Business C&EN's capacity use indicator—the ground rules Capacity use at chemical plants is difficult to measure and requires certain assumptions. These bring some order to the maze of variables affecting this critical indicator of the industry's health. With the help of industry and government sources, C&EN measures capacity use as a percentage of both nameplate and effective maximums. Nameplate capacity is the official design capacity of plants. Effective capacity is the practical maximum after reductions for unplanned maintenance, corrosion problems, changes in product mix, and other influences. Although engineering companies and industry statistics groups try to make nameplate capacity data as "real" as possible, practical problems almost always reduce effective maximums to 85 to 9 5 % of the official totals. For short periods, plants can run over 100% of effective top capacity, but such a rate won't last more than a few months. Capacity use is given over as much of a calendar quarter as production data permit, with no seasonal adjustment.
taken plants down for thorough maintenance after long periods of high operation. But in many other products like ethylene and coproduct olefins and aromatics, companies have been forced to take plants out of operation by simple economics. For example, from 15 to 20% of ethylene capacity is now idle, including some very large new plants that have no customers. The new math of plant operation rests on one main economic development of the past 10 years—the steep rise in raw materials costs' percentage of total production costs. Since raw materials are part of a plant's variable costs, in contrast to fixed costs such as the capital investment in the plant, managements today are much less likely to try to keep a plant running if business turns sour. It's considered better to stop the variable cost drain by shutting the plant down. In the past, a relatively higher load of fixed costs in plants influenced managements to keep plants running even in poor years. Another factor in companies' quick action in plant shutdowns is a tougher marketplace this year. Burdened with profit problems of their own, chemical customers have hit chemical producers hard in recent months on pricing. Discounting already was well established as the year began but now 14
C&EN Oct. 12, 1981
The figures are intended for plants actually running. At present, some products such as ethylene, polystyrene, and ammonia have plants temporarily shut down due to weak markets. These plants are still included in capacity totals. The totals exclude new plants just starting up and old plants out of operation for long periods because of accidents. As much as possible, capacity figures stay current with expansions. Capacity data don't take into account other temporary fluctuations for fuel and electric power interruptions, equipment failure, and feedstock scarcity or substitution. The feedstock variables have been important in the past few years in basic olefins production, further reducing maximum output for several coprod u i s such as propylene, butadiene, and benzene. Products in C&EN's capacity use survey are the same as those in the Key Chemical and Key Polymers series. These are the core products of the industry, the building blocks leading to downstream production of thousands of more specialized products.
has become epidemic. Unofficial price cuts have gone up to 25% in thermoplastics and basic petrochemicals. Although Gulf Coast sources say not much product is going through at the lowest prices, the new range is staggering—for example, down to 22 cents a lb from a list price of 28 cents in ethylene. A serious new depressant in chemical pricing arose this summer in the formerly robust export market. Government statistics caught up with the export turnaround in August (C&EN, Oct. 5, page 10), but chemical marketers have felt the export drag all year. From mid-1978 through 1980, chemical exports were an important quiet booster for prices, production, and profits. This advantage has completely reversed. Now export sales calibrate the low end of the price range, and U.S. producers are accused of dumping some products. By individual product line, chemicals show considerable variation between the most highly discounted, weakest groups and a few still performing well. Only one product among basic chemicals, urea, is still going all out, with 100% use of effective top capacity. Urea's product group, the derivatives of methane from natural gas, showed about the best prospects of any as 1981 began. Much of this promise still holds, even
though their important fertilizer markets have slipped in recent months. However, for these chemicals' cousins in olefins and aromatics, the picture is much darker. Plant use for the entire group is low, easing to a very poor 65% for kingpin ethylene in the third quarter from 68% in the first quarter. For ethylene, the 1980 recession hasn't yet ended. A year ago, plant use of 63% wasn't much worse than it is now. Within the capacity use average of 65%, ethylene plant use varies considerably. Since up to 20% of capacity is idle, plants in operation averagemore than 80% capacity use. Some ethylene coproducts such as propylene have even lower capacity use rates. This results from propylene's dual source structure in olefins plants and oil refineries, both of which are operating at low levels, Also, substitution of lighter feedstocks for naphtha and gas oil in olefins plants has lowered the output of coproducts. The organic intermediates directly downstream from basic olefins and aromatics also are generally in financial trouble at the moment. This is apparent from nameplate use levels of, for example, 74% in styrene, 70% in vinyl chloride, 71% in dimethyl terephthalate/terephthalic acid, 72% in ethylene oxide, and 67% in phenol. There isn't much wrong with any of these chemicals that couldn't be greatly aided with about five to 10 percentage points rise in plant use. One good market year could do it for many products. However, surrounding conditions in the U.S. and other economies rule this out for 1981. Capacity use this year, as in 1976 and 1977, will languish generally between 70 and 75%. D
