DÜSSELDORF, GERMANY (Nov. 16, 2:50 p.m. EST) – Softening demand for engineering thermoplastics will not derail GE Plastics' plans to complete construction next year of a second, huge Lexan polycarbonate plant in Cartagena, Spain, or the expansion of its PC resin plant in Burkville, Ala.
The firm also is poised to re-establish commercial operations in Russia after pulling out of the country four years ago, and remains bullish on business prospects for ETPs in the battered European telecommunications market, and in the electrical and automotive-exteriors sectors.
These were among the views voiced in an interview at K 2001 by the two of the firm's most senior European plastics executives — Art Harper, General Electric Plastics BV's president and senior managing director, and Charles E. Crew, vice president and general manager of the firm's European commercial operations. GEP in Europe is based in Bergen op Zoom, the Netherlands.
Harper formerly served as the manufacturing VP who oversaw the start of the first Cartagena PC plant, which cost about $600 million to build and suffered through some rough spots on its way to commercial production in 1999.
“Those problems,” Harper insists, “were not related to the product itself. The problems we had were related to design issues we had at that facility. And those problems have all been fixed, they've all been addressed, and we've incorporated all those changes into the design of the second plant.”
In fact, he added, Plant One in Cartagena began running at full capacity by mid-January 2000, and for a while even was running beyond its published maximum capacity of 286 million pounds a year.
“We desperately needed it last year,” Crew said of the capacity. He claims the extra output, which hit just as many compact disc makers in Europe were bringing on new manufacturing plants, enabled GE to capture double-digit PC market-share gains there.
Harper added that in Lexan production, GE “was struggling even to keep up through the second quarter of the year” and now is running at 92-95 percent capacity utilization rates.
Construction of Plant Two at Cartagena, expected to cost some $500 million, is currently half done, according to Harper, and is targeted for fourth-quarter 2002 start-up.
“We will finish the plant,” he said, and then evaluate market conditions before flipping the switch. “As we get closer to the fourth quarter, we'll have to look at where the global economy is, and make some decisions. But we're very confident that … there is going to be the demand for that facility,” particularly for its optical-quality-grade resin, he said.
Harper said GE's planned addition of 150 million pounds of PC resin in Burkville, Ala., also is forging ahead.
“We will complete the Burkville expansion on time, in the first half of next year,” Harper said, “and then see what the market demand is,” as to deciding how quickly they ramp up production there. “But we absolutely believe that we'll need that capacity.”
Immediate market prospects contain plenty of gray skies and clouds. The Sept. 11 U.S. terrorist attacks affected all the end markets that GE Plastics serves, Harper said. “In the short term, we're all going to have to live with that.”
Looking to Europe
But looking longer term, toward the second half of next year and beyond, “We're very, very positive on Europe,” Harper said. “The best indication of that is that we're continuing the investment in Cartagena and we're still making investments in businesses in some of the other products.”
Both executives acknowledged that ABS oversupply globally means that many plants are running at capacity-utilization rates in the low 80 percent range, but Crew stressed that GE is continuing to try to move away from general-purpose, commodity ABS applications, and push its grades into higher-value uses.
“Our ABS numbers may not look all that great from a sheer volume standpoint, but the profitability has improved, as we've improved the overall product technology.”
Generally, in Europe, “We were six to seven months behind the U.S., in the slowness [of the economy],” Crew said. While business turned down in the U.S. last fall, he said, “We saw a pretty dramatic drop in orders in April 2001” in Europe. Some manufacturers on the continent extended their typical summer shutdowns during July in the north and August in the south. Crew maintains that, while GE Plastics' overall European business held up well through September and October, cutbacks by carmakers now are starting to hit hard. Reduced export business is hurting production of big cars by majors such as BMW, Mercedes and Audi, and now Renault and Fiat have announced plans to trim second half production of smaller cars in Europe by 250,000-300,000 units, he said.
“But, at the same time,” Crew noted, “we're starting to see governments get very active in putting more money into the economies here, and also, we're starting to see interest rates come down. So I think the prospects are still very positive.” Europe, economically, has seen more moderate highs as well as lows than in the United States.
Meanwhile, in the wake of GE's blocked attempt to take over Honeywell Inc., including its nylon resin assets, Crew was asked whether GE might be interested in pursuing an equity stake in nylon producer Rhodia SA, whose major shareholder recently expressed an interest in selling its 25 percent share.
