Basell North America Inc. President Chuck Platz is bullish on polypropylene in 2002. With more than 3 billion pounds of PP capacity at his disposal, he'd better be.
In a recent telephone interview, Platz - who has been with Basell and its corporate predecessors since 1976 - touched on Basell's plans to stay competitive, the outlook for the North American PP market and the need for Basell to raise its PP prices.
Basell NV, based in Hoofddorp, the Netherlands, ranks as the world's largest PP maker, with 14.8 billion pounds of active capacity, including 3.3 billion pounds in North America. The firm's North American headquarters is in Wilmington, Del.
The firm's recent decision to close its polyethylene lines and sell off its ultrahigh-molecular-weight PE business is proof of its refocusing in North America. Platz said Basell's core North American businesses will be PP, compounds, polybutylene, specialty PE and Catalloy-brand engineering resins.
``The [Lake Charles, La.] polyethylene plant was built as a demo plant to support our licensing efforts,'' he said. ``It wasn't ever viable as a polyethylene business, so when we ran into overcapacity, it became a loss maker for us.''
PE technology licensing now will be handled by Basell's research and development site in Ferreira, Italy. The Lake Charles PE lines can be restarted if market balance improves.
Basell's UHMW PE unit ``had been a cash cow ... but it was older technology and it just reached the wall,'' Platz said.
Basell also closed its Hivalloy engineering resin unit after it failed to make significant market inroads after a dozen years of marketing.
Looking at 2002, Platz said he expects the North American market to be stronger than it was in 2001, when prices fell steeply even as demand grew almost 4 percent. By most accounts, the market still is oversupplied by at least a billion pounds, with almost 800 million more on the way from a Phillips Petroleum Corp. plant in Linden, N.J.
Platz expects a 5 percent growth rate for North American PP in 2002, with growth particularly accelerating in the second half of the year. He openly states the U.S. economy should begin to come out of recession conditions at the end of the first quarter of 2002, although it will be a slow improvement - it won't come roaring back.
North American PP makers' decisions to shut down almost a billion pounds of capacity in 2001 - including Basell's closing of 420 million pounds in Bayport, Texas - is proof that the industry is operating in a responsible way, according to Platz. The Bayport line is expected to be out of commission throughout 2002.
Operating rates, currently hovering in the mid-80s, should improve to the high 80s by year-end, he said.
The PP packaging market weakened in 2001 as consumer spending dropped off and a slow construction market hurt sales of PP fiber, much of which goes into carpeting. But the automotive market was fairly strong, especially when PP compounds are factored into the equation, Platz said.
``Even with zero-interest deals, consumers wouldn't have bought cars if they thought they'd lose their jobs,'' he added. ``That tells me consumers think the economy's going to be strong.''
Today's market overcapacity is a result of decisions made in 1996-97, according to Platz.
``There was tremendous margin in the entire [PP] chain,'' he said. ``So if you were an oil refiner, you'd look at that and say, `I want to get into the polypropylene chain.' A lot of independent decisions were made by Arco and Tosco and others to enter the market.
``Today, things aren't quite the same. Now you've got to run full-out at multiple sites to be profitable.''
With current market conditions in mind, the success of Basell's 5 cent-per-pound PP increase announced for Feb. 1 is crucial, Platz said.
``We've reduced fixed costs by 20 percent and reduced our head count by 25 percent in the last two years,'' he said. ``We've renegotiated our transportation contracts and even shut down a plant, and it's still not enough to turn a profit.
``We've reached the point where we have to say, `We've done everything we can do to run efficiently. Now we have to get a fair price for our product.' Current prices aren't at those levels. We're operating responsibly and still not getting a fair price.''
Platz added that successful increases will push the industry back into profitability and allow Basell and others to invest in technology.
``We'd like to invest in North America in things like the circulating reactor that was talked about at the K show, but we can't do that at current prices,'' he said.