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During the early part of the twentieth century, Government provided the means for prices to rise above open market levels (by tariffs and import licensing) widening the manufacturers' margin between the production cost and the selling price. Although these measures promoted some investment in Australia's chemical industry, it was the anticipated world wide shortages of key materials and the reduced competition associated with World War 2 that provided the major stimulus. War meant Australian-based manufacturers could anticipate even higher prices with reducing world trade. Monsanto of the USA and ICI of the UK began to establish and acquire manufacturing centres in New South Wales, Victoria and South Australia.
The Imperial Chemical Industries of the United Kingdom (ICI UK) was formed in 1926 from a group of four chemical companies. (The companies were Brunner Mond producing alkali and ammonia related chemicals; Nobel explosives; United Alkali - caustic soda, chlorine and related chemicals; British Dyestuffs Corporation - aniline-based dyes made from coal.). In 1928, the Australian and New Zealand subsidiaries and agents of these four companies became Imperial Chemical Industries of Australia and New Zealand Ltd (ICIANZ, from now called just ICI). Since 1950, ICI (UK) has released shares in its Australian subsidiary (ICIANZ) to trade as ICI Australia with 43 per cent public ownership.
Between 1936 and 1940, ICI began its investment in Australia by acquiring or establishing key chemical manufacturing plants in Victoria, New South Wales and South Australia. Those investments gave it a basis for dominating the Australian chemical industry for the next half century.
The major investments by ICI leading up to World War 2 were in agricultural chemicals, soda ash, phthalic anhydride, explosives, caustic soda and chlorine. Details of investments are as follows.
This plant was progressively expanded to produce chemicals derived from
caustic soda and chlorine, including pesticide chlorohydrocarbons such
as DDT and BHC, herbicide chemicals, as well as aniline and diphenylamine
to replace its purchases from Timbrol . The plant still operates to produce
chlorine for Melbourne's water and sewerage with surplus chlorine used
to produce Cerchlor- a chlorinated wax used as a fire retardant plasticer
for electrical insulation.
The Deer Park plant was later extended to the production of other chemicals,
such as urea formaldehyde and nitrocellulose for lacquers. Nitroglycerine,
nitrocellulose and aniline were also manufactured and later diphenylamine
used to manufacture phenothiazine (a veterinary anthelmintic and an antioxidant
additive for rubber) - now closed.
This chloralkali plant formed the nucleus for the progressive development
of a broad range of chemicals. The chlorine was used to manufacture chlorohydrocarbons
(carbon tetrachloride, tri- and per-chloroethylene [tetrachloroethylene]).
The less valuable sodium hydroxide (in a sense by-product to chlorine but
with a 50 per cent tariff) used to manufacture low value chemicals including
sodium silicates.
The Botany Bay site, just south of Sydney New South Wales, was established
in 1940 with an electrolytic mercury cell chloralkali plant to produce
chlorine and caustic soda made from salt (shipped from Queensland). Chlorine
enabled the production of a range of chlorohydrocarbons used as insecticides,
herbicides and solvents, and later to produce PVC synthetic resin. The
co-produced caustic soda was less valuable to ICI but, with the benefit
of an import tariff of 50 per cent, contributed to the chloralkali plant
being a profit source and important nucleus for Botany for several decades.
The chloralkali plant has a production capacity of about 81 000 tonnes
of chlorine and 86 000 tonnes of caustic soda.
Chlorine-using Chemicals
A carbon tetrachloride plant was commissioned, which at the time of
its closure in 1990, (carbon tetrachloride is now generally banned as a
carcinogen) had an annual production capacity of about 30 000 tonnes. Carbon
tetrachloride was used as a solvent and raw material for chlorofluorocarbons.
Batch-scale manufactured vinyl chloride monomer (VCM)
was polymerised to polyvinyl chloride synthetic resin (PVC). The process
used expensive acetylene gas as feedstock with a capacity of just 5 000
tonnes of PVC per year. (The acetylene gas was produced from calcium carbide
produced in Tasmania by fusing limestone and coke in an electric arc furnace.
It closed in the early 1980s.) Nine years later in 1963, the acetylene-using
plant was replaced by another using cheaper ethylene supplied from a new
(commissioned 1960) naphtha cracker and a lower cost oxychlorination process
to produce VCM via EDC.
Until closing in 1996, the PVC plant had an annual production capacity
of about 60 000 tonnes (believed to be fully utilised) using about 34 000
tonnes of chlorine per year (ie. about 42 per cent of the chlorine produced
at their chloralkali plant). At Laverton Victoria, ICI is extending its
capacity to 140 000 tpa using imported VCM to maintain its market share
in PVC. (ICI competes with Auseon at Altona who,
also using imported VCM, is extending its production capacity to 100 000
tpa.)
