The polypropylene glut has hit home for global market leader Basell NV, as the firm announced temporary shutdowns that would take about 1.1 billion pounds of annual capacity out of the market.
Of that total — which represents almost 9 percent of Basell's total capacity — about 420 million pounds will come from a homopolymer line in Bayport, Texas. The remainder will be split between two gas-phase lines in Wesseling, Germany, and a homopolymer line in Carrington, England.
"We are taking these steps because the excess capacity is causing unacceptable financial losses in Basell's polypropylene business," said Kees Linse, chief operating officer for PP.
Basell is a joint venture owned by BASF AG and Royal Dutch/Shell, and is based in Hoofddorp, the Netherlands.
"Since we do not expect current conditions to change in the near future, we must take action now to bring our business back to profitability and ensure its long-term success," Linse said.
The Wesseling shutdowns are to last 12-18 months, while the lengths of the Bayport and Carrington shutdowns are undecided, officials said. The shutdowns will start in the first quarter of 2001.
"We'll stop production as soon as it's feasible after talking to customers served by those lines," Basell spokesman Nick Nagurny said.
The Bayport shutdown will give Basell's North American unit the time and opportunity to do maintenance and technology upgrades, Basell North America President Chuck Platz said in a news release.
"The [Bayport] line will be a more cost-effective unit with enhanced capability when the situation improves," Platz said.
Employees working on the affected lines will be redeployed at those sites, which then will cut down on their number of contract workers.
In North America alone, almost 3 billion pounds of new PP capacity has been added since late 1998. Dow Chemical Co., Formosa Plastics Corp. USA and a Union Carbide/Tosco venture expect to add to that total by the end of the first quarter of 2001.
Globally, PP demand cooled somewhat in late 1999 and 2000, allowing the new supply to swamp demand. As a result, profit margins have been hammered because of low prices and high production costs for propylene monomer feedstocks.
"There's a substantial oversupply situation which we believe will continue through 2003," Nagurny said. "As the largest maker of polypropylene in the world, we're taking steps to stop our losses. Other [PP makers] can make their own business decisions."
Customers using the affected Bayport line will be served by the other three lines Basell operates at the site, as well as from PP plants in Lake Charles, La.; Sarnia, Ontario; and Varennes, Quebec.
Pat Duke, an industry analyst with Houston's DeWitt & Co. Inc. consulting firm, estimates that North American PP operating percentages are down to the low 80s.
"Almost the entire industry is running at reduced rates through lower production or maintenance slowdowns," Duke said. "If they don't idle back for the next few months, they'll have so much production that they'll really be hurting."
The first quarter of 2001 also could be rough on PP makers because of drops in auto sales and consumer confidence, Duke added. But lower propylene costs in March and April could bring some relief.
In the meantime, Basell executives still are working on a plan to sell 1.3 billion pounds of PP capacity and 286 million pounds of PP compounding capacity in Europe. The selloffs were required by European regulatory officials in order for the BASF/Shell venture to be approved.
The selloffs will come from seven European sites agreed on by Basell and trade officials. Nagurny expects the company to announce a decision in early 2001.