ExxonMobil waiting out global recession, preparing for recovery

ERJ staff report (PN)

By Frank Esposito

FAIRLAWN, OHIO (Aug. 13, 3:05 p.m. ET) - ExxonMobil Chemical Co. finds itself navigating a treacherous road in mid-2009. But as painful as the last two years have been for the global plastics and chemicals market, a comeback could be swift.

“The petrochemical market goes down very hard, but it also comes up rather quickly,” ExxonMobil Chemical executive Simon Holmes said in an Aug. 7 presentation to customers in Fairlawn.

“Coming out of a recession, order increases tend to be rapid. Increases in the first year of the recovery can be greater than the amount of the previous decrease.”

Holmes serves as global marketing manager for specialty elastomers for Houston-based ExxonMobil. The specialty elastomers unit - including Santoprene-brand thermoplastic vulcanizate and Vistamaxx-brand ethylene elastomer - operates an office and research center in Akron, Ohio.

In spite of recent challenges, ExxonMobil continues to invest in growth. The firm is adding almost 700 million pounds of new Vistamaxx capacity in Singapore in 2011 and will boost metallocene EPDM capacity by more than 300 million pounds in the U.S. and Middle East over the next five years.

ExxonMobil also is updating its Santoprene product mix and will eliminate a number of grades in the next six to 12 months. The move is being made to weed out little-used grades with low growth potential, as well as to avoid overlapping attributes among grades, Holmes said.

Holmes addressed a number of issues that have confronted both resin makers and plastics processors in recent months.

“The economy is still a mess, and polymer prices are high correlated to the price of crude oil, which can make up 60-70 percent of [polymer] cost,” he said. “But high prices aren't the problem.”

“All the materials that polymers compete with are up even more. What hurts is volatility. How do you plan? You can't lock in to six-month contracts because polymer prices and crude [oil] prices aren't good to the end of the year.”

“Lower prices aren't generating more business either. Demand just is not there.”

The impact of the current recession is being felt globally, leading governments to react. In the U.S., Holmes stated that stimulus spending hasn't been spread evenly. In India, government reaction to a polypropylene market issue may hurt other industries down the road.

Concerns about resin dumping led India to place a tariff on foreign PP this year - even though Indian conglomerate Reliance Industries holds a 90 percent share of the domestic PP market. The tariff on the remaining 10 percent ranges from 12 percent to 135 percent.

As a result, Holmes said he believes other nations will counter with tariffs on other Indian-made products. Although the Indian government acted to support a national business, the final result could be a negative one, he said.

The downfall of the automotive market also has played a big role in the polymer sector. In North America alone, almost 800 million pounds of annual PP demand has left automotive - the equivalent of an entire PP plant. More than 200 million pounds of EPDM demand also has been erased from the North American auto field - roughly equivalent to 20 percent of the global EPDM market.

And although light vehicle builds in North America should rebound from 8 million this year to 12 million in 2011, the market won't match its 2007 levels until 2015, Holmes said.

Other major companies have been more severely affected. Holmes cited global PP leader Lyondell Basell Industries, which filed for bankruptcy protection earlier this year.

“You never would have thought that the world's largest PP producer would find itself in chapter 11,” he said. “And it's unlikely that all their plants will reopen on Jan. 1.”

Moves taken by other petrochemicals firms - including plant closings by Dow Chemical Co. and DuPont Co. - indicate a major shift in the way they view the business, according to Holmes, who added that more restructuring also could hit the polymer industry in the next 3-6 months.

“These companies are looking at assets and saying things will never be the same,” he said. “They're going to bleed for 3-4 years before coming back, and they're deciding that it's not worth it.”

“They want to get the red ink on the balance sheet and get out now. But six months ago, they were bringing new products to customers.”

From Plastics News (A Crain publication)