year ago to their curent levels of 27.5 cents.
PP prices have climbed an average of 55 percent since early 1999, but PP makers don't think they're out of the woods yet.
"The worst situation a polymer company can find itself in is one where you've got rising feedstocks and difficulty in passing the increases along," Platz said. "That's really where you get margin compression."
"If you go down the (polyolefins) chain, there's tremendous competition there. There's no room in the chain to absorb these kind of increases. It's not like at the gas pump where prices automatically go up. We're in a difficult situation. It's probably the worst I've ever seen."
The large amounts of capacity added to the North American market — almost 3 billion pounds since late 1998 — "are being absorbed pretty quickly," according to Platz, but he added that the market continues to deal with "the psychology of overcapacity."
"The growth rate is still very good because (PP) is so inexpensive," he said. "The seeds of recovery have been planted, but there's still a lot of competition because nobody wants to lose market share."
Platz also questioned moves by newer PP entries such as Epsilon Products Co., Arco Products Co. and a joint venture between Tosco Corp. and Union Carbide Corp. to convert refinery-grade propylene to polymer-grade material suitable for PP production.
"If there's a further collapse between refinery-grade and polymer-grade propylene prices, the economics driving the initial investment won't be there," said Platz. "The same thing happened in the late 1970s when Gulf Oil tried to buy their way into the market and sold out after four years because they couldn't make any money."
U.S. and Canadian PP sales are up almost 6 percent through April, according to the American Plastics Council in Arlington, Va. Platz said Montell expects to see growth rates of 6 percent in North America through 2003.
"We're seeing faster conversions to polypropylene, even vs. high density polyethylene," he said. "Economics are driving (PP) into more consumer goods and automotives uses."