Lubrizol's Mastin wins SCI medal When Thomas W. Mastin, chairman of Lubrizol, accepts the Chemical Industry Medal of the Society of the Chemical Industry in New York City this week, he will talk about Homo sapiens' ability to survive. The topic is dear to Mastin, a keen observer of nature and people's place in it, through his interests in biology, ornithology, and, of course, chemistry. Mastin began his career at a much smaller Lubrizol in 1942 as a research chemist. When he started at the Cleveland-based producer of auto-
motive lubricant and fuel additives, he says, it had about 200 to 250 em ployees all in one location and sales of about $10 million. The company now has more than 4000 employees and in 1980 had sales approaching $923 million. He stayed at "the bench" however, for less than a year. Since then, he has
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served the company as director of the chemical research laboratories, di rector of research and development, vice president of research and devel opment, executive vice president, president, and chief executive officer, as well as chairman of the board. The award this week will be given to Mastin "in recognition of his leadership and contribution to the chemical industry." Mastin feels that it is important for corporations and their executives to get involved in community activities and that this importance is increasing as time goes on. "There is enough ill sentiment against corporations, which is difficult to combat. One way to do it is to get people (within the corporation) more involved. Lubrizol has always encouraged that." In fact, it is this "ill sentiment" against corporations and against the chemical corporations in particular that Mastin feels is the biggest chal lenge facing the chemical industry. "We have the image of being bad guys," he says. "And it is going to take a lot of time and money to combat that image." Mastin admits that there have been some "bad mistakes" by some com panies. If these mistakes could have been foreseen and the chemical in dustry as a whole had taken a stand, some of those bad cases could have been avoided, he says. "That scenario can start now—and perhaps already is started." Mastin believes that one way to implement this is to set up working groups within the chemical industry where companies with common problems—waste disposal, for example—could compare notes on their experiences with the problems and thus create ways of combating the problems. "It is a self-policing job that must be done," Mastin says. Mastin also has some strong thoughts on the role of the mediumsize chemical company in the next decade. "I think it will be increasingly difficult for the medium-size chemi cal company to keep growing bigger and bigger as chemical companies as we now define chemical companies," Mastin says. A lot of them will have to diversify into areas away from what they are doing now. This may include recyclable resources or genetic engi neering. The medium-size chemical company should be looking very hard at what it will be doing 10 or 15 years in the future and assume that it could be doing something substantially different, he says. Lubrizol itself is something of an example of this. It early on obtained a good share of Genentech, the
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Business biotechnology firm, for $15 million and now owns about 20% of the company with its share worth more than $45 million. Mastin says that the Lubrizol investment in Genentech came about as a combination of his interest in biology and its value as a smart business move. He says that eight or 10 years ago he decided that he should learn more about biochemistry and set about reading the best book on the subject that he could find. "I became fascinated with the possible industrial and commercial potentials. At the same time, we were looking for opportunities to diversify. I said let's concentrate more on this biochemical area. We looked at everybody that we could find that was in it and in two or three years we finally trimmed the list down to Genentech, which we thought was the top company. It took us another year or two to convince them to let us have some equity." This type of investment may become quite common at Lubrizol, which has equity in other firms besides Genentech. Mastin says that he sees this as one way for Lubrizol to diversify—to concentrate inhouse on
its own business but acquire outside equity in firms that look as if they might succeed in new technologies. Mastin admits that the company probably won't be right all the time. But, he says, the track record in this type of investment has been good so far. The 67-year-old Mastin says that he probably will retire from the board of Lubrizol in April 1983. He might have retired earlier, but problems of succession have caused him to stay on as chairman. William Storck, New York
Uniroyal test markets new cotton defoliant Uniroyal Chemical has introduced a new type of cotton defoliant, which works as a growth régulant that accelerates the senescence process leading to leaf drop. The defoliant, called Harvade, does not kill the plant or desiccate leaves. The new product, 2,3-dihydro5,6-dimethyl-l,4-dithiin 1,1,4,4tetraoxide, is now being test-mar-
keted on 10,000 acres of cotton under an experimental use permit from the Environmental Protection Agency. Uniroyal says that the product likely will receive a conditional label in 1982, followed by a full federal label in 1983. If all clearances go well, the company will have capacity at a plant in Canada to supply about 100,000 lb of Harvade to the U.S. next year. This will be enough to treat about 300,000 acres of cotton. Although the cotton defoliant market is rather small, less than $10 million per year, Uniroyal hopes that Harvade, like other agricultural chemicals, will get clearance from the government on products other than that for which it was first intended. The company also is expecting clearance for use on potatoes—another small market—but two large markets loom in the future. These are soybeans and rice. In both of these cases, the product works by aiding the maturing process, causing the grain to dry, facilitating harvest. The company also is working on uses for Harvade in apples, grapes, sunflowers, and natural rubber. D
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