Synthetic Resins
In 1957, ICI commissioned a patented high pressure and high temperature
polyethylene plant with an initial capacity of 7 000 tonnes per year (producing
about 3 000 tonnes). It was progressively expanded over the next four decades
to about 90 000 tonnes and is still in operation after a redesign in 1989.
The comparatively large naphtha cracker helped reorientate the Botany
plant from the slow growing chlorohydrocarbon chemical market, which it
had been serving for two decades, towards the much faster growing synthetic
resin (polyethylene, polypropylene and PVC) sector. The naphtha cracker
was expanded over the next twentythree years to about 100 000 tonnes per
year and then replaced in 1983.
Initially, the potential amount of C3 feedstock produced at Botany may
have been too low to justify a polypropylene plant (say then about 20 000
tonnes per year) although a polypropylene plant would increase the value
(ie. reduce the opportunity cost) of operating the naphtha cracker.
Though the amount of ethylene progressively increased, and with it the
amount of C3 co-product feedstock, a polypropylene plant was not established
at Botany for another nineteen years (in 1979).
Shell established Australia's first polypropylene plant 11 years after
Botany installed its naphtha cracker with a capacity of 25 000 tonnes per
year (a size which was about the minimum competitively sized unit for Australia
at that time). Extrapolating back to 1960 (at the time of installing ICI's
LPG/naphtha cracker), would imply a minimum competitive size for a polypropylene
plant at about 20 000 tonnes per year. Regardless of the minimal scale,
Botany's LPG/naphtha cracker was installed before all the feedstocks could
be fully utilised, and would not be competitive (ie. not commissioned)
without assistance.
During those nineteen years of undervaluing the potential C3 feedstock,
(although obviously maximising it from ICI's perspective), Shell commissioned
(1971) a 25 000 tonne per year polypropylene plant at their Clyde, New
South Wales petroleum refinery. Two years later Hoechst established a 24
000 tonne plant at Altona, (expanded to 60 000 tonnes in 1979). The presence
of two competing polypropylene plants, producing for a small domestic market
and with a tariff on the chlorohydrocarbons (10 per cent higher than for
polypropylene) promoted ICI's propylene to be underutilised. Propylene
was used for two decades as a raw material for the chlorohydrocarbon chemicals
(and some sales to CSRC for their oxo alcohol plant ) instead of an intrinsically
more valuable use as feedstock for polypropylene resin.
The C4 feedstock stream was not used for six years until 1966 when a
joint venture of ICI with the US Phillips Petroleum company was formed
called Phillips Imperial Chemicals Pty Ltd. (The
Phillips plant at Kurnell had been established six years after ICI's naphtha
cracker and fiver years after the Australian Synthetic Rubber Company at
Altona.) Located across Botany Bay at Kurnell,
the venture produced synthetic rubber from ICI's Botany plant helped by
a substantial tariff of 50 per cent. Sharing the small Australian market
with the Australian Synthetic Rubber plant at Altona with access to cheaper
feedstocks, the joint venture closed seventeen years later in 1983. ICI's
C4 stream was after that processed in Japan and supplied under contract
to Australian Synthetic Rubber Company (a subsidiary company of ICI's Altona-based
competitor). Smaller amounts were also sold to Dow and Chemplex (now Huntsman
Chemical Corp.) to produce styrene butadiene latex and ABS resins respectively.
Botany's LPG/naphtha cracker was therefore then and even now operating at
an opportunity cost offset and made viable by price inflating taxes
on competing imports. The Botany plant not only competed against overseas
plants that were larger, but those that made better use of all the
co-products, including the C4 stream.
Of course from the perspective of ICI, their LPG/naphtha cracker provided
Botany with cheaper feedstocks improving competitiveness. With access to
cheaper feedstocks, the new cracker contributed to the progressive closure
of Timbrol/UCAL and it was particularly important for Botany to remain
competitive against the Altona companies with access to cheaper feedstocks.
It was nevertheless internationally uncompetitive and vulnerable without
tariffs and anti-dumping assistance. ICI now obtains ethane from South
Australia with a $300 million pipeline and spent $100m converting its Botany
plant. ICI's competitor in Victoria (Kemcor) extracts
only some of the ethane available to it from Bass Strait.
Agricultural Chemicals
The purchase of the chemical business (excluding phosphate fertilisers)
of the Commonwealth Fertilizer and Chemicals plant at Yarraville, Victoria
in 1936, which included a chloralkali plant necessary to produce organo-chlorine
chemicals.
Soda ash (sodium carbonate)
A plant was commissioned at Osborne in South Australia in 1940 using
the Solvay process. Soda ash is used in the manufacture of glass, soap
and other chemicals, and indirectly, for water treatment and wool scouring.