“We really haven't even thought about it,” Crew said on Oct. 25, just days after the news broke that Rhodia might be in play. “We're their exclusive distributor,” he said, referring to GE Polymerland's arrangement to sell Rhodia's nylon materials, “and that's our position going forward. We're going to continue to build our brand through Polymerland, and we'll continue to look at opportunities as they come available, relative to nylon, or any other material that broadens our portfolio. … Right now, our focus is to sell nylon through distribution.”
Dialing up prospects
Crew said GE remains very excited about plastics prospects for the telecommunications market, even though many of its major players have been pulverized financially by the recent downturn.
“This is truly a global business,” he explained. “The infrastructure is a huge opportunity for plastics. With our weatherables focus, and our FR [fire-retardant] capabilities, we really believe that telecom infrastructures is the next big game.” That includes switch-housing boxes, wire and cable, and related products. Crew said he understands there will be as many telecom boxes in Europe as there are light posts. “That's enormous. It's the metal-replacement story all over again, with the integrated features, the design-for-assembly, the systems integration.”
He noted that many of the original-equipment telecommunication manufacturers who will be leading this installation blitz are people with whom GE already has developed strong working relationships via their mobile-phone businesses, such as Nortel, Alcatel, Nokia, Ericsson, NTT, Docomo and the like. That, he said, has given GE Plastics an early entree into these infrastructure discussions.
Crew also said GE continues to believe there are strong engineering-resin growth opportunities in automotive exterior applications. Europe's smaller cars, plus its consumers' attentiveness toward styling, eco-consciousness and recycling issues are key factors.
“The fender market here is big for us,” Crew said, citing use of GE's Noryl GTX polyphenylene oxide resin on such car models as Renault's Megane, Peugeot's 307, and some Mercedes S-Class vehicles. “Renault has a directive in-house to make all of their fenders plastic,” he added. “They've made that commitment. We've been their partner, and we intend to stay their partner.”
Meantime, Crew also sees growth opportunities in various electrical applications.
“The electrical market here went from thermosets to thermoplastics very early,” he said, noting that nylon, polycarbonate and polybutylene terephthalates have replaced ureas, bulk molding compounds and the like in many applications in Europe sooner than they have in North America. However, electrical-block control bases, known as MCBs, have continued to be made mostly of thermoset materials and of nylon with a red phosphorous additive.
“We have a way to get around that,” he said, referring to the custom-engineered Gelon nylon compound that is made by a third party for GE.
GE also is excited by the low-cost manufacturing base now being established in Eastern Europe, especially by lighting manufacturers and automakers. Eastern Europe — especially Hungary, Poland and the Czech Republic — “will kind of be what Mexico is to the U.S. and what China is to the world,” Crew said. Those countries have a very strong technical base, with highly educated workers.
Return to Russia
GE Plastics has a commercial operation in those regions, via GE Polymerland's alliances with distributors throughout GE's so-called “central region,” representing Eastern Europe, Turkey, the Middle East and Africa. GE is training these people, getting them involved on the Web, and sharing its knowledge base with them. The firm just appointed an Austria-based technical director for the central part of Europe.
Harper added: “Russia was a place where we withdrew [from] about four years ago, and we're aggressively going back into Russia today. We see some very positive signs there — the transparency of the system, the rule of law, etc., is growing. We're going to put more people there,” to keep pace with customers who are moving there as well.
GE Plastics had about six people on the ground in Moscow when it withdrew from the country, and left just some distribution activities there.
“We've now brought Russia back into this [central] region,” Harper said, adding that GE Polymerland intends by the end of November to put a full-time person back into the country, charged with rebuilding the team.
Such regions offer complex business-development challenges, with local languages, local tax structures and local laws, Crew said. GE's plan is to draw local distributors into its so-called GE Polymerland alliance, provide technical and market-development support, and aim to create a seamless commercial structure with companies that are, in fact, not part of GE itself.
Finally, Crew said the tougher economic conditions have helped spur GE to really reinvigorate its Six Sigma quality initiative.
“It's been a wonderful cost-out success story for GE company.” But now GE is redeploying some of its people into customers' plants, to help them wring costs out of their operations, and the reception has been very good.
“It's not a head fake,” insists Crew. “We've seen the benefits.”