17 January 2013 16:13 [Source: ICIS news]
By Will Beacham
BRUSSELS (ICIS)--Belgian group Solvay is planning to take action to deal with overcapacity and poor market conditions in Europe’s polyvinyl chloride (PVC) market but has ruled out a quick sale of its assets.
With Europe’s economic crisis hitting demand amid an oversupplied and fragmented PVC market, Solvay is planning to take action to help alleviate unsatisfactory conditions which have hit the profitability of its PVC operations, said CEO Jean-Pierre Clamadieu.
Speaking to ICIS late on Wednesday after the announcement of a new company structure for the merged Solvay/Rhodia group, Clamadieu said the company has a very good cost position in PVC in Europe in terms of its industrial footprint, having invested to transform all but one plant to membrane technology.
“But it is a very difficult market with overcapacity and a lot of players. The challenge there is how can we directly or indirectly contribute to some kind of restructuring in this market?
"Solvay is working on various scenarios but, said Clamadieu, it is difficult to forecast when the plan will come to a conclusion. “We have very good plants in a lousy market with too many players and overcapacity. The picture is not that pretty.”
Over the cycle PVC has been a cash contributor for Solvay and even today it is not losing money, he said, adding: “It’s clear from the [financial] results that we’re far from earning our cost of capital for this business. Profitability has been affected by the European situation – it’s a challenge. As long as a business is not bleeding cash you have some time to find a solution.”
Clamadieu said that, because of the quality of the assets, “I can say that a ‘quick and dirty exit’ is not what we want to do.”
He said French group Arkema had a very weak competitive position so it made “plenty of sense” for them to sell its PVC business. Arkema sold its PVC business to KEM ONE in July 2012.
“PVC over the cycle is a significant cash contributor to Solvay and it has value. So the action plan can’t be “quick and dirty” – it’s probably more complex than that to put a plan in place.”
The group is also taking action to tackle problems in the global polyamide market. Clamadieu said the market is oversupplied but differs to PVC because it is already consolidated with only three nylon 6,6 players globally and five plants producing adiponitrile (ADN).
“Over the last years there has always been a plant having some technical issues so we had the feeling we were in a well-balanced market. Now they are all working well, the markets are not very dynamic and there is overcapacity.”
He said Solvay is also at a disadvantage in Europe because natural gas, a key feedstock for the polyamide chain, is so much cheaper in the US. On top of that one of Solvay’s competitors in the US is using C3 technology whereas Solvay relies on the C4 route which has become more expensive in recent years.
“We work very hard to improve our competitive position by improving plant efficiency and our cost base. It’s tough because we are fighting headwinds in terms of raw materials and energy but we’re working on that."
He said the company is looking at different technologies such as catalysts. “But it is co-owned with Invista which adds a degree of complexity because we have to agree what we want to do,” he added.
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