07 July 1997 00:00 [Source: ICB]
Capacity increases, acquisitions, joint ventures and technical advances are all on the agenda at Dow Chemical's polystyrene business, which is looking to expand globally into the next century. As John Baker reports, although Europe and the US are mature markets, potential for growth is evident in Asia and Latin America.
Polymer producers are increasingly organising their businesses with a global dimension, as major downstream customers push forward with their own globalisation plans. Very few players though can boast a truly worldwide setup.
One that claims it can is Dow Chemical with its polystyrene (PS) business. With a market-leading ability to produce 1.7m tonne/year of the versatile polymer, Dow boasts no fewer than 18 operational production facilities around the world, including six locations with joint venture (jv) partners. These are backed by four world-scale styrene production facilities.
The business is run on a global basis, explains Kathleen Bader, vice president for PS, based in Midland, Michigan. Major investment decisions are made centrally from Midland and R&D, finance and supply chain issues are managed from here.
But recognising the different customer bases and needs, four directors take local responsibility for commercial operations in the main regions: North America; Europe, including eastern Europe, the Middle East and Africa; the Pacific, including India; and Latin America.
'We are in a strong position as we have production in all four areas,' says Bader. The US accounts for around 40% of total business, with Europe taking 30% and the Pacific 20%. Although Latin America accounts for only 10% of sales, Dow holds a leading position in the region and indeed holds a higher percentage market share than in the other three regions. It reinforced this lead last year through its acquisition of EDN in Brazil.
Further investment is planned in Latin America and throughout the world. By 2006, Dow expects to have boosted its total PS capability to 2.6m tonne/year, an expansion of 900 000 tonne/year of capacity over the next ten years. Such an addition is warranted, she explains, by the predicted growth in demand for PS, especially in the world's emerging markets.
Specific projects are not fully defined, although Bader intimates there will be new capacity in all four regions. This will be achieved in a number of ways -- through acquisitions, taking advantage of privatisation programmes around the globe; through expansions and debottleneckings at existing sites; and through new investments on world-scale plants, which Dow views as 120 000 tonne/year at a minimum. In addition, Dow will be rolling out improved technology across its existing plants.
In Europe, Dow will add a new PS plant by the end of this decade, although Bader and Graham Fox, the European commercial director, decline to reveal a site. They do indicate, however, that the plant will be located to meet demand from eastern Europe.
In the Pacific region, Dow will build another PS plant in China, to augment its facility in Hong Kong, currently the largest unit in the country. The plant will be built by Styron Asia, a Dow jv with partner Asahi Chemical, at Zhangjiagang, to serve the Shanghai area. Onstream date is 1999-2000.
Dow has recently brought onstream a new 120 000 tonne/year PS and 200 000 tonne/year styrene production facility in Mab Ta Phut, Thailand, a jv with Siam Cement. It also has capacity in Australia.
At least one other unit is expected to be built in the Pacific, says Bader. In all Dow expects to build six plants worldwide by 2005.
In North America, however, expansion will come predominantly from expansion and technology enhancements of existing units. This is part of Dow's so-called 'Tica' initiative -- technical improvements for competitive advantage. In all, Tica is expected to deliver 25% of the extra 900 000 tonne/year capacity Dow is planning.
Bader emphasises that there is no one single technology enhancement, but a whole series of smaller improvements, often made at different plants. 'We can pool all these across our operations to obtain improvements', she says. A series of improvements have been made recently at Dow's key Midland facility, enabling it to achieve a production record of over 454 tonne/day of high impact PS last year.
Having demonstrated an improvement here, it can be moved worldwide. Bader estimates Dow has potential for 180 000-225 000 tonne/year capacity creep simply by rolling out known technology improvements. 'And we could double this in five years,' she says.
Dow estimates global PS demand to be around 9.5m tonne/year, a figure expected to grow by 4.7%/year over the next five years. In volume terms this equates to around 400 000 tonne/year of additional capacity each year.
By 2005, Dow says the market could be as big as 16m tonne/year. From the figures given above for its investment in production capability, Dow is evidently hoping to meet around 15% of the increased demand, a figure in line with its current share of the global market.
The Pacific region inevitably has the highest expected rate of growth, with figures variously estimated between 7% and 12%/year. Dow plumps for a conservative 6.3%/year level, which is closely followed by Latin America at 5.6%/year. The more mature markets of western Europe and North America will show slower growth, around GDP levels or a little higher.
In Europe, Dow holds the number two position in terms of PS supply, after BASE Fox says Dow is satisfied with its production base in the region, after a number of rationalisation moves in the early 1990s. Then, in response to poor market conditions, it closed or mothballed production lines in Bilbao, Spain; Livorno, Italy; and Terneuzen, the Netherlands.
At the same time it brought onstream a new 90 000 tonne/year unit at Tessenderlo, in Belgium. Now, says Fox, Dow is confident of its operational base in Europe: 'Most Dow assets (here) compete very well on a global basis.' He says the assets are positioned to act as preferred local suppliers in their markets. 'Europe is not a United States of Europe and it is good to have plants in a number of countries.'
Although growth rates in western Europe are not high, several competitors, including BP Chemicals and Huntsman, have announced new capacity builds for PS in recent months, so competition for market share will be intense.
With four main players -- BASF, Dow, Elf Atochem and Enichem -- Fox believes the market is suffering from too many smaller producers. He believes it will be difficult for these to compete effectively over time.
Hüls recently announced its intention to sell or partner its PS business, and for several years Shell, Neste and BP Chemicals have been sporadically assessing their continuing presence.
Fox admits Dow has looked at Hüls' business and is interested in moves that lead to rationalisation, 'but only if they strengthen our network (of facilities)'. But he admits that, in Europe, none of the businesses makes the cut in terms of financial thresholds. 'We are not just looking for growth but value growth -- we are not in deep discussions,' he says.
Demand for PS in Europe is growing at around GDP levels of 2-3%/year, but with inevitable scatter. Fox says last year saw demand up 6% in western Europe, but admits that so far the first half of 1997, demand is slightly down on the same period in 1996.
Eastern Europe has more potential, with growth rates of up to 9%/year a possibility. This is being driven in part by customers locating downstream manufacturing into the region from western Europe, with Poland benefiting especially. This has evidently spurred Dow's decision to build a production unit in the region. The question, of course, is exactly where?
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