The company was sold in 1988 and became Penrice Soda Products Pty Ltd.
Phthalic anhydride
Newcastle Chemicals was formed in 1940 as a joint venture with BHP
at Newcastle, New South Wales (a major steel producing centre) to manufacture
ammonium chloride, hydrochloric acid, b-naphthol and phthalic anhydride
and its esters. The plant no longer operates and the phthalic anhydride
is produced by ICI at Rhodes (formerly CSR Chemicals ).
Explosives
The Australian Explosives and Chemical Co. Ltd at Deer Park, (near
Yarraville, Victoria), owned by (Nobel became part of ICI UK), as an explosives
and specialty chemical manufacturing centre. Explosives were supplied to
Government ordnance factories.
Caustic soda and chlorine
A then substantial mercury cell chloralkali plant (producing sodium
hydroxide and chlorine) was commissioned in 1941 at Botany, New South Wales.
Other
In 1942 a carbon disulfide plant was commissioned to produce xanthates
competing with Timbrol (later Union Carbide Australia).
Although ICI diversified into a range of activities, the Botany complex
became the hub of ICI's manufacturing activities in Australia.
In 1951 a formaldehyde plant was commissioned to produce formaldehyde
using methanol as raw material. The formaldehyde was used to manufacture
urea formaldehyde adhesives.
By 1954, the Botany plant was successfully producing a range of chlorohydrocarbons
but with surplus chlorine capacity. With an available import tariff of
40 per cent, chlorine was used to produce two chlorine-using chemicals.
Polyethylene today is the largest volume synthetic resin manufactured
in Australia produced by three companies and in three forms with ICI as
the first manufacturer.
Note: In 1933, a patent by ICI (UK) to manufacture polyethylene from
ethylene was registered using high pressure and high temperature technology.
Twenty one years later in 1954, a much cheaper process was developed in
Germany using a new catalyst (Ziegler catalyst). However, the new German
technology was not adopted at Botany for another 37 years as ICI was able
to claim an extension to its patent for its higher cost route (claiming
lost profits during the war years). Reference J.E. Kolm, The Chemical Industry
- Australian Contributions to Chemical Technology' in `Technology in Australia
- 1788 to 1988', Melbourne 1988.
In 1960, three years after commissioning its polyethylene plant, a then
substantial scale naphtha cracker was established at Botany with an initial
production capacity of 60 000 tonnes of ethylene per year (ie. one year
before the Altona petrochemical complex was established as ICI's major
Australian competitor) . The immediate benefit was that cheaper ethylene,
(previously made by dehydrating ethanol [produced by CSR by fermenting
molasses]) improved the competitiveness of ICI's high cost polyethylene
plant and other ethylene applications. Though practical then, it was obviously
a very expensive route to produce ethylene - today ethanol is commercially
produced from ethylene.
Flow
chart of development of ICI 1941 to 1962
Naphtha crackers and economic efficiency
The application of the feedstock produced by a naphtha cracker has
an important bearing on competitiveness. A typical naphtha-using
cracker, as then used at Botany, produces a range of hydrocarbon feedstocks,
predominantly ethylene (about 60 per cent), C3 - propylenes (about
30 per cent) and a C4 stream - butane and butene isomer mixture
(about 10 per cent of usable products). The competitiveness of a naphtha
using petrochemical plants is dependent on the value of these three co-product
feedstocks. For example, in 1986, the value of these co-products from naphtha
exceeded the cost of the feedstock (ie. making naphtha crackers cheaper
than gas-based units).
Flow
chart of development of ICI 1963 to 1979Many low volume high cost chemicals began to be manufactured at Botany using cheaper feedstocks.
An ethylene oxide plant was commissioned in 1966 progressively expanded
to a current capacity of about 40 000 tonnes per year believed to be operating
near full capacity. (Ethylene oxide is produced by reacting ethylene with
oxygen). Typical of most Australian plants, it is small in comparison to
world-scale plants that range to 300 000 tonne capacities (ie. up to ten-times
larger) and of course with a substantial scale-related operating cost penalty.
Production is helped by a 5 per cent import tariff and extensive use of
Australia's anti-dumping legislation.
With some limited sales of ethylene oxide (eg. to Dow for polyol production),
most of ICI's ethylene oxide production is reacted with a range of basic
chemicals. Chemicals produced included glycols, (used in automotive coolants,
plastics, chemical intermediates etc.), glycol ethers, (used in brake fluids,
solvents and paints), ethoxylates (as detergent chemicals including nonyl
phenol ethyxolate, solvents, emulsifiers, polyols used in polyurethanes)
and triethanolamine (by reacting ammonia and ethylene oxide and used as
a solvent and as a chemical intermediate).
Ethylene oxide is also exported by ICI (around $100 000 pa).
