Neste Chemicals looks outside Europe for growth

Source: ECN

1992/03/02

Since its entry into petrochemicals, Finnish company Neste has built a significant presence in Europe, making investments and acquisitions In Belgium and Portugal. John Baker looks at the company's strategy and Its plans for expansion further afield.

COMPARED TO the US, the European petrochemical scene is more fragmented, both geographically and in terms of the number of players. This poses structural problems during downturns, when rationalisation is under consideration, but it also allows for new producers, such as Neste Chemicals, to enter the market and make a significant impact.

From its base in Finland, the state-owned oil company Neste has managed over the last 20 years to build up a three-pole European petrochemicals operation and, within the last few years, has positioned itself among the top producers of polyethylene and polypropylene in Europe, if not worldwide.

Considered acquisitions in Belgium and Sines in Portugal have given the company a geographic presence in the central and southern parts of Europe. Subsequent expansions have reinforced these positions, and, says the company, when the economic climate improves there will be further investments, particularly at Sines.

Neste's move into downstream operations can be regarded an example of an oil company moving to add higher value to its product slate. Of the group's total turnover in 1991 of FM51.9bn ($11.7bn), chemicals contributed 15%, although as expected, their performance fell back considerably last year, from a sales figure of FM8.696bn. This was, said Neste, 'primarily as a result of the worldwide drop in prices in the petrochemicals and plastics industries.'

Neste Chemicals' petrochemical capacity (tonne/year)

Finland
Belgium
Ethylene 240 000 Ethylene 350 000
Propylene 170 000 Propylene 169 750
Butadiene 20 000 C4 fraction 92 750
Benzene 110 000 Benzene 45 500
Cumene 140 000 Cyclohexane 35 000
Phenol 100 000 Toluene 22 750
Acetone 60 000 Xylenes 12 250
Plasticisers 20 000 Polyethylene 120 000
Polyethylene 215 000 PP & PP compounds 285 000
Polypropylene 140 000
PVC 90 000
Polystyrene 42 000
Polyesters 20 000 Sweden
N-Butanol 30 000
Portugal I-Butanol 10 000
Ethylene 300 000 2-Ethylhexanoic acid 10 000
Propylene 140 000 Oxo-alcohols 125 000
Butadiene 40 000 Plasticisers 40 000
C6 fraction 215 000 Butyraldehyde 200 000
Polyethylene 210 000 Phthalic anhydride 25 000
Polypropylene 70 000 Polyethylene 440 000

Neste Chemicals has recently reorganised itself into three divisions. Base Chemicals and Polyolefins account for around three-quarters of its sales, which in 1991 totalled FM7.980bn. The balance is provided by the Construction Chemicals operation, which the company is keen to expand (see ECN 17 February) to provide some balance for the cyclical nature of the base chemicals and plastics businesses.

At the heart of the downstream business is Neste Chemicals' activity in ethylene. Its current capacity here stands at close to 900 000 tonne/year, spread across its three main sites at Porvoo, Finland, Sines and Antwerp, where it has a 35% share in Finaneste, a joint venture with Petrafina, that operates three crackers, the latest of which started up in 1991. The cracker at Sines is leased from the Portuguese government.

According to executive vice president Juha Rantanan, Neste Chemicals is not completely self-sufficient in ethylene and remains a net buyer on the market. Its main shortfall is at its Stenungsund PE site in Sweden, which is supplied with feedstock from nearby Statoil under contract.

Neste Chemicals has made a study of the Sines cracker and says it looks attractive for expansion when the time is right. A decision depends on what happens with the privatisation of Petrogal, and on this matter Rantanen says Neste would be interested in any sell-off.

An indication of the company's commitment to the Sines site is given by last week's announcement that it intends to build a power station to feed the production units, replacing electricity currently purchased from outside. Basic and detailed engineering studies have begun and the unit could be running by April 1994.

Neste is also planning the installation at Sines of a large underground storage vessel for LPG, at an investment of FM113m. The 75 000m3 vessel could be ready by July next year. The LPG would be used to feed the cracker once its flexibility had been improved to enable it to run on LPG as well as naphtha, presently the sole feedstock.

Despite the current problems in the ethylene market, Rantanen says Neste Chemicals is not looking to close any of its crackers at the moment. As Rantanen points out, any decision on the two older Finaneste units would have to be made by Fina, which holds the majority share in the joint venture.

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As a fairly recent entrant to the petrochemicals industry, the company is not encumbered by the problem of older units. The cracker at Porvoo was started up in 1971, but this unit is integral to the entire downstream production at what is an isolated site.

Looking at its petrochemicals operation as a whole, though, Rantanen says that if Neste were approached, the company would have to consider restructuring proposals, given the current state of the European market. However, he believes Neste would probably not be in the first line of companies having to make closure decisions.

On the polyolefins front, Neste Chemicals has kept up a strong momentum in its expansion since its first unit for ldPE was started up in Porvoo in 1972. The company expanded into Sweden in 1984 with the purchase of a PE unit in Stenungsund, and in 1986 started up a PP unit at Porvoo.

