Business buy most of the recycled plastics from the facility. To ensure a steady stream of profits, RRT has to be thinking of ways to find a perch above the rest. The company will draw little comfort in feeling virtuous about recycling plastics if commodity prices for recycled resins eliminate its profits. The cost of the virgin materials largely governs the price that a company can charge for recycled resins, notes Schorr. PET bottles, largely reclaimed through the bottle return business, sell for about 8 cents per lb, according to Schorr. Processed and cleaned, those same resins will sell for 38 cents per lb. That price is a bit too low to allow RRT to make a fair profit, Schorr believes. He characterizes the 38 cents per lb as "a depressed price for PET resins." Virgin PET now sells for about 67 cents per lb. During the early days of the Persian Gulf conflict last year, virgin PET sold for as much as 80 cents per lb, helping to increase the price recyclers could charge for reprocessed PET to 48 cents per lb. Because the prices of its commodity recycled plastics are relatively low, Schorr admits they will have an effect on RRT's bottom line. Some of those costs might be recovered in the tipping fees that RRT charges at recycling facilities the company operates for municipalities. "In our Syracuse facility we charge a tipping fee of $46 a ton for recyclables," says Schorr. "It costs the city $91 a ton to landfill the waste." The municipality saves on the cost of waste that would otherwise go to a landfill, while RRT derives a premium to cover some of the difference between its cost to process recyclable material and the price it can receive from separated scrap. It is on the strength of its ability to increase its revenues and make a profit that RRT is selling itself to Wall Street, where it has been listed on the American Stock Exchange since going public in October 1988. RRT's operating income for 1990 was $1 million in 1990 before nonrecurring charges against earnings. The company made $234,000 on revenues of $18 million in 1989 and $396,000 on revenues of $12.6 million in 1988. And it is on the strength of its en24
July 8, 1991 C&EN
gineering, design, and operating ability that it is attempting to sell its services to municipalities. With an engineering group in Melville, Long Island, RRT designs, engineers, and offers construction management services to municipalities. It has a standing agreement to bid for construction contracts with its construction partner, J. S. Alderici, St. Louis. Projects now under way include a $2.1 million, 60,000 tonper-year facility for Hartford, Conn., and an $8.5 million, 100,000 ton-peryear facility in Monroe County in New York. Schorr says that RRT has contracts to operate a number of successful municipal recycling facilities in Syracuse and Rochester, N.Y.; Hartford and Danbury, Conn.; and Palm Beach, Fla. Schorr is a corporate attorney whose negotiating abilities are, he claims, an asset for the company. That asset should be especially useful as the company grows and possibly considers other purchases
aside from the $1.1 million acquisition of the Ricard Group. Asked whether RRT has any more acquisitions immediately in the offing, Schorr says the company aims to be a vertically integrated recycling operation, and as such is "constantly reviewing growth opportunities." Of course opportunities are available in a recession and "we're always being approached," he says, but adds that RRT intends to be cautious. In an effort to continue its expansion, RRT has arranged some novel ventures. Danbury authorities did not want to own a municipal recycling facility so RRT is working with a local waste handler to build and help operate a facility at the handler's site. In a slightly different twist, RRT is negotiating a deal in Babylon, Long Island, where it will construct and help operate a 300 ton-per-day construction waste recycling facility at a private demolition waste yard, says Schorr. Marc Reisch
Mexico's petrochemical industry in doldrums Despite policy reforms that Mexico has undertaken to revamp its petrochemical industry, the country still faces shortages of basic petrochemicals and the investment funds it needs to correct the situation. Nor have these reforms succeeded in enticing U.S. companies to invest in the Mexican chemical industry, according to a recent report issued by the General Accounting Office (GAO). The series of financial crises that hit Mexico in the early 1980s left the country about $1.7 billion short of the money it needed to build 21 petrochemical plants that were planned more than a decade ago. In addition, the Mexican government estimates that its petrochemical industry will need to invest between $5 billion and $10 billion by 1995 if it hopes to stop the huge trade deficits that it has been running up in petrochemicals. Mexico, says GAO, also lacks financial resources to explore and develop its huge natural-gas reserves. Natural gas, of course, is a primary raw material for the petrochemical industry. Unless Petroleos Mexi-
canos (Pemex), the governmentowned energy monopoly, increases its investments substantially, GAO says that Mexican output of natural gas will continue to fall. Why the shortfall in Mexican petrochemical investments? Mexican law prohibits both foreign and private Mexican investment in the basic petrochemical industry. "Basic" petrochemicals (ethylene, propylene, benzene, toluene, xylene, and the like) are the exclusive domain of Pemex. Mexico does permit private investment in "secondary," or derivatives of basic petrochemicals. But it limits foreign direct investment to 40% of plant equity. As a result, when the government cut back on its investment spending in the early 1980s, its petrochemical industry had no other source of investment funds. Meanwhile, it didn't take long for private producers of secondary petrochemicals to follow suit. Investment in secondary petrochemicals fell sharply in Mexico, especially in 1982. And it hasn't bounced back much since then. Because Pemex doesn't have enough installed basic petrochemi-
