Applied Extrusion Technologies Inc. plans to tighten supply of oriented polypropylene film by acquiring some assets from QPF LLC and dismantling them.
AET agreed to buy production assets at QPF's Streamwood, Ill., facility for $15 million.
AET Chairman Amin Khoury said once the QPF capacity is taken out of commission, "it will be the first time in five years that there has been a healthy supply/demand balance" in the OPP film market.
AET will scrap the three production lines or use them for spare parts, Khoury said in a May 4 conference call. AET will move most of the downstream and auxiliary equipment, such as slitters, metalizers and materials-handling machinery, to its other OPP plants.
The plan will remove about 40 million pounds of annual OPP capacity or about 4 percent of North America's total, Khoury estimated. It will allow North American producers to run on average at 94 percent capacity, making it easier for producers to increase prices and regain profitability.
QPF owner Hood Cos. of Hattiesburg, Miss., will close the plant by June 30, when AET expects to finalize the equipment purchase. AET plans to keep most of QPF's OPP customers, most of which are small companies that buy narrow-width film. QPF offers about 16 different OPP types. AET has about 80 different types and can match most of QPF's grades, said AET President and Chief Executive Officer Thomas Williams. QPF employs about 200.
Getting QPF's business will mean AET can run at its full OPP capacity of 270 million pounds per year with minimal extra fixed cost, Khoury explained. The industry's utilization rate will continue to rise over three years because little new capacity has been announced and OPP film demand will grow about 6 percent a year. The capacity overhang has spurred intense competition among OPP producers.
AET's financial results will improve dramatically as the OPP market tightens and prices rise, Khoury predicted. A 5 percent price hike translates to a $14 million increase in the firm's profit before interest and taxes. AET anticipates EBITA of about $40 million this year and nearly double that in 2003.
In addition to equipment, AET will pay about $8 million for QPF's inventory.
Hood officials could not be reached for comment. The deal will mark the company's exit from OPP film, a market it entered in 1996 when it bought the Streamwood plant from U.S. Industries Inc. Hood still operates several polyethylene film and bag production plants.
Hood is the second producer to exit OPP films in the past two years. In early 1999, AEP Industries Inc. sold OPP film assets to AET because, as a small player, it said it could not keep up with the majors in a tough, competitive environment.