BP Chemicals and Italy's Enichem have agreed to a joint venture that could make them the European market leaders in polystyrene.
Out of a total European market demand of about 2.3 million tons/year, polystyrene market shares are dominated by BASF AG 550,000 tons/year, Atochem and Enichem 450,000 tons/year each, Dow Chemicals 420,000 tons/year, and BP 150,000 tons/year.
Under the agreement, BP also will transfer its license for gas phase production of linear high and low density polyethylene. Enichem will build a 200,000 metric ton/year gas phase PE plant at Brindisi, Italy, that will be integrated with its world scale ethylene cracker currently under construction there. The ethylene cracker uses the same process BP uses to produce a combined total of 1.2 million tons/year of PE in Scotland and France.
Financial terms of the venture aren't disclosed, but analysts in Italy estimate the PE license at $4-5 million and the venture's expected sales at $800 million/year.
BP's technology will allow the chemical arm of Italy's ENI Group to boost its PE output by 13% to 1.7 million tons/year. At the same time, the agreement calls for BP and Enichem to develop new technology for the catalysis of polyethylene for use in their styrene businesses.
The venture could help ease the depressed conditions in Europe's polystyrene market because improved efficiencies resulting from the venture would reduce competition, analysts say. Prices have fallen 40-50% in recent months because of low demand caused by recession, and plants are working at 75-80% of capacity.
It isn't certain which company will be minority partner in the venture, but Enichem Pres. Giorgio Porta is seeking a 50-50 deal. By coordinating prices and production, reducing duplication, and closing inefficient plants, ENI hopes the venture will help its chemical unit focus more on basic petrochemicals and return to profitability.
Enichem has $5.6 billion in debt and faces recapitalization estimated at $1.6 billion. ENI is proceeding with the first public offerings of stock in its Agip and Snam units, probably in early fall, and likely will defer Enichem's recapitalization until after then.
The venture ends speculation over other possible polystyrene joint ventures with Union Carbide or Ferruzzi Group's Montedison. Both proposals faced political obstacles in Italy, which the BP venture does not. the BP-Enichem arrangement still must pass European Economic Community scrutiny for antitrust concerns.
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