LCY halts PP production; politicians resign following fatal blasts

LCY Chemical Corp. has halted polypropylene production in the wake of propylene gas explosions that killed 30 in Taiwan on July 31.

Meanwhile, as local media reports expose safety issues with Taiwan's infrastructure, some politicians have handed in resignation letters.

And LCY, which has seen the deal to merge its styrenic block copolymer (SBC) operations with Kraton Performance Polymers Inc. collapse, is demanding a break-up fee from Kraton.

LCY stopped the PP production at its Dashe plant in Kaohsiung on Aug. 8, as ordered by local authorities. The company expects to lose 51 million new Taiwan dollars (US$1.6 million) per day in regular PP sales during the temporary shutdown, according to a filing with the Taiwan Stock Exchange.

While pledging to make full efforts to assist with government inspection and improve its operation, LCY expressed concerns with the shutdown's impact on its 5,000 employees and their families. In a news release, the company called for the government to give the green light for LCY to resume production “as soon as possible.”

LCY had announced a four-day voluntary suspension of the production at Dashe plant from Aug. 6-9, so employees could participate in a public memorial for the victims. The company expected to take a 139 million new Taiwan dollar (US$4.63 million) hit on PP sales as a result.

With 400,000 tons of annual capacity at the Dashe facility, LCY is one of the three major PP suppliers in Taiwan.

PP was LCY's second largest revenue source in fiscal year 2013, representing 31 percent of company-wide sales.

Its largest business unit, styrenic block copolymers, just saw the collapse of a high-profile merger deal with Houston-based Kraton.

Kraton announced on Aug. 6 the withdrawal of its board's prior recommendation that Kraton's stockholders approve the merger deal. In response, LCY said in an Aug. 8 statement that it has decided to terminate the contract with Kraton.

Kraton said it would not have to pay a $25 million break-up fee to withdraw from the deal. A provision in the original agreement had that said the fee would not be required if LCY had a “material adverse effect” — and Kraton's board said the July 31 explosions qualify.

LCY, however, said Aug. 8 it would demand the fee, based on the terms of the agreement.

The explosions' ramifications have expanded beyond LCY, as reports exposed deeper issues of Taiwan's infrastructure and its safety. Facing public scrutiny and mounting pressure, some politicians have resigned.

Taiwan's economy minister Chang Chia-Juch has stepped down, taking the blame, mainly from the Kaohsiung government, for his ministry failing to regulate the pipelines. In an Aug. 7 published statement, Chang said he hoped that by shouldering the entire blame, Taiwanese politicians could stop finger pointing and focus on resolving the difficult situation.

Four Kaohsiung city officials also resigned, after Taipei-based China Times said the city had lied about its knowledge of underground pipelines.

Although the official investigation is yet to announce findings, various media reports have said that the pipeline in question is located inside an underground drain canal. Scientists and politicians said the drainage water could have been eroding the propylene pipeline and the leaked gas traveled through the drain canal to the explosion sites.

On Aug. 11, local prosecutors summoned seven employees from LCP and the China General Terminal and Distribution Corp. who were directly related to the operation of the pipelines prior to the explosions. All were suspected of causing “public danger” and were released on bond, according to Taiwan's United Daily News.