By 1979, production of C3 had reached a level where a competitively
sized polypropylene plant could be justified by ICI. There was now adequate
local demand and little growth for chlorohydrocarbon chemicals made from
the C3 stream. A $60 million 50 000 tonnes per year polypropylene plant
(initially producing about 35 000 tonnes) was commissioned at Botany. The
plant has been expanded to a current capacity of 70 000 tonnes per year
(the LPG/naphtha cracker can produce 100 000 tonnes of propylene).
The polymerisation process adds little real value to the VCM which is
hazardous and expensive to transport but made viable by a tariff of 30
per cent (5 per cent by 1996) on PVC.
It is not clear if this was an engineered initiative of ICI or simply
the implicit consequence of tariffs. Whatever the interpretation, it points
to another costly aberration of protectionism supporting low value adding
high cost plants in favour of more competitive plants that were paid for
through tariff-inflated prices.
At this time, the first development phase at Botany was well and truly
in decline as signalled by closures of some chlorohydrocarbon manufacturing
units and stagnation of others.
In 1983, ICI extended the second phase
by commissioning a new ethylene production unit that used naphtha/LPG gas feedstock. The
investment was described as a white elephant in industry circles and
fundamentally uncompetitive. However, in 1978/79 the chemical industry was due
for a review of protection rates and a
negotiated deferral in return for this investment enabled the retention of a
range of uncompetitive chemical activities owned by ICI. This
deferral split the petrochemical sector between Altona sitting on adequate
ethane, and Botany that would one day have to build a pipeline from South
Australia.
The $400 million ethylene cracker has a nominal capacity of 250,000
tonnes of ethylene and 100 000 tonnes of propylene per year. The investment
allowed ICI to retire its twenty-two year old and by then small (high cost)
naphtha-based unit that had not been providing enough feedstock for its
expansion program (purchasing supplementary feedstock from Shell's Clyde
plant).
Although a single stream unit, the ethylene plant has six cracker units
enabling the use of naphtha and LPG in variable ratios ranging from 30:70
to 70:30 according to product requirements or relative feedstock prices.
However, this flexibility cost ICI $40 million and the complex is now three-quarters
ethylene-based.
Feedstocks
Had ICI not invested in its 1983 ethylene unit, the Altona complex would
almost certainly have expanded (as announced but subsequently withdrawn
in 1989) using cheaper feedstocks than were available to ICI.
The penalty of underutilising installed capacity is significant that
can more than offset any feedstock and scale advantages. Expressed another
way, the marginal cost of production near full capacity is low which was
an important influence on subsequent investments (and retentions) at Botany.
Until 1992, the cracker could produce about 50 per cent more ethylene
than it required for its ethylene-using plants. To minimise the penalty
of scale underutilisation, ICI found it profitable to export low value
ethylene (expensive to transport). Their new LLDPE plant will reduce surplus
capacity (helped by any rationalisation at Altona as Australian production
capacity of LLDPE exceeds market requirements). Nevertheless, as the LLDPE
plant is not operating at full capacity, the ethylene cracker still incurs
a penalty for less than capacity production. The penalty of less than full
scale production justifies the operation of their PVC and EO plants.
The small PVC and EO plants are sensitive to levels of assistance. One
the other hand, collectively using about 37 000 tonnes of ethylene, closure
would reduce the utilisation of the ethylene cracker. This penalty will
slow rationalisation moves.
Botany had a feedstock cost disadvantage compared to Altona but is operating
at a larger scale with reserve production capacity (ie. ICI had not been
obtaining full return on its 1983 investment). In other words, the marginal
cost of ethylene at Botany was at least comparable if not lower than at
Altona (see 14). Altona withdrew its intention to expand its plant about
the time of ICI's announcement.
The 1941 installed mercury cell chloralkali plant was closed down in
1997 with a smaller replacement to manufacture chlorine for Sydney's domestic
water and sewerage needs.
Polypropylene nameplate capacity of about 100 000 tonnes depending
on choice of LPG and naphtha feed stock, commissioned 1979 with a nameplate
capacity of 70 000 tonnes. Operation closed down in 1997 with propylene
sold to Basell's Clyde operation.
The ethylene oxide plant, (straddling the
first and second phases of Botany's development) is likely to continue
to operate while the complex remains viable given firm demand for ethylene
oxide surfactants and its derivatives.
The modest scale (therefore marginally competitive) 100 000 tonne LLDPE
(polyethylene) plant, commissioned 1992, could have been larger and more
competitive by releasing the ethylene currently used by the three decade
old LDPE and EO plants. Also in 1997, ICI announced it would cease the manufacture of polypropylene.
