BUSINESS
Japanese PVC joint venture faces obstacles
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JANUARY 23,1995 C&EN
Although the Shin Dai-Ichi Vinyl joint venture creates Japan's largest domestic producer and marketer of polyvinyl chloride, the new operation faces formidable obstacles (C&EN, Jan. 9, page 10). The recently formed partnership between Nippon Zeon, Sumitomo Chemical, and Tokuyama hopes to break the mold of unprofitability experienced by Japanese PVC makers during Japan's economic downturn. Initially, Tokyo-based Shin Dai-Ichi Vinyl will produce and sell paste and specialty-grade PVC resins as well as Nippon Zeon-produced methacrylatebutadiene-styrene resins, which are used to reinforce PVC. It will buy vinyl chloride, the precursor to PVC, from Sanyo Monomer, a unit of Nippon Zeon; Chiba VCM, a unit of Sumitomo; and Sun Arrow Chemical, a wholly owned subsidiary of Tokuyama Corp. But as part of the justification for putting together the partnership, Shin DaiIchi Vinyl will strive to become fully integrated, purchasing chlorine and ethylene to make its own vinyl chloride. During Japan's economic downturn, PVC production slumped. As reported by the Ministry of International Trade &
Industry, output dropped from a high of 4.53 billion lb in 1991 to 4.37 billion lb in 1992 and 4.36 billion lb in 1993. With increased exports and a recovery in domestic demand, PVC production in Japan may have recovered slightly to 4.38 billion lb in 1994, although firm figures are not yet available. Shin Dai-Ichi Vinyl's combined 946 million lb per year of PVC capacity in Japan puts it ahead of its next nearest competitor, Shin-Etsu Chemical, by some 240 million lb of annual PVC capacity. Annual PVC capacity for the 18 producers in Japan totals 5.23 billion lb. The new joint venture will begin business in July. Nippon Zeon owns a 40% share and brings 451 million lb of annual PVC capacity to the partnership with plants in Mizushima and Takaoka. Sumitomo owns a 30% share and will contribute 198 million lb of annual PVC capacity located at plants in Chiba and Niihama. Sun Arrow Chemical owns a 20% share of the partnership and will contribute 297 million lb of annual PVC capacity from its Tokuyama plant. Tokuyama Corp. holds the other 10% of the partnership stake. George Peaff
European chemical industry is growing faster Forecasters in the European chemical industry "considerably underestimated the strength of the general economic r e covery throughout Western Europe" and the corresponding strength of the chemical industry in the region. So conceded Richard Freeman, chief economist of British chemical firm ICI, who presented a statistical look at the year just past and a forecast for 1995 during the 10th annual business outlook conference of the U.K/s Chemical Industries Association (CIA) earlier this month. Gross domestic product in Western Europe in 1994 grew 2.4% over 1993— substantially more than the 1.5% expected even late in the year by CIA and the European Chemical Industry Council (CEFIC), based in Brussels. Total manufacturing production required an even larger upward revision, from a predicted gain of 1.5% over 1993 to the more accurate 3.3%. And chemical industry production, which CEFIC forecast a year ago would
also rise only 1.5% over 1993, showed more than 5% growth, the industry's economists now estimate. The largest turnarounds were in the Netherlands and Belgium, followed by Germany. According to Freeman and his colleagues on the economic panels of CIA and CEFIC, investment spending— primarily capital spending—is forecast to rise in 1995 in all countries in the region except Germany. The largest increase will come in Belgium. Total capital investment for Western Europe in 1995 will be up 3.5% over 1994. However, the prediction for 1995 may be too modest, Freeman notes. The panels have begun seeing signs that much of the rationalization, with plant closures or consolidations, is now behind the industry, and employment is expected to rise in the chemical industries in Belgium and the Netherlands, in particular. This trend "is slightly worrying," he says, reflecting the conference consensus that more re-
Belgium, Germany to lead chemical production growth . . .
. . . as capital spending is set to stage strong recovery in most countries
% change from previous year
% change from previous year • 1993 • 1994 • 1995
Belgium
Belgium • 1993
France
France • 1994
• 1995
Germany
Germany ^ | 0
Italy
Italy
Netherlands
Netherlands
U.K.
^^^^^m
U.K. \
-2
1 0
'
i 2
1 4
1 6
i*
-30
-25
-20
-15
-10
-5
0
5
10
15
Sources: Chemic al Industries Association, European Chemical Industry Council
structuring and cost-cutting are still needed to underpin the competitiveness of the chemical industry in Western Europe. Such restructuring is needed not just in the basic petrochemical industry, but increasingly in higher value added specialty sectors. For example, restructuring early on cut through the fertilizers industry—now it is changing the face of heretofore immune businesses such as agrochemicals and pharmaceuticals. Social and labor legislation, in particular, is one factor influencing unit labor costs. These, in turn, are an important factor in the competitive picture of a country or region. Over the past 10 years, such costs in the Western European chemical industry have been on an upward—albeit varying—trend, according to CIA's data. In terms of Britain's pound, Germany's unit labor costs have increased 89% since 1984, compared with 29% in the U.K. By contrast, in Japan, the rise has been 92%, while in the U.S., it has been 1%, following a significant decline in U.S. chemical industry unit labor costs from 1985 to 1988. Over the past 10-year period, the chemical industry in Western Europe has seen its share of the volume of world chemical output shrink. Says Freeman, "To a considerable extent, this reflects the shift of petrochemicals and plastics production to [the AsiaPacific region] in particular." However, the value of European production has held its own and, if anything, was slightly higher in 1994 than in 1984, as the region's higher val-
ue added chemical sectors prospered. "Competitiveness of the industry in Europe is an issue that has come to the forefront in recent years and that will rim for some time," he adds. "It will be
critical to where the industry will be in 2005. If the industry does as well over the next 10 years as it has in the past 10, it will have fared well." Patricia Layman
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