InterviewFeedstock synergy fuels LyondellBasell

07 January 2008 20:36  [Source: ICIS news]

Acquisition creates powerhouseBy Mark Watts

LONDON (ICIS news)--Basell’s $19.4bn (€13.2bn) acquisition of US petrochemical producer Lyondell has created a global powerhouse in polyolefins, with integrated feedstock supply in Europe and North America.

Now the world’s largest polyolefins and propylene oxide producer by capacity and the fourth largest chemical company by sales, LyondellBasell is also among the top five makers of propylene and ethylene.

Its integrated feedstock supply will enable the new company to overcome weak margins that North American producers are struggling with.

“In the US, the merger has a particular benefit in polypropylene (PP),” president of LyondellBasell’s polymers division Anton de Vries told ICIS news

“[The former] Basell has always had a disadvantaged position there due to the difference in propylene prices as we were not a propylene producer in the US.”

De Vries said the new company would gain cost advantages quickly from combining its US businesses.

“With the Lyondell acquisition we have clearly improved our position as a strong player in propylene in the US and are also considerably stronger in polyethylene (PE),” he said. “We still have contractual arrangements we will honour but we are now a fully backward-integrated player,” he said.

The acquisition, which closed on 20 December, was the largest chemicals deal of 2007, with the company choosing to move its global headquarters to Rotterdam in the Netherlands. The move is expected in mid-2008.

“We are not expecting plant closures as the overlap in very limited,” said De Vries. “Overlaps are more on the office side.”

He said there would be job losses in support functions representing part of the expected synergies from the merger, but that it was too early to say how many or in what specific areas.

LyondellBasell has said it expects targeted annual synergies of around $420m by year three following the acquisition.

De Vries said the merger would not particularly strengthen the company’s position in the growth markets of Asia and the Middle East.

“In emerging markets, the former Lyondell’s presence was limited, while the Basell side has several joint ventures in Asia, including businesses in South Korea, Japan, Thailand and China,” said De Vries.

“Compared with more mature markets, Asia remains a weak position.”

He said the company remains committed to its operations in these markets.

“We actively pursue operations there. It is difficult to find the right joint venture partner and not easy to do an investment on your own,” he added.

With large amounts of cost-advantaged polyolefins capacity coming on stream in the Middle East over the next few years, some analysts have predicted a downturn as global supply outstrips demand.

However, De Vries said LyondellBasell expects good demand for PE and PP capacity for years to come.

“The increase in capacity in the Middle East will find its way to Asia and to some extent Europe, in 2009-2010 operating rates might go down but we don’t foresee a disaster. It depends on the general state of the world economy,” he said.

As well as its Tasnee joint venture polyolefins complex in Jubail, Saudi Arabia, De Vries said LyondellBasell was still planning a multi-billion dollar cost-advantaged cracker project in Kazakhstan.

“The timescale has always been well beyond 2010. We have it in our books and it will be 2011-2012,” added De Vries.

($1 = €0.68)

By: Mark Watts
+44 20 8652 3214

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