It would continue to refine the propylene from Kurnell and would sell it
to Basell for polymerisation at Clyde NSW. History (also see the
history) ICI's petrochemical manufacturing facility, and original major investment
in Australia, is located at Botany, New South
Wales. Since 1940, the Botany petrochemical site had become the largest
single chemical complex under control of one company in Australia, employing
about 800 personnel. The effective production nucleus of the Botany complex
has shifted from its now five decade old chloride plant to the naphtha
cracker established in 1983.
The chloralkali plant is not only comparatively expensive to operate, it
also pollutes. ICI placed a full page advertisement in the Weekend Australian
of August 4-5 1990 defending the fact that the plant (in effect) releases
about one tonne of mercury every seven years into Botany Bay as it was
required for water chlorination. Give that the plant had a tariff of 50
per cent for its first 34 years of operation (and 40 per cent for the next
13 years) resulting in prices up to 100 per cent above world levels, it
should have been profitable.
The Botany complex was enabled in 1940 by import tariffs (up to 60 per
cent, and import restrictions). It entered a second cycle in around 1980
by deferred import tariff reductions and a then large but under-utilised
LPG/naphtha cracker. Since 1996, the complex has begun its third cycle
to become an ethylene-based plant based on South Australia's ambitions
to establish an ethane-based chemical industry.
In 1996, the LPG/naphtha
cracker was converted to use ethane using a A$250m, 1400 km long pipeline
from South Australia. The draw off of ethane from
the South Australian reserves exceeds current production. It now competes
with the Altona complex in Victoria using Bass Strait ethane for the Australian
market in polyolefin polymers. It has since been sold. In December 1999, Orica sold the line for $124
million (in line with book value) to a consortium of UniSuper and
National Australia Asset Management. It is today largely a petrochemical complex now centred on an ethane cracker
with a nameplate capacity of 250 000 tonnes ethylene (and originally 100
000 tonnes of propylene) commissioned 1983 to use naphtha/LPG. Principal products
Botany outlook The Botany complex has undergone three significant years, 1940 with
its beginnings, 1983 with an investment in a major LPG/naphtha cracker
that might otherwise have seen the progressive closure of the plant, and
in 1996 with access to ethane from South
Australia that is shaping the plant to be ethylene based. The outlook for the Botany complex is therefore as an ethane-based petrochemical
operation. (In October 1997 it announced closure of polypropylene plant
as a legacy of its naphtha origins. Also being replaced is the mercury
cell chloralkali unit producing caustic soda and chlorine. The chlorine
now being used for hydrochloric acid, hypochlorite and water chlorination
since closing the VCM and later the EDC plants.
The joint venture with Kemcor means that Orica now almost has a minority
interest in the Botany site.
By international standards, Botany is a modest scale petrochemical
complex, which competes in the Australian market with the polyolefins produced
at the Altona complex. With ICI's major investments in other chemical activities
including fertilisers, explosives, paints and speciality chemicals, Botany
is no longer the centre of ICI's corporate future in Australia. Combined
with increasing urban pressure on the Botany site, its future is closely
tied to the viability of its two polyethylene plants.
Since establishing itself in Australia in 1940, ICI has displayed a
high degree of flexibility, a preparedness to diversify and to divest marginal
investments. ICI's corporate flexibility, access to technology and excellent
government and public relations skills, have contributed to Botany being
in operation today. Without tariffs, the 1983 ethylene cracker would not
have been commissioned. (Indeed, it was instrumental in the deferral of
a review of import tariffs in 1979).
ICI now brings ethane by pipeline 1400 km from the Cooper Basin in South
Australia costing some $250 million that has been estimated to reduce cost
by $40m per year. As variously expressed, Botany serves to restrain development
at the Altona complex that is well located to increase the use of Bass
Strait ethane. The use of ethane also requires re-engineering at Botany
that would normally have promoted the cessation of the use of naphtha that
remains in use to provide propylene for its polypropylene plant.
It is still keen to invest with declared intentions in petrochemicals
in
the north of WA. Given the balance of the shares in ICI Australia are publicly listed,
an overall reduction in the foreign ownership of the company can be anticipated.
A subsequent announcement indicated that ICI Australia could not only
retain its name, but "forge a new identity" in overseas markets.
According to ICI Australia, the company would be free to compete in
its traditional markets without reciprocal competition from its departing
blank in Australia and Asia.
The ICI Australia chairman was recorded as saying
(our emphasis) "We are fairly optimistic that we are not going to
be disadvantaged with the sale". (Australian 9 May 1997). On the
12th that Dow Chemical could be a purchaser and on the 13th, denying intentions
to sell its 72 per cent owned ammonia and ammonium nitrate manufacturer
Incitec.
ICI Australia will continue to focus on the core
commodity chemical business activities (perhaps encouraged with increasing
licensed technology costs).
