Shell sets expansion plans for Far East "With the growth and diversity in the Asia-Pacific region, you can't put your eggs into every basket," observes Jim Gordon, London-based chemicals coordinator responsible for Royal Dutch /Shell's chemical operations outside the U.S. "You have to concentrate on a few and do them well—if you try to do otherwise, you will dilute your efforts." It is that philosophy that is driving Shell's expansion p l a n s in Singapore and Indonesia, in particular, following earlier investment in South Korea and Japan. And the interest in the Pacific Rim, in turn, follows from Shell marketers' belief that the relationship between the rising growth in gross national product per capita and the rising consumption of chemical products is too strong not to be encouraging. Even conservative predictions of low growth in GNP t h r o u g h o u t the Asian region would result in annual increases of chemical consumption higher than those in the U.S. and Western Europe. Higher predictions of GNP growth would mean increases in chemical consumption of 5% per year or more through the year 2000. A petrochemical complex being built by the Singapore government and local and international partners has become a major interest for Shell. The complex includes an ethylene cracker and aromatics, ethylene glycol, polypropylene, polyethylene, and carbon black units. Since the project has gotten under way, Shell has gradually been increasing its holdings in it, primarily by purchasing the shares held by the Singapore government in the companies making up the complex. For example, through various operating companies there, Shell now holds 30% in Petrochemicals Corp. of Singapore (PCS), which operates the ethylene cracker at the Pulau Ayer Merbau site, the core of the complex. Shell already is 100% owner of the aromatics plant that supplies PCS. It now has 30% of Polyolefin Co., which produces polypropylene and lowdensity polyethylene. And it has
boosted its holdings in Ethylene Glycols (Singapore), producing ethylene oxide and glycols, to 70% (C&EN,Mayl,pagel8). The company also is in the midst of negotiations on several projects in Indonesia. One project, a polypropylene venture, has been proposed but temporarily delayed because investments in propylene supply have not yet come through. A larger project in Indonesia, worth about $1.5 billion, was the subject of a feasibility study completed late last year. Proposals have been made, but the project, to build an integrated petrochemicals plant, has not yet received final approval from the Shell board of directors. This project would involve Shell in a joint venture with Japanese partners. At present, however, Gordon says, "nothing is in final form yet. It is still delicate in that people there— and probably anywhere else, for that matter—don't want others to speculate on what they will do, because that implies that you are telling them what to do. But the momentum has kept going." There is, adds Gordon, "the need for patience. We would hope by the end of 1989 things will become somewhat more settled." Shell currently is expanding in Asia, Western Europe, and the U.S. For example, earlier this month the company disclosed that it will be expanding capacity for styrenic thermoplastic elastomers w o r l d w i d e from 507 million lb per year in early 1988 to roughly 706 million lb per year by 1991. Expansions will be in the U.S. at Marietta, Ohio; in Berre, France; and, through the joint venture between Shell Kosan K.K. and Japan Synthetic Rubber, at Kashima, Japan. Recently the firm acquired land in Wesseling, outside Cologne, West Germany, for a polymers complex. "We have planning permission put through for polypropylene—very quickly indeed. That's good news," says Gordon of the project, the first planned for the complex. The site is near that of Rheinische Olefinwerke GmbH, the 50-50 petrochemicals joint venture between Shell and West Germany's BASF. Patricia Layman
Capacity use may be inflation indicator The utilization of production capacity appears to have a "natural level" above which there is a tendency to promote inflation. Although that idea may not be new, Thomas A. Gittings, senior economist at the Federal Reserve Bank of Chicago, has empirically refined the concept and examined it in some detail for particular industrial categories. The "natural rate" of capacity utilization for the chemical sector of the economy is about 80.2%, he says. For all of the industrial sectors studied, the natural rates of capacity utilization fall between 79 and 89%, with the overall national average being about 81%. How sensitive the indication of impending inflationary increase may be, based on capacity utilization data, is unknown. Gittings does not suggest that policy planners depend too heavily on any single indicator, particularly one as inherently empirical as capacity utilization. However, the long-term data do show a distinct correlation between the two. At a constant capacity utilization of 81%, the inflation rate has remained more or less constant. The idea that there is a connection between capacity utilization and inflation follows from the notion that, when there is unused capacity, competition between producers tends to hold prices down. Conversely, when capacity is tight, competitive pressures decrease and prices rise. Additionally, those industries facing a capacity constraint may be subjected to price increases from their suppliers who also face demand pressures. Thus, both costs and prices may rise in reaction to increased capacity utilization. The empirical relation between real world capacity utilization and inflation has been rather inexact at best, with deflation occurring only when capacity is much below the natural rate. However, refinements may result in more reliable use of the capacity utilization rate as an inflation predictor. At the present time, Gittings expects higher, but unspecified, inflation in 1989. Joseph Haggin May 29, 1989 C&EN
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