Nova Chemicals Corp. expects to complete by June a feasibility study for a Mexican joint venture, but a senior executive said Nova won't go through with the project unless it meets certain profit and feedstock expectations.
``We've been very vocal in saying that if [the project] doesn't meet investment thresholds of 16 percent after tax, we won't do it,'' said John Hotz, vice president of the polyethylenes business at Pittsburgh-based Nova. Hotz spoke at the Plastics News Executive Forum, held Feb. 28 to March 2 in Litchfield Park.
Hotz added that if Nova ``can't get an acceptable feedstock position,'' the firm will add PE capacity somewhere else in North America, most likely in western Canada. Nova already operates a massive ethylene/PE complex in Joffre, Alberta.
In late October, Pemex Petroquímica SA, the Mexican national petrochemical firm, announced Nova will be its only non-Mexican partner in the long-discussed Phoenix Project. Nova will be joined in the project by polystyrene maker Grupo Idesa SA de CV of Mexico City and Indelpro SA de CV of Monterrey, a joint venture between polypropylene giant Basell NV and Mexican conglomerate Alfa Group. The size of Pemex's stake in the project could be as high as 49 percent. It's undecided how the three other partners will split the size of their interests.
The partners also must choose a site between Altamíra, a northern Mexico petrochemicals hub that is closer to the U.S. market, or Coatzacoalcos, a southern Mexico site that would be closer to potential export customers in South America. Mexico currently imports almost 60 percent of the petrochemical products it uses each year.
Initial construction will include an ethylene cracker and a pair of PE plants, all of which will take advantage of Mexico's low-cost natural gas resources. Production would begin in 2009 or 2010.
Hotz said potential output from the Pemex venture could help meet North American demand, which is expected to continue to average 4 percent growth through 2009. That rate would leave the market short by about 10 billion pounds - the equivalent of 14 world-scale plants - by 2009.
At the current growth rate, North American PE plants will be approaching a 100 percent operating rate by the end of the year, Hotz added. If North American PE makers add 5 billion pounds of capacity through streamlining and similar methods, operating rates still will be in the low 90s in 2009.
Even as sales and selling prices grew in 2004 - a result of strong demand and high natural gas and crude oil prices - the plastics and chemicals industry was coming out of a severe depression that Hotz labeled as the worst he's seen in his 29-year career.
``There's no question that the industry has gone through a paradigm shift,'' he said. ``The days of cheap feedstocks and cheap polyethylene are over, and the industry will have to adjust.
``But I don't believe the high price of polyethylene will kill demand. The material still has a lot of value to the end customer.''
Hotz also questioned whether massive petrochemical expansions announced for the Middle East will come in on schedule, because of political instability and difficulty in finding skilled labor in the region. He pointed out that one such project announced for Iran already is three years behind schedule.
Nova also has doubts about whether a major petrochemical site announced by Keltic Petrochemicals Inc. in Nova Scotia - one that would include almost 3 billion pounds of PE capacity - will open in 2007 as originally announced.
``We're not sure if [the Keltic project] has a good set of legs,'' Hotz said. ``We haven't included it in our projections.''
After losing $1 million in 2003, Nova posted a profit of $252 million in 2004. Also in 2004, the firm's sales grew 33 percent to almost $5.3 billion and its per-share stock price jumped 75 percent to $47.30. Nova ranks as one of North America's largest PE and polystyrene makers.