Solvay polymers agreement brings greater focus

22 December 2000 16:06  [Source: ICIS news]

Solvay's polyethylene (PE)/polypropylene (PP) joint venture and transfer agreements with BP marks another step towards a more specialty and pharmaceuticals oriented future for the company and further evolution for this diversified chemical company.

Solvay has done a lot in recent years in terms of portfolio management and loosening the corporate structure by creating strong business units. The drive has been to try to find innovative solutions to the problems that beset chemicals and polymers and to focus more on pharmaceuticals and human health.

Not being integrated upstream in plastics has meant that the company has had to do something to try to ensure the future profitability of this segment. The deal with BP marks another step in that process.

In PVC (polyvinyl chloride) Solvay has sought similar solutions. It has created the Solvin joint venture with BASF and bought European production assets from Shell. In chemicals it will combine its salt operations with those of Kali und Salz.

Almost 15 months ago, Solvay focused further on the joint venture route for its high density polyethylene (hdPE) businesses with the announcement of two new plants in the US with Phillips (subsequently confirmed following the creation of Chevron Phillips chemicals joint venture). This decision supplemented a co-operation in hdPE in Europe with the then TotalFina.

The latest agreement takes the process a good deal further. The future of these projects in the hands of the joint venture with BP have yet to be determined but they are only part of an initial agreement that will see Solvay acquire some speciality polymer assets from BP in exchange for its PP business. The new joint hdPE joint ventures will be created towards the middle of 2001.

Solvay's strategy in plastics has been to focus on higher margins specialties and seek joint venture solutions elsewhere. After this transaction, high performance engineering polymers will account for a greater proportion of the plastics segment (in which vinyls account for about 40%) which had 1999 sales of Euro2.6bn ($2.3bn). Solvay will have put its two commodity businesses into strong joint ventures and have full control of a range of engineering polymers like polyamide-imide and polyethersulphones and polyketones from BP plus its own PVC blends and alloys.

Solvay expects the engineering polymers to have double digit sales growth over the next five years and sales of some Euro700m. It will also have a broader geographical reach with these products and a more significant operation in North America.

Solvay has PP sales of about Euro500m and certainly no critical mass - it is the world's number 12 producer. In such circumstances, it has found it difficult to compete. In October 2000, it noted the then very difficult market conditions in PP as well as the pressure on the hdPE business in the US.

Solvay will not give up its position in hdPE but take a 51% stake in the US part of its joint venture with BP and a 50% stake in Europe. The new venture will have sales of some Euro2bn and a total capacity of 2.2m tonne/year. This capacity will take it into joint second position in the world hdPE league table with the yet to be formed Dow Union Carbide and Chevron Phillips, after Exxon Mobil in first place.

BP also clearly benefits from the new arrangement by acquiring the Solvay PP assets and particularly by making further inroads in the US and in Europe in hdPE. The technology implications of the new agreement have yet to be determined but will be a fascinating chapter of the joint venture story.

By: Nigel Davis
+44 20 8652 3214

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