28 July 2011 22:02 [Source: ICIS news]
HOUSTON (ICIS)--Braskem's purchase of Dow Chemical's global polypropylene (PP) business could bring more discipline to the US market, but it will not solve the fundamental problem of feedstock shortness, market sources said on Thursday.
The purchase, announced on Wednesday, includes two PP plants in the US and two in Germany, with a total capacity of more than 1m tonnes/year.
By acquiring the two Texas plants, one in Freeport and one in Seadrift, Brazil-based Braskem will increase its PP capacity in the US by 50% to 1.4m tonnes/year, making the company the leading PP producer in North America, the company said.
But there are still nine other PP producers operating in the market, sources said, adding that it will be difficult for one company to exert much influence.
"You go from 11 producers to 10. That is not a catastrophic change," one trader said. "It doesn't change the game like it would if someone gained 35% of the market."
It also does not change the most significant factor in the market, which is the short supply of feedstock propylene, sources said.
"The fundamental problem with this market is we have a shortness of the monomer," the trader said. "I don't see how this solves that dilemma."
One producer suggested the move could create a little more discipline in the market.
"The less producers, the more discipline," the producer said. "I think you will see pricing be more disciplined, and I believe the PP business is really in need of that."
A buyer also welcomed the move, but said it was unlikely to have any real impact on prices, which are tied to propylene costs.
"We are looking at it as a positive," the buyer said. "I think Braskem is a good company, and they will be a better supplier."
The acquisition probably will not be the last for the PP market in the near future, a source said, pointing to the present uncertainty about Chevron Phillips Chemical, the joint-venture owned by ConocoPhillips and Chevron.
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