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Plastics Industry Latest Victim Of Low Oil Prices

Energy companies aren’t the only victims of the persistent plunge in oil prices. Now the plastics industry is beginning to take a hit.

South Korea’s biggest chemical company, LG Chem, is abandoning plans to build a $4.2 billion plastics complex in Kazakhstan, citing rising costs for such a facility and the low cost of oil.

Nearly five years ago, LG Chem had agreed to build the plastics complex near Atyrau in western Kazakhstan in a 50-50 joint venture with Kazakhstan Petrochemical Industries (KPI). The state-owned KazMunaiGas Exploration Production owns 51 percent of KPI, and the privately owned Kazakh company SAT owns the remaining 49 percent of KPI.

The complex had been designed to produce as many as 840,000 metric tons of ethylene per year and 800,000 tons of polyethylene per year. Since it agreed to the joint venture in Kazakhstan, though, LG Chem has decided it should invest in “more promising” ventures elsewhere.

Related: Fundamentals For Oil Still Bearish, But Sentiment Is Shifting

“The Kazakhstan project lost its luster because of a steep increase in facility investment amid growing uncertainty,” the Korean chemical company said in a statement on Jan. 26. “On a business front, LG’s top management reached a consensus that it wasn’t promising.”

LG Chem also said it would scrap a plan to invest in polysilicon, a key part of solar cell manufacturing, due to declining market conditions. That project, already in limbo since it was first announced in June 2011, would have involved the construction of a $408 million plant to produce 5,000 metric tons of polysilicon per year.

The joint venture between LG Chem and Kazakhstan was to help the Kazakh government develop its petrochemical industry. The complex near Atyrau was to have processed ethane, a component of natural gas, and process, or “crack,” it into ethylene. The project was to have been owned and operated by KPI.

Related: Japan And Iran Could Keep a Lid On Oil Price Rally

The project was to have been constructed in part by the Chinese petrochemical giant Sinopec. The Sinopec stage would have included a plant capable of producing 500,000 tons per year of polypropylene to be bought and exported by Sinopec alone. But negotiations between Sinopec and KPI broke down in August 2014 and Sinopec abandoned the project.

“LG Chem has no option but to invest in businesses that are more promising and have growth potential,” according to C.S. Song, the director of LG Chem’s public relations office. “The money that will be saved from the exits will be used to strengthen the company’s strength in electric vehicle batteries, filters and agricultural chemicals, which we’ve identified as new revenue streams.”

Related: This Could Be A Big Setback For Iran’s Oil Export Plans

The company says it’s now particularly interested in the market for energy storage systems, which underpin much of renewable energy technology. For example, in December 2015 it agreed to supply high-wattage batteries to the U.S.-based AES Energy Storage.

LG Chem also is a leader in the electric vehicle (EV) battery market, supplying batteries to 20 automakers around the world, including Hyundai-Kia of South Korea, Ford and General Motors in the United States and Audi, Renault, Volkswagen and Volvo in Europe.

By Andy Tully of Oilprice.com

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  • avenger 426 on February 08 2016 said:
    Low oil is good for plastics, it makes their feed stock cost lower. If they called off plans to build, it is for other reasons than oil cost. I am enjoying watching the oil Barron's and writers whine and squirm.

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