Do North American resin makers want to make resin anymore? It seems like a ridiculous question on its surface - since we're talking about multinational chemical and oil companies that have billions invested in the field. But recent actions by Dow Chemical Co., Nova Chemicals Corp., GE Plastics and Eastman Chemical Co. have caused that question to at least cross the minds of a few market watchers.
Dow wants to find joint ventures for its polypropylene and polystyrene businesses. Nova wants to sell, spin off or find a joint venture partner for its styrenics unit, which includes PS. Polycarbonate leader GE Plastics has been put on the selling block by its parent, General Electric Co. And Eastman is looking to sell or close several international PET plants.
The reasons for these moves are varied. Higher benzene feedstock prices have collapsed the entire economic model for products like PS, PC and ABS - which also is a major GE product. Nova's styrenics unit has lost more than $800 million during the past six years, while GE Plastics - although still profitable - is falling short of the expectations of its parent. It's tough when you have to compete with appliances, aircraft engines and the NBC television network.
At Eastman, waves of global PET capacity have weakened its international profit. At the same time, the firm is launching a new technological platform in North America designed to make its PET works more profitable in the long term.
Other PET makers are investing in North America as well. Several PVC makers are doing the same. PET makers have faith in the long-term health of the North American packaging and beverage markets, while the PVC crowd is casting its lot with the region's construction market, even in a down cycle.
It needs to be pointed out, however, that capacity additions for PET and PVC are the least expensive and least complicated of all the major commodity resins. It costs a lot more to set up the petrochemical crackers that are needed for more polyethylene and PP output.
But it wasn't so long ago that Dow had its hands in consumer products such as Scrubbing Bubbles and Saran Wrap, and DuPont Co. ran a major PE business - which it sold to Nova. That was before those businesses were deemed too far downstream for basic chemical firms to be involved with anymore. Oil powers British Petroleum and Royal Dutch/Shell have taken similar steps with their plastics and chemicals units in recent years.
So are we approaching a point where resin itself will be judged as being too far downstream by its current crop of producers? Will global competition and commoditization of the product convince these mega-firms that they're better off making resin's building-block chemicals, rather than overseeing multiple sites and employing the massive sales forces needed to sell to injection molders, blow molders, film extruders and the like?
It wouldn't be all that surprising to see some of these resin businesses fall into the hands of private equity firms that treat them as super-regional cash producers. The money men can hold on to them until they grow tired of the commodity business cycle.
In some ways, it looks like Dow, Nova, GE and Eastman already have.