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Lyondell can mitigate steel tariffs at new $2.4 bil plant, says exec

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Lyondell can mitigate steel tariffs at new $2.4 bil plant, says exec

Channelview, Texas — Global chemical, plastics and refining company LyondellBasell is confident its contingency plans for a new $2.4 billion propylene oxide/tertiary butyl alcohol plant near Houston can absorb higher steel costs stemming from tariffs on steel imports imposed by the Trump administration in March, a top executive said at the facility's groundbreaking ceremony on Wednesday.

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Potentially higher costs are "well within the contingencies we have in place," Jim Guilfoyle, executive vice president of advanced polymer solutions and global supply chain for LyondellBasell, said in an interview at the company's Channelview complex east of Houston. The new plant will use 13,000 tons of steel, the company said.

The American Chemistry Council, the US chemical industry's trade group of which Lyondell CEO Bob Patel is chairman, has strongly argued against tariffs on steel imports that could chill plans to build steel-heavy facilities.

Individual companies can seek exemptions to tariffs on materials, but the application process can be lengthy, requiring separate requests for materials that may differ in makeup, rather than a single request for varied types.

Lyondell faces another headwind on the tariff front with its new high-density polyethylene plant under construction along the Houston Ship Channel, about 17 miles from the Channelview complex.

On Thursday the US and China are slated to impose $16 billion in tariffs on each others' products, and China's chemical-heavy list includes HDPE, a resin used to make milk jugs and grocery bags. The new plant is slated to start up next year.

Lyondell's 550,000 m/year HDPE plant is part of 9.2 million mt/year of known US polyethylene capacity starting up from 2017 through 2020 and beyond. All or most of that new capacity will be exported, largely to Asia -- with China and India the top target destinations because those regions have the highest demand growth projections.

However, China's $16 billion list of retaliatory tariffs on US products -- to be implemented after the US imposes a $16 billion list of taxes on Chinese goods -- includes HDPE and linear low density polyethylene, which make up 80% of that known new PE output.

Guilfoyle said that demand won't change, though trade flows will, creating inefficiencies -- and higher costs -- as flows adjust. "Demand will need to be met in some way, but those inefficiencies will be passed to the consumers in the end," he said.

A market source said Wednesday that even as trade flows shift, other markets likely cannot absorb volumes targeted for China, where demand growth is expected to surpass other regions.

"There are not too many markets big enough to absorb what China can absorb," the source said. "Losing China is going to be a big blow no matter how you look at it." Lyondell's new PO/TBA plant, which will be the world's largest when it starts up in 2021, is among a slew of major chemical infrastructure projects that have started up, are under construction or planned along the US Gulf coast and southwestern Pennsylvania as the natural gas boom unearths bountiful cheap feedstocks.

While several other global petrochemical manufacturers opted to build new ethane-fed steam crackers and polyethylene plants as well as some other derivatives, Lyondell expanded ethylene output from existing crackers to feed the new HDPE plant and postponed another ethylene debottlenecking project at Channelview to focus on the PO/TBA plant at that complex.

The new plant will process cheap propane and butane into feedstocks for polyeurethanes, used to make mattresses, seat cushions, spray insulation and other products, as well methyl tertiary butyl ether (MTBE) and ethyl tertiary butyl ether (ETBE), high-octane gasoline additives.

Lyondell expects global propylene oxide demand to grow by 4%-5% over the next five years, largely in Asia and India, and the company aims to sell PO and its derivatives into domestic and international markets. Lyondell said the global TBA market is expected to rise by 3%/year through 2028 as Asia Pacific and Latin American regions seek cleaner-burning gasoline, and most output will be sold into those markets, though some TBA in the form of isobutylene will be sold domestically for use in tires and lubricants.

In addition, Lyondell is pursuing growth through major acquisitions. On Tuesday the company closed its $2.25 billion acquisition of plastic compound and resin supplier A Schulman, expanding its reach in compounding beyond automotive to markets involving packaging and consumers, electronics and appliances.

Lyondell is also in talks with Brazilian engineering and construction firm Odebrecht to buy its controlling interest in petrochemical producer Braskem, which would build on Lyondell's Latin American distribution network with a production footprint in Brazil, South America's largest economy. A deal would also give Lyondell controlling interest in Braskem's US and European polypropylene operations.

But more greenfield projects could come. The company is considering additional new polyethylene, polypropylene and propane dehydrogenation (PDH) projects in the US and Europe, but executives on Thursday declined to elaborate beyond saying those projects were in the early planning stages.

--Kristen Hays, kristen.hays@spglobal.com

--Edited by Wendy Wells, wendy.wells@spglobal.com