In the same year it bought a 130 000 tonne/year PP unit from Hercules in Beringen, Belgium, and has since added to the site with the startup in 1989 of a second PP unit and in 1991 of a 120 000 tonne/year PE unit. The company's move into PP and PE in Portugal was made in 1989, and since this date it has upgraded both PP and hdPE production there.

Neste Chemicals'
petrochemical buildup
 
The beginning
1968 Decision made to go into the petro-
chemicals business
1971 Ethylene plant onstream in Porvoo
1972 LDPE, PVC and polystyrene produc-
tion started in Porvoo
1973 Butadiene unit onstream in Porvoo
1977 Propylene production started in
Porvoo
1979 Benzene plant onstream in Porvoo
1981 Cumene and phenol plant on stream
in Porvoo
1981 Neste Chemicals division estab-
lished
 
Expansion
1984 Polyethylene plant acquired in Ste-
nungsund, Sweden
1986 Oxo-business company acquired in
Stenungsund, Sweden
1986 Polypropylene plant acquired in Ber-
ingen, Belgium
1988 Ethylene cracker joint venture estab-
lished in Antwerp, Belgium
1988 Polypropylene plant onstream in
Porvoo
1989 Second polypropylene plant on
stream in Beringen
1989 Polyethylene and polypropylene
plants acquired and ethylene
cracker leased in Sines, Portugal
1989 Joint venture formed to produuct
polypropylene and SBS rubber in
Tobolsk, Soviet Union
1989 Propylene and polypropylene joint
venture established in Malaysia
1991 Polypropylene plant onstream in
Beringen
1991 Joint venture established to pro-
duce neopentylglycol in Sweden
1991 Third joint venture ethylene cracker
on stream in Antwerp
1991 Business management moves to
Brussels

The company announced late last year that it was to go ahead with a 120 000 tonne/year hdPE unit at Porvoo, using the same in-house proprietary technology as at Beringen. As the Porvoo site cannot be boosted in terms of feedstock, a smaller ldPE will be closed down.

Neste's strategy for polyolefins, explains Rantanen, is to reduce dependence on commodity grades and to concentrate on higher value-added materials. The moves at Porvoo are a prime example of this strategy, which has also been followed at Sines, where work has concentrated on producing a wider number of grades.

The company also has the stated aim of becoming 'globally leading in chosen business areas.' In polyolefins, it currently sits at number two in Europe, with a combined PE/PP capacity of just under 1.5m tonne/year, just behind Enichem's 1.7m tonne/year of PE.

In world terms, however, it sits around eighth, suffering from its lack of production capacity outside Europe. This is something Rantanen would like to change. Neste already has its eyes on the North American market, where it is as yet unrepresented in the polyolefins business, despite the ever-stronger presence there of the Construction Materials division.

Rantanen hopes some day to be able install production capacity in the region, making a niche entry with specialised PE grades. However, he does not rule out production under a tolling arrangement. As he explains: 'We are not looking to become a major commodity producer in the market.'

Expansion into the Far East is more advanced, and the company is going ahead with a propylene/PP joint venture in Malaysia, established in 1989 with Idemitsu and Petronas. This September should see the start up at Kuantan of 80 000 tonne/year of PP capacity based on Union Carbide/Shell Oil technology and of 80 000 tonne/year propylene. A little less certain with regards timing is the company's 450 000 tonne/year PP project at Tobolsk in the former USSR, set up in 1989. Latest estimates give an on-stream date of 1994 or thereabouts.

Rantanen says Neste is looking for further investments in the Asia-Pacific region in polyolefins, and is considering a number of projects in a range of countries. Nothing has been finalised as yet, however.

Meanwhile, the poor state of the petrochemicals business in Europe has led Neste Chemicals to concentrate on keeping its production balanced in terms of market demand. As a leader in the polyolefins market, this has allowed it to take a strong initiative in the recent price hike moves for PP and PE.

The cost structure at its Porvoo site has been studied closely, with the result that Neste believes it can eliminate up to FM150m/year in operating costs while still maintaining output. A large part of the reduction is non-personnel related, explains Rantanen, but there will be job losses. He puts the figure at around 10-15% of the current 1300 by the end of a two-year period. The company is carrying out similar studies at its other sites.

The company has made fewer moves in the base chemicals business recently. Most of the downstream units at Porvoo started up in the late 1970s and early 1980s. A move was made into Sweden in 1986 when an oxo-alcohols business was acquired at Stenungsund. The most significant move, apart from the investments in ethylene mentioned above, was a 20% increase in phenol capacity at Porvoo in 1990.

Reflecting this situation, investment in the base chemicals division has fallen over the last three years from around FM675m in 1989 to an estimated FM250m in 1991. Investment in polyolefins has remained steady at FM600m in 1990 and 1991, slightly down from 1989's FM875m.

Neste Chemicals' desire to build up the construction chemicals' sector is reflected in the steadily increasing investment here, and it is in this sector that moves will be made in the shorter term. But given Neste's progress to date, once the chemicals markets begin to pick up, and Rantanen is expecting the downturn to last into 1994, then its plans in Europe, Asia-Pacific and North America look set to be realised.