"There is no denying that the ability to achieve reasonable profitability is the key to the European industries' growth in the growth within the broad scope of the years ahead." Innes voices concern that European company's existing 10 product lines— aromatics, olefins, plastics, elastomers, chemical manufacturers could find it chemical intermediates, solvents, fertil- difficult to compete in international izers, oil additives, specialty chemicals, markets. One reason for his concern cenand fabricated products. "We do not see ters on labor costs. "High inflation has any step-outs to totally different areas increased these costs," he says. "But in such as fibers or drugs," he says. "We feel addition, increases in cost [stemming] no compelling pressure to integrate for- from limited working hours and added ward at the expense of our large olefins benefits have significantly changed the sales to the industry. We intend to main- competitive position of the European intain our position as a large merchant dustry. In 1974, an operator in a chemical supplier while continuing, at the same plant in the U.S. cost the company on average $8.32 per hour compared to an time, to install capacity for chemical intermediates, plastics, and other conver- average of $7.83 for France, West Germany, Belgium, and the U.K. Today, he sion products." The massive financial undertakings notes, "the U.S. hourly cost is $12.52 that are planned obviously necessitate a whereas the four-country European avsufficiently high earnings rate and an erage is up to $13.03. In other words, it adequate cash flow to ensure their reali- costs 50 cents an hour more in Europe zation. Exxon Chemical's global sales last compared with 50 cents an hour less three year were close to $4 billion. Total revenue years ago. If you compare the continental this year will be $4 billion to $5 billion, Europe three-country average [Belgium, Holmer predicts. Sales of the European France, and West Germany] with the regional group, which includes Western U.S., it is $15.43 or almost $3.00 an hour Europe, the Middle East, and Africa, were more. This is a comparison of per-hour about $1.5 billion in 1976, some 38% of the cost. If current discussions in some European countries result in further limitaworldwide total. tion on the number of hours an employee "Our spending around the world tends can work, we will see an additional negato oscillate between areas," Holmer obtive influence on our competitive ability," serves. "In particular it seems to oscillate he warns. between [Western] Europe and the U.S. Another point of contention centers on because the areas are so big. To us, it is a very natural thing to be cycling between what Innes calls "replacement pricing." the two. We have gone through several In his view, this is not at a sufficiently cycles. We are finishing a program [in- high level in Western Europe. "We see volving] the two biggest projects we have increases of costs [and] investment reever appropriated in Europe. Now we quirements occurring. And we believe have this huge cracker in Baytown that is that people in the [West European] ingoing to take a lot of our funds. I'd guess dustry, and in the market place, are not that over the next three or four years we reading these signals correctly and [are will be spending some 60% of our world- not] recognizing that what is happening is that prices today cannot justify new wide capital in the U.S. "Return on total capital employed in investments," he claims. "If those new 1976 was 14.6% after taxes," he continues. investments will not occur, it will be to the "That just about gives us the kind of cash detriment of the European chemical flow to reinvest at the kind of growth rate business." Comments Holmer, in conwe have in mind, which is pretty vigor- trasting the situation in the U.S. with that ous." On the other hand, he points out in Europe, "Profitability [in the U.S.] is that "for our European organization, the good. Price levels seem to be sensible. If return is nowhere near that. It is very you look at the returns of the leading U.S. clearly below the level required to gener- chemical companies, they are generating ate the necessary cash flow. It is probably the kind of cash flow required to make much more typical of the European major capital commitments. The manner [chemical] industry, which I would guess in which the business is carried out is too complex to understand why that pertains must be off by a factor of two at least." Ted Innes, Essochem Europe's presi- in the U.S. and doesn't pertain in Eudent, cites several reasons for the dispar- rope," he admits. "But it does." Nevertheless, he remains optimistic ity. "The past two years, 1975 and 1976, have not been easy ones for those of us in about the future. "We believe that the the European chemical industry," he re- chemical business is a good one and that marks. "There was a sharp drop in de- the future is bright," he says. He thinks mand in 1975, surplus capacity, price that an 8% average volume growth pressures, and the severe effects of infla- worldwide for petrochemicals through tion. In the first half of last year we saw 1985 is attainable. "Despite increasing the recovery and financial performance . costs for feedstocks and fuel, we believe that started in the fall of 1975 continue, that petrochemicals, and particularly and it gave promise to a return to more plastics, will continue to substitute for normal times. Unfortunately, the im- other materials. We believe that we [in provement stopped in mid-1976 and Exxon Chemical] have developed a strong organization worldwide, and that Essoeconomic growth flattened out." "The problems today in [Western] chem Europe will continue to be a key D Europe are very real," Holmer adds. factor in that growth."
Exxon Chemical continues expansion in Europe Essochem Europe's newest petrochemical units were officially unveiled earlier this month. One is a low-density polyethylene plant in Meerhout, near Antwerp, Belgium. With an annual capacity of 240,000 metric tons, it is the company's first polyethylene facility in Europe. The other is a major expansion to its olefins output at Cologne, West Germany. The new cracker there raises ethylene production capability from 120,000 to 450,000 metric tons per year and that of propylene from 85,000 to 240,000 metric tons. Some of the ethylene is piped to Meerhout from more than 100 miles distant. Combined cost of the plants came to nearly $350 million. The event is something of a benchmark in the expansion plans of Exxon Chemical's European subsidiary. To celebrate it, a contingent of the company's top management headed by Exxon Chemical president Edwin C. Holmer was on hand for the dedication ceremonies. The new facilities "represent a pretty solid indication of Exxon Chemical's commitment to Europe as a strong base for our continuing growth throughout the region," Holmer remarked. His company has earmarked $2 billion for an ambitious expansion program worldwide in the four years through 1980. "That's about 10% of Exxon Corp.'s planned total capital and exploration expenditures over this period," Holmer points out. "This is an aggressive growth rate consistent with our projections of good growth in the petrochemical industry." The bulk of the spending will go toward building up Exxon Chemical's production capability for olefins and plastics, "a continuation of an existing trend," as Holmer puts it. It includes a $500 million olefins project going up at Baytown, Tex. When completed by the close of 1979, it will have an annual capacity of 590,000 metric tons of ethylene, 410,000 metric tons of propylene, and 115,000 metric tons of butadiene. Further down the road are two major projects that are still very much in the formative stage. One is an ethane cracker at Mossmoran in northern Scotland estimated to cost $400 million. It will produce ethylene at an annual rate of close to 500,000 metric tons. The other project likely will be a joint undertaking with Saudi Arabian Basic Industries Corp. "This would include a world-scale LDPE plant and the ethylene capacity required as feedstock," Holmer notes. "Total investment is projected at around $700 million on a 50-50 partnership basis [and] construction could begin in 1979," Holmer predicts. As to Exxon Chemical's business strategy, Holmer stresses two objectives. One is "to concentrate on maintaining reasonable and competitive profitability in our base business." The other is the intention "to grow as rapidly as we can while maintaining that profitability." He sees many opportunities t h a t allow
May 23, 1977 C&EN
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