Two recent mergers among Europe's petrochemicals producers have hardly created a ripple in the market.
Their long term effect may be significant, though.
Borealis Holding AS, Copenhagen, was created Mar. 1 by a merger of the petrochemicals and polyolefins businesses of Finland's Neste Oy and Norway's Den norske stats oljeselskap AS.
With production plants in Belgium, Finland, France, Germany, Norway, Portugal, Sweden, and the U.S., Borealis lays claim to titles as the world's fifth largest polyolefins producer and the largest in Europe.
Borealis' production capacity is 1.5 million metric tons/year of polyethylene and 650,000 metric tons/year of polypropylene. First year sales are expected to amount to $2.4 billion.
NONEVENT
Roger Longley, director of Chem Systems Ltd., London, said it is difficult at first with mergers to see if 2 + 2 equals 3, 4, or 5.
"The main reasons for a joint venture are to reduce costs and increase market share," Longley said. "We have heard that Borealis has made no cost reductions, so there will be no immediate benefit.
"Indeed, setting up a company in Copenhagen is a major cost in itself. Market share benefits take a long time to work through, unless there is a shutdown of major plants."
Because 90% of joint venture cost savings comes from plant shutdowns, reasoned Longley, and Borealis had so far not reduced capacity, the merger was a "nonevent."
Merging of certain assets of two world scale producers also has had little effect for a different reason. Royal Dutch/Shell and Montedison SpA intend to create the world's largest polyolefins company, to be known as Montell, when they combine their polyolefins businesses this year.
Montell will be a $3 billion/year revenue company with capacity to produce 3.3 million metric tons/year of polypropylene and 700,000 metric tons/year of polyethylene (OGJ, Jan. 10, p. 34).
EC DAMPER
Longley said this merger could have had a big revitalizing effect in the market if the European Commission had not taken the edge off the deal with its approval conditions.
When EC approved the merger in June, it said Montedison's Spheripol technology, used in plants producing 60% of the world's polypropylene, had to be placed in the hands of a separate company owned by Montedison.
"Transfer of technology offers big gains in a merger," Longley said. "This was one of the very important things in the deal that was spiked. It was a bad decision by the EC."
Longley said strategy is more important in a merger than short term effects.
These two mergers tell the market the companies are willing to support polyolefins. "What will be interesting is the moves of other companies as they decide whether they want to spend to keep up."
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