Companies Halt Plans For Plants

TURNING THE SCREWS harder to cut costs and limit production, Dow Chemical and Huntsman Corp. are following Lanxess in deciding to delay the construction of big new chemical plants.

Dow will push back construction of a chlor-alkali facility in Freeport, Texas. The company had wanted to replace nearly obsolescent equipment by 2011 with more energy-efficient units.

Chlorine is a critical feedstock for many of Dow's performance chemical businesses. As economic conditions change, the project schedule and timing will be reevaluated, a company spokeswoman says.

According to CEO Andrew N. Liveris, Dow and Saudi Aramco also will likely delay start up of their Ras Tanura petrochemical complex in Saudi Arabia. He says that Dow has taken aggressive steps to boost its operating rates, which fell to a two-decade low of 44% in December 2008.

Huntsman, meanwhile, has suspended design work for a 400,000-metric-ton-per-year methylene diphenyl diisocyanate (MDI) plant in the Netherlands. The company believes existing capacity can adequately meet demand for MDI-based polyurethanes.

"We fully expect to see MDI growth return to historical levels as the global economy and consumer demand recover," says polyurethanes division President Tony Hankins. "When we do restart the project, we will likely benefit from lower engineering and construction costs."

In late 2008, Lanxess postponed breaking ground on a $500 million rubber plant in Singapore until later this year. Then last month, it cut back butyl rubber production at its existing plants in Canada and Belgium.

A lot has changed since all three firms announced their expansion plans around this time last year. Demand has contracted severely and global surplus capacity is heading toward historical highs, according to the consulting firm Chemical Market Associates Inc.

"Updated supply-demand balances provide a grim view of near-term industry asset utilization—a fact supported by the aggressive actions that have been taken by a number of producers to idle capacity and eliminate associated inventory and expense," CMAI President Gary Adams says. "Our view of future industry profitability has been lowered as well, signaling the need for considerable rationalization."