The Verbund strategy that really works
22 February 1999 00:00 [Source: ICIS news]
BASF continues to prove that diversification in chemicals works.
Over the past three years, the company has driven home the point
that its particular form of diversification - or Verbund - is an
advantage rather than a burden. Put in a nutshell, the Verbund
strategy means that highly integrated chemical complexes can be run
efficiently. Long product chains can produce high returns and
provide very real protection against the chemical and economic
cycles.
There are a number of aspects to this approach but BASF is
clearly playing to its strengths - its collective knowledge of
process plant technology and economics; its continued technical
advance. The company is driven by the need to pick technology
winners, to invest in new chemical plant and to globalise. BASF's
main production complex is at Ludwigsafen on the Rhine, but there
are European complexes in Antwerp, Belgium, and Tarragona, Spain.
Freeport and Geismar are the primary production locations in the
US. BASF is intent on building highly integrated chemicals
complexes in Kuantan, Malaysia, and in China.
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The Verbund strategy has not precluded change at BASF. Indeed,
management has been actively managing the portfolio in recent
years. The most visible aspect has been the way in which BASF has
dealt with its primary polymer businesses and the creation of the
significant joint ventures, Targor with Hoechst in polypropylene
and Elenac with Shell in polyethylene. However, the company has
also established other major ventures with the likes of Shell
(Basell); Petronas (to create the Malaysian Verbund site); Fina (to
build the world's largest steamcracker in the US) and Sonatrach for
a propylene venture in Tarragona. BASF has tried to divest major
chunks of the portfolio, such as Kali and Salz, and made
investments to bolster a range of businesses including
pharmaceuticals (Boots) and animal feed.
This activity has gone on alongside, not instead of, a clear
focus on capital expenditure to raise process efficiencies, and
technical advance. Performance in chemicals highlights the
benefits. BASF is developing new areas of expertise, but it is not
losing sight of what it takes to make its core businesses work.
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The new areas include pharmaceuticals and the growing area of
vitamins, supplements and nutraceuticals. BASF's interest in oil
and gas should not be forgotten - it adds more cyclical
resisistance.
The recent decision to buy back shares illustrates management's
willingness to reward shareholders. n The ethylene expansion, new
plants and pipeline proposals are vindicated by the closure of
older capacity elsewhere. BP will close its 150,000 tonne a year
ethanol plant at Baglan Bay in Wales and use the new capacity at
Grangemouth for ethyl acetate production at Hull. The new VAM plant
will come on-stream to coincide with the end of a toll
manufacturing agreement with EniChem for product from the troubled
Porto Marghera site near Venice. The ending of this long-term
contract was a key aspect of the whole investment plan.
The new ethyl acetate plant will be based on BP's own 'direct
addition' process for making ethyl acetate from ethylene and acetic
acid without using ethanol. It will replace an old plant at Hull
and the material from Porto Marghera. The existing Hull ethyl
acetate plant will eventually be used to produce other
chemicals.
This is a fairly unique opportunity for BP Chemicals to revamp
the critical portion of its European production base. The ending of
VAM contracts in Italy and the power plant go-ahead have given the
investment package a boost and been critical in board approval for
the various pieces of the jigsaw. However, the technology elements
have played a crucial role. Investment in the North East deals a
further blow to Baglan Bay in Wales but BP is committed to
developing the site as a location for light industry. As for the
new investments, they add a further degree of integration for The
new ethyl acetate plant will be based on BP's own 'direct addition'
process for making ethyl acetate from ethylene and acetic acid
without using ethanol. It will replace an old plant at Hull and the
material from Porto Marghera. The existing Hull ethyl acetate plant
will eventually be used to produce other chemicals.
The new ethyl acetate plant will be based on BP's own 'direct
addition' process for making ethyl acetate from ethylene and acetic
acid without using ethanol. It will replace an old plant at Hull
and the material from Porto Marghera. The existing Hull ethyl
acetate plant will eventually be used to produce other
chemicals.
The new ethyl acetate plant will be based on BP's own 'direct
addition' process for making ethyl acetate from ethylene and acetic
acid without using ethanol. It will replace an old plant at Hull
and the material from Porto Marghera. The existing Hull ethyl
acetate plant will eventually be used to produce other
chemicals.
The new ethyl acetate plant will be based on BP's own 'direct
addition' proces.
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