Petrochemical producers tend to be bad at long term planning.
In particular, not enough note is taken of the investment plans of others, a problem compounded by the secrecy that clothes them.
That is the view of Roger Longley, director of Chem Systems Ltd., London, in a review of Europe's petrochemicals industry for a Shell International Chemical Co. Ltd. in house publication.
"Too many firms are driven by crude, nonstrategic motives such as growth, market share, employment, integration, and plain ego," Langley, said. "They refuse to learn the obvious."
The obvious, he said, is the cyclical nature of the petrochemical industry. The upward part of the cycle tempts companies into building new plants, which go on stream in a bunch as demand is falling.
Recovery from previous market lows has resulted largely from closure of old, small plants. This was mostly by companies that built new plants alongside the earlier ones in the dash for growth.
"NO" TO CLOSURES
Europe's petrochemicals producers have collectively spurned plant closures. A bid by the Association of Petrochemicals Producers in Europe (APPE) to set up a 500 million deutschemark ($300 million) fund to subsidize closure of outmoded plants was abandoned last December.
"Members insisted there should be two criteria for setting up the fund," said Tony Reed, secretary general of APPE. "There must be support for the fund from all members, and at least 1.5 million metric tons of capacity must be taken out of Europe's current 19 million metric tons capacity."
Not enough aging capacity is volunteered for closure, Reed said. APPE has no plans at present to create an alternative to the fund.
"The ball is in the court of the individual companies," Reed said. "Their options are plant closures or joint actions."
Longley said mergers, alliances and other joint actions are preferred to closures. He warned that mergers of weak producers will fail, although "strong" mergers will succeed. Examples of the latter are Neste Oy Den norske stats oljeselskap AS (OGJ, June 28, 1993, Newsletter) and Shell Montedison SpA (OGJ, Jan. 10, p. 34).
JAPANESE SOLUTION
Faced with similar problems as European companies, Japan's petrochemical producers appear to have hit upon a neat solution to overcapacity.
Japan's Ministry of International Trade & Industry reportedly, took a delegation of producers to China last month to rally support for a plan to break up surplus Japanese plants and ship them to China for reassembly.
Tokyo newspaper Nihon Keizai Shimbun said Japan's petrochemical capacity surplus will reach 2 million metric tons/year in 1995, while China is expected to have a 2 million metric ton/year deficit in 2000.
Unfortunately, petrochemical industries in Europe's former Communist states number overcapacity among a host of problems. There is no ready market for secondhand plants in Europe's doorstep.
