Lackluster polyethylene demand is leading Dow Chemical Co. to idle almost 900 million pounds of North American PE capacity.
Midland, Mich.-based Dow began the process Aug. 14, officials said in a news release. The firm already had idled almost 600 million pounds of PE capacity since mid-2001 because of poor market conditions.
``At this point in time, it is less costly for us to idle these plants than to run them,'' said Bob Beil, commercial vice president of Dow's North American polyolefins and elastomers business group. ``Given today's high feedstock costs and eroding polyethylene margins, running underutilized plants does not make economic sense.''
Dow declined to offer details of which of its five North American PE sites will be affected. However, a spokesman said most of the impact will be in LLDPE production at plants in the United States. Dow's North American PE sites are in Freeport and Seadrift, Texas; Plaquemine, La.; Fort Saskatchewan, Alberta; and Sarnia, Ontario. Less than 10 jobs will be lost as a result of the shutdowns, a Dow spokesman said.
Dow polyolefins and elastomers group President Romeo Kreinberg added that the firm is ``taking action on the things that are in our control.''
``We have realized some significant margin erosion in recent months, due in large part to natural gas prices that remain at double historical levels,'' Kreinberg said.
Officials gave no indication when the capacity would be restarted. A restart would take 60-90 days to complete, a Dow spokesman said.
Through May, U.S./Canadian linear low density PE sales were down almost 9 percent compared with the same period in 2002, according to the American Plastics Council in Arlington, Va. Canadian and U.S. sales of high and low density PE each were down almost 8 percent in a similar comparison.
Natural gas, a key component in the production of PE feedstock ethylene, was selling Aug. 13 for almost $5.20 per million Btu. That price is well above both its $3 level a year ago and the $1.80-$2.20 range it occupied throughout the 1990s.
Industry analyst Robert Bauman said that although he had expected Dow to idle some capacity this year, he was ``somewhat surprised'' by the size of the move.
But at the same time, Bauman said the drop in PE demand was more attributable to inventory issues than to a fundamental change in the buying patterns of North American PE processors.
``Price increases led processors to build huge inventories in the first quarter, so in the second quarter they worked off that inventory and reduced their buying and inventory building,'' said Bauman, who's with Nexant Inc. in White Plains, N.Y. ``SARS also played a role, since China imported 20 percent less resin from North America in the second quarter.''
Early third-quarter results show an improvement from the second quarter, and the fourth quarter should show further improvement as well, Bauman said.
The Dow move is further proof of North American PE makers losing their competitive edge in the global market because of high-priced feedstocks, according to Bauman. In the not-so-distant future, those export needs could be met by PE made with lower-priced feedstocks from Saudi Arabia and other Middle Eastern countries. The impact of that change could be significant in North America, where exports typically account for about 10 percent of PE sales.
Through May, North American exports of HDPE had plummetted 25 percent, while LDPE exports were down 16 percent and LLDPE exports were off 9 percent, according to APC.
``North American [PE] companies are going to have to shift their export product mix,'' Bauman said. ``They'll have to look at exporting metallocenes, wire and cable and pipe grades that aren't being made in the lower-cost regions. Exports of commodity grades for film, injection molding and [household industrial chemical container] blow molding will be sourced from the Middle East.''