ICI Australia grew up as an investment of a diversified
UK-based blank at a time of very high import tariffs that enabled a range
of activities regardless of competitiveness and relationships. Its diversified
operations are unique in Australia.
This diversification was supported by integration
of activities and government relations
ICI began in Australia
with a Botany chloralkali business. We believe that Botany could be sold
given that it is essentially now a polyethylene operation. Kemcor could
be a potential buyer. Already Australian Vinyls
Corporation that imports VCM for conversion to PVC is on the market
signalling Orica's reduced interest in its now under performing plastics
division. It points to the remarkable transition that has occurred in Australia's
industry since the late 1980's that is not only reflected in products,
employment but also in the attitude and character of its management.
SEE ALSO
Ammonia and nitric acid
In 1964 plants were commissioned to produce ammonia, nitric acid, ammonium
nitrate, urea and methanol (total capacity was about 64 000 tonnes). The
plants were closed nine years later in 1973.
2,4-D and 2,4,5-T
These two herbicide chemicals, produced by chlorinating phenol, were
produced through the 1970's.
Ethylene oxide
The availability of cheap ethylene feedstock enabled Botany to produce
a range of fast growing chemicals. The first chemicals were made from ethylene
oxde, a useful intermediate for surface active agents (detergent chemicals),
polyols and hydraulic fluids.
Note that polyurethane is a reaction product of a polyol and an isocyanate.
The technology for producing the isocyanate chemical is too complex to
be competitively made in Australia's small market without any other competitive
advantages.
Polypropylene
Over the next nineteen years, ethylene production from ICI's naphtha
cracker increased (mainly used for polyethylene and ethylene oxide) and
with that increased demand, the amount of co-produced propylene (C3) feedstock
(then used to produce chemicals that could have been derived from cheaper
feedstocks).
Note, given that LPG/naphtha crackers are only competitive against ethane-based
units by utilisation of the co-produced feedstocks C3 and C4, only the
polypropylene plant justifies its operation using naphtha.
The plant competes against polypropylene plants operated at Shell refineries
at Clyde, New South Wales (80 000 tonnes, to be expanded to 120 000 tonnes)
and Geelong, Victoria (60 000 tonnes). Typical new plants being installed
around the world range from 100 000 to 150 000 tonne capacities.
Polyvinyl chloride
New Ethylene Plant
In 1979, ICI commissioned a PVC manufacturing
plant at Laverton, Victoria to polymerise imported vinyl chloride monomer
(VCM). Costing $36 million, the VCM polymerisation plant has a capacity
of about 60 000 tonnes per year (believed to be currently operating at
near capacity). The plant is isolated from other chemical manufacturing
plants and about 4 kilometres west of the Altona petrochemical complex
(where Geon, formerly BFGoodrich, has been operating a similar plant since
1961 producing about 62 000 tonnes of PVC per year and using imported VCM
since 1980).
Comment
The reason for establishing this isolated low value adding plant is
unclear. One interpretation is that ICI could have legitimately invoked
its right to seek a tariff on VCM to protect its VCM synthesis plant at
Botany (ie. analogous to tariffs on imported styrene for polystyrene).
Such a tariff would have contributed to the closure of BFGoodrich reliant
on imported VCM for which it would have had to pay a tariff of 30 per cent.
Instead, it appears to have been more profitable for ICI to take advantage
of the 30 per cent tariff and allow Goodrich to remain in competition.
ICI forewent income and scale (ie. lower costs) benefits for its Botany
synthesis plant in favour of profits derived by spending $36 million on
a plant simply polymerising hazardous and expensive to transport VCM that
serves to increase Australian PVC resin prices.
By the 1980s, the Botany plant had experienced two investment phases.
The first phase started in the 1940s with the manufacture chlorohydrocarbon
chemicals, and the second about two decades later with the manufacture
of polyolefin plastics.
Note the ratio of C2 compared to the co-produced C3 and C4 is influenced
by the ratio of LPG to naphtha with more ethylene produced from LPG. This
flexibility cost $40 million (arguably without contributing to Botany's
international competitiveness). Of course for ICI, the flexibility enabled
it to remain competitive in Australia, to support its polypropylene plant
(established four years earlier in 1979) and avoid having to purchase propylene
(from Shell at Clyde) for its half, and soon total ownership of the CSR
Chemicals plant.
Botany's Feedstocks and Scale
The Botany plant has been using expensive feedstocks. This was publicly
promoted to the Industries Assistance Commission in 1986 when ICI said
it could reduce the variable cost of its olefines (ie naphtha-based production)
by $100 per tonne (say about 15 per cent the cost of polyethylene) if it
had access to feedstocks at the same terms as its competitor in Victoria.
It uses naphtha purchased from the Caltex refinery at Kurnell (across Botany
Bay from ICI's plant) and LPG shipped from Bass Strait.