cal capacity, Mexico depends on imports to supply its secondary petrochemical producers. Pemex officials tell GAO that between 1980 and 1988 Mexico spent about $5.5 billion to import basic petrochemicals. And the country continues to be a net importer of these commodity chemicals. Without sufficient investment in basic petrochemical capacity, the Mexican trade deficit in these products likely will continue to increase, says GAO. Unless the necessary investment dollars are found, the Mexican Petrochemical Commission estimates that Mexico will be paying as much as $8.6 billion for petrochemical imports by 1995. In 1986, Mexico tried to make foreign investment in its petrochemical industry more attractive by reclassifying 36 basic petrochemicals as secondary products. It kept 34 products on its basic petrochemicals list. In 1989, Mexico reduced from 34 to 20 the number of petrochemicals it classified as basic. It also cut the number of products on its secondary petrochemical list from more than 700 to 66 and, for the first time, provided a definitive list of these products. All petrochemicals not included on the basic or secondary lists now are unclassified. This means that they are open to 100% private and foreign ownership. Foreign investors also were granted the right to own all, rather than just 40%, of a secondary petrochemical plant if they establish a special trust with a Mexican credit institution. The trust would give the foreign investor the profits from the venture, while direct control of the company would remain with the trustee. Pemex also created a program to obtain private or foreign investment in its own basic petrochemical plants. In exchange for capital to build the plant, Pemex promises to repay the lenders with products from the plant. The companies can build the plants under Pemex supervision, but Pemex must operate them. M e x i c o has u n f u r l e d o t h e r schemes to make its petrochemical industry more attractive to foreign investors. To reduce bureaucratic de-
lays, it has set specific time frames for processing petrochemical permits to produce secondary petrochemicals. And last year, Pemex formed a petrochemical subsidiary that specializes in petrochemical marketing. The idea is to counteract the tendency for Pemex's oil operations to take precedence over petrochemicals. Despite all of these petrochemical reforms, says GAO, U.S. petrochemical companies haven't increased their Mexican investments very much. Of 20 U.S. chemical companies contacted by GAO, only four have petrochemical investments in Mexico. In only one case was the investment made after the reforms. And none of the companies are producing in Mexico any of the petrochemicals that were recently opened to foreign investment. Why the hesitation? Although two thirds of the U.S. companies told GAO that they were considering petrochemical investments in Mexico, the global overcapacity in basic petrochemicals is restraining some of them. In fact, most of those U.S. companies are exporting excess petrochemical production to Mexico. The majority of the companies also say that Mexico's government monopoly in basic petrochemicals discourages investment in Mexico. Mexico, they say, doesn't have enough capacity to guarantee an adequate supply of basic petrochemicals. To encourage foreign invest-
ment in these products, even more of them must be removed from Mexico's basic petrochemicals list. Some experts say that Pemex could retain control of its major petrochemical raw materials even if the list of 20 restricted basic petrochemicals were cut in half. According to GAO, Pemex officials have said that some petrochemicals now classified as basic could be reclassified under Mexican law. But in Mexico, this would be a sensitive political issue. U.S. chemical companies also are concerned about other risks. The reforms, they point out, were made by administrative decree rather than by a change in the law. The fear: Some of the investment ground rules could be changed easily. Officials of the Mexican Foreign Investment Commission, however, counter that similar administrative changes have not been an investment barrier for at least two other industries. U.S. companies have already invested heavily in the Mexican tourism and automotive industries. They see no reason why the administrative changes should be an impediment to foreign investment in the petrochemical industry. Still, that's not enough to convince some U.S. chemical companies. They concede that the administrative changes in Mexican foreign investment regulations may not threaten established investors in Mexico; but they openly wonder about new investors. They also wonder about the protection their patents and technical expertise would receive in Mexico. This is especially true of specialty chemicals such as perfumes, detergents, herbicides, and pharmaceuticals. New legislation strengthening protection of intellectual property has been proposed in Mexico, but it hasn't become law yet. Despite the problems, many U.S. chemical companies are looking closely at petrochemical investments in Mexico. The country has a strong petrochemical infrastructure. It has the raw materials. It is a large and growing market. Mexico's abundant raw materials and the money and technology of U.S. chemical companies could make an unbeatable combination. Earl Anderson July 8, 1991 C&EN 25
