Closed For Business

Every week seems to bring another announcement about a U.S. chemical plant being shuttered.

Most of the large chemical companies have ceased production at multiple U.S. plants this year and laid off thousands of workers. Some of these plants, like DuPont’s Hypalon facility in Beaumont, Texas, which produced chlorosulfonated polyethylene, were the only ones of their kind in the country (C&EN, Sept. 21, page 21).

The U.S. chemical industry has been struggling in recent years because of excess capacity, volatile natural gas prices, and declining demand for certain chemicals. Some chemical production is moving overseas to places where labor or raw materials are cheaper. The recession is just the latest blow to the industry.

“I think we’re at the end of a golden era,” says Roger Shamel, president of Consulting Resources Corp., who consults with chemical companies on plant closures and other issues. “The days when the U.S. had heavy growth and was a key supplier to different parts of the world for key chemicals are coming to an end.”

With dozens of U.S. chemical plants now sitting idle, the process begins to determine their fate. Entire industries, from used chemical equipment dealers to dismantlement and demolition companies, depend on plant closures for business, and in good times it can be lucrative. But with the recession, even these industries are hurting.

Deciding to close a plant triggers a series of decisions about cleaning up the site, selling the equipment, and turning the scrap metal into money. Most large chemical companies have an investment-recovery group that handles everything from redeploying and selling used equipment to working with demolition companies to level the plant. These activities can contribute generously to a company’s bottom line, says Jane Male, executive director of the Investment Recovery Association, an organization for managers of surplus assets.

Todd Wodzinski, Dow Chemical’s global investment-recovery manager, oversees investment recovery at the company’s more than 150 sites worldwide. He points out that Dow’s investment recovery efforts net the company between $40 million and $80 million a year. “That’s not a small number,” he says. Still, investment recovery remains largely obscure to the general workforce. “A lot of employees don’t even know we’re here,” Wodzinski observes. “You don’t really think about what happens to a lot of this stuff after the end of its life.”

One of the first steps in a plant closure, after production ceases and employees move on, is decommissioning and decontamination, which involves cleaning up the site and removing hazardous materials. Any remaining chemicals are disposed of, the electricity is turned off, and the site is mothballed until it can be dismantled and demolished.

If investment-recovery managers can’t redeploy the equipment to another site or sell it themselves, they’ll accept bids from used equipment dealers for individual pieces of equipment or sometimes the entire plant. “A lot of times, these plants and equipment still have a quite a bit of life left,” says Jesse Spector, vice president of surplus equipment dealer Phoenix Equipment. “Especially today when everyone is trying to watch money and the trend is to be environmentally friendly, it makes sense to look at used equipment.”

Gregg Epstein, president of used equipment dealer Perry Videx, says he’s starting to see some of the largest companies buy used equipment. “It’s becoming attractive to the big companies you wouldn’t typically think of as being buyers of used equipment,” he says.

Huge warehouses are needed to store the equipment. “Right now, we have more than 15,000 pieces of used chemical processing equipment in stock and ready to ship,” proclaims the website for Federal Equipment, which buys and sells used chemical processing equipment. The company says it occupies more than 400,000 sq ft of covered warehouse on 30 acres in Cleveland.

Companies such as LabX, which manages a classified ad website for used scientific equipment, also want a piece of the pie. LabX frequently works with investment-recovery groups to list their equipment for sale.

Some firms are in the sole business of collecting information on plant closures to alert companies such as Perry Videx and Phoenix of potential purchases. Plant Closing News in The Woodlands, Texas, charges nearly $1,000 for an annual subscription to its twice-a-month newsletter, which details industrial plant closures in the U.S. and Canada. Chicago-based BuildCentral also provides market research on plant closings.

On occasion, a plant will get sold through an auction. In March, for example, an ArrMaz Custom Chemicals plant in Seabrook, S.C., that produced an anticaking coating for ammonium nitrate fertilizer was auctioned off by Higgenbotham Auctioneers International to an undisclosed buyer. John Haney, general manager of Higgenbotham, says his firm handles the sale of a few chemical plants a year.

Even though idle equipment abounds at chemical company sites these days, recovery companies are hesitant to stock up because, in this weak economy, demand for equipment is down as well. In fact, equipment dealers are hurting as much as the chemical companies they deal with. “Companies are in a holding pattern. They’re not buying anything, whether it’s new or used,” Spector says. “Inventories are building up in the industry, that’s for sure.”

Even companies in Asia and the Middle East aren’t buying as much as they used to. “Maybe two years ago, they would have been able to do a plant relocation project or an expansion on their facility, and now they just don’t have either access to funds or the appetite to take on a project,” Spector laments.

“I’ve been doing this for almost 30 years and it’s the worst that I’ve seen,” says Ed Bianco of dismantlement and demolition firm Pioneer Maintenance & Erectors. “We’re not doing that much work right now. The economy has hit us like everyone else.”

Emerging markets are a growing percentage of Bianco’s business. From 1984 to 1998, he points out, roughly 90% of Pioneer’s business was with domestic buyers. “Now, I would say that percentage is probably 40% of our business, and 60% is shipping equipment overseas,” he says. He recently disassembled two methanol plants in Louisiana and shipped them to China to be reassembled in their original form.

Buyers in developing countries are getting pickier about their investments, according to Perry Videx’ Epstein. “They’re not willing to take anybody’s junk anymore,” he says. “They want to buy more modern equipment, newer equipment, and equipment that was better maintained.”

It generally takes 18 months from the time a company shuts down a plant to when it’s mothballed and ready to take apart, Wodzinski says, but it’s the price of scrap metal that often dictates when a demolition project begins. “In years past, when we had this huge run-up in scrap metal prices, we were doing a lot more demolition work because all these projects were cash positive,” he says. “We were actually making money to tear things down.”

But if scrap metal prices are low, like they are currently, a closed plant will sit idle. “It could sit for a day, it could sit for a decade, it could sit for 50 years,” Wod­zinski says. “It just depends on when the company wants to spend the money to go ahead and turn the site back into a greenfield or a brownfield.”

Amid today’s economic uncertainty, one thing is for sure: There’s no sign that companies will stop closing plants or start buying used equipment any time soon. So plants will continue to sit idle—while investment-recovery groups just watch and wait.