Note during this period there had been active lobbying against a scheduled
review of assistance on the chemical industry. The value of the deferred
review to ICI until it began in 1985 (and not implemented until 1987) made
a substantial contribution to the cost of this underperforming cracker
(that also became a centre piece for justifying continued assistance.)
Naphtha is always more expensive than the gas alternative especially when
oil prices are high. Therefore, during the OPEC oil price hikes of the
1970s, many naphtha-based reactors around the world became uncompetitive
and closed. Today's naphtha crackers remain competitive against gas-based
units as the higher cost of feedstock is offset by effectively using C3
and C4 co-products.
Note according to Chem Systems (European Chemical News, February 23,
1987) in 1986, co-product credits exceeded the cost of naphtha. The credit
made naphtha-based polyethylene plants competitive against zero value ethane
units located in the Middle East.
However, although ICI uses the C3 co-produced feedstock for the higher
valued polypropylene, it has to sell or effectively undervalue the potentially
valuable co-produced C4 feedstock. The C4 has been shipped to Japan for
processing (and returned through Bass Strait, the source of ICI's LPG/naphtha
feedstock) for use at Altona (for synthetic rubber) or cracked to lower
value feedstock (C2 or C3). It is clearly an inefficient use of naphtha
derived co-feedstock (ie. poor co-product credits or netback) that
contributes to the fundamental weakness of Botany both internationally
and compared to its Altona competitor.
It could be argued that ASR's C4-using rubber plant should have been
located at Botany permitting the oil-based SCAL 1 cracker at Altona to
be closed (although styrene would have to be freighted from Victoria's
Dow or Huntsman plants). That is not to justify the manufacture of synthetic
rubber in Australia but perhaps illustrating one of many anomalies attributable
to Australia's protectionist era.
Scale and Capacity Utilisation
Typical world-scale ethylene crackers range to around 750 000 tonnes
with operating cost advantages of at least 15 per cent over Botany's plant.
Competitive plants also use cheap natural gas, (as available to Altona)
or more fully utilise the co-produced feedstocks.
A report prepared by the ACIC, of which ICI is a member, concluded
that a 15 per cent tariff, as suggested by the Industries Commission, would
lead to the closure of the Botany site (and of CSRC) (Industries Assistance
Commission Report 1986 on the Chemicals and Plastics Industries, Volume
1 page 285. However, ICI has indicated (IAC ibid. page 286), that it would
not necessarily abandon the entire site. One strategy would be to close
the ethylene cracker, the polyethylene and polypropylene plants, but continue
to operate with the other (and older) plants (ie. PVC, chloralkali, ethylene
oxide and derivative plants). Tariffs are now being reduced well below
the levels which were promoted by ICI as leading to such closures but perhaps
signalled the then relative profitability (or bargaining positions) of
the Botany production units.
The Botany cracker is significantly larger than the crackers at Altona.
Though smaller than world scale plants and at a feedstock cost disadvantage,
fully utilised it is competitive with the Altona crackers though using
cheaper feedstock.
Comment
Polyethylene Plant
If the Botany cracker had access to cheaper feedstocks and/or more
fully utilised the feedstock co-products, ICI would probably have adopted
a different strategy for its ethylene-using activities at Botany. A much
larger LLDPE plant may have been installed (see next), perhaps even replacing
the ageing LDPE plant and the ethylene required by its small PVC and EO
plants. Internationally competitive, substantial exports of LLDPE resins
would have been possible in a manner similar to Shell's polypropylene activities.
Instead, reflecting its fundamental lack of competitiveness, a cautious
domestic market oriented investment was adopted. The LLDPE plant (and the
upgraded LDPE plant) will remain sensitive to anti-dumping measures and
perhaps import tariffs.
In 1990, having operated its new LPG/naphtha cracker at two-thirds capacity
or exporting surplus ethylene at marginal prices for seven years, ICI began
to construct a 100,000 tonne per year linear low density grade polyethylene
(LLDPE) plant costing about $100 million. The plant is cheaper to operate
than the low density polyethylene (LDPE) plant with which it divides available
ethylene feedstock. (The LLDPE plant uses lower cost technology developed
37 years earlier (and used by Union Carbide [later Compol before consolidation
as Kemcor Australia] at Altona since 1972). The thirty-year old 90 000
tonne per year LDPE plant also had its technology upgraded.
Comment
Although large for Australia, on an international perspective, the
plant is only of modest size as plants with capacities of more than 250,000
tonne per year commonly constructed.
Other
Flow
chart of ICI 1996
Ethylene dichloride for exports (to utilise chlorine production
capacity). (It represents part of the PVC plant commissioned 1957 with
a nameplate capacity of 55 000 tonnes that used about 27 000 tonnes of
ethylene. Activity used to sustain outlet for chlorine. Closure of chloralkali
plant led to closure of EDC plant. PVC produced from imported VCM.
In October 1997, ICI announced that it would discontinue the manufacture
of ethylene dichloride which had been exported to provide an outlet for
chlorine co-produced with caustic soda from its Botany Bay chloralkali
plant. In the prior year it had discontinued the production of VCM and
PVC at Botany in favour of imports for its Laverton VCM polymersation plant.
LDPE polyethylene in a modest scale plant built 1957 (upgraded 1990), capacity
90 000 tonnes;
LLDPE polyethylene in a modest scale plant built 1992, capacity 100 000
tonnes;
Ethylene oxide in a small plant built 1966, capacity about 40 000 tonnes
(using about 11 000 tonnes of ethylene). (Now owned by Huntsman Corp).
The cracker provides;
Ethylene up to about 237 000 tonnes with nameplate capacity of 250
000 tonnes (cf. world scale of 400 000 to 750 000 tonnes) for;
LLDPE polyethylene plant commissioned 1992 with nameplate capacity of 100
000 tonnes (cf. world-scale of 250 000 tonnes); LDPE polyethylene plant commissioned 1957 upgraded 1989 with nameplate
capacity of 90 000 tonnes (cf. world scale plants of 200 000 tonnes);
Ethylene oxide plant commissioned 1966 with a nameplate capacity of
about 31 000 tonnes (cf. world scale plants of about 300 000 tonnes) requiring
about 20 000 tonnes of ethylene. Now owned by Huntsman Corporation.
In August 1997, ICI indicated plans to take advantage of the deregulated
gas and electricity market by installing a A$285M, 370 megawatt cogeneration
plant for Botany. It will be used by ICI to recycle heat and steam to their
operations as well as for Amcor Australia Paper recycling mill.
The energy efficiency is projected at 62 per cent which is about one-third
higher than a dedicated power plant. Subject to government approval, construction
is planned to begin March 1998. On 7 May 1997, ICI
Plc, the British blank of ICI Australia announced the planned sale
of its 62 per cent share holding in ICI Australia valued at A$2.3 billion
(i.e.. valuing the company at A$3.8 billion). Its sale would represent
about one third of the world-wide planned divestments of ICI valued at
A$6bn and is occurring at a time of its acquisition of the speciality chemical
business of the Unilever Group though to be largely funded by debt.
ICI Plc will
acquire the speciality chemicals businesses of Unilever for $8 billion
(£4,935 million) cash, comprising: National Starch, a world leader
in industrial adhesives and number 1 in speciality starches; Quest, one
of the world's leading fragrance, food ingredient and flavours companies;
Unichema, a global leader in oleochemicals (and represented in
Australia as manufacturer of fatty acids and glycerol); and Crosfield,
a major producer of silicates, zeolites and silicas.
Divisions today
Activities
There was an element of integration of activities
including the manufacture of plasticisers and vinyl acetate monomer at
Rhodes NSW for their paints and plastics divisions, other speciality chemicals
for paints and resins, pigments at their jointly operated PMA, sodium silicate
and sodium carbonate for surfactants and other activities and research
support services that helped mesh the company together. Many of these have
closed and, in today's perspective second to other issues such as marketing
skills.
Government assistance and relations
During the first part of the half decade in Australia,
ICI was particularly strong in government relations and it grew supported
by high levels of various forms of protection then available (import licensing,
tariffs and anti-dumping protection). Its strong government relations team
provided a common link to its operations. It could trade a loss in one
division (probably as its 1983 LPG/naphtha cracker) as a arbitrage for
maintained tariffs with the consequent benefit to its other divisions.
Government assistance is now a reduced priority.Explosives, with ammonia linking the fertilisers
manufacture of its subsidiary Incitec with its ammonium nitrate plant at
Yarwun.
Comment. In competition with Wesfarmers
and with Dyno Nobel who has declared interest in establishing foothold
on fast growing sector.Chemicals including
chloralkali - caustic soda, and chlorine (now largely
for water treatment and a chloroparaffin product at Yarraville, Vic).
sodium cyanide (Yarwun). ·
ethylene oxide and derivatives, including surfactants,
glycols and hydraulic fluids (Botany). ·
other (e.g.. Cerechlor at Yarraville, speciality
chemicals Valchem at Wangaratta).
Ethylene oxide manufacture is a vestige of its
surfactant interests that since saw its closure or divestment of soda ash
and silicate manufacture. It remains in operation given ICI's surplus ethylene
production capacity that could see ethylene be applied to manufacture of
polymers. Ethoxylates are sold to surfactant manufacturer Albright
and Wilson who is also one of the largest ethoxylate manufacturers
in Europe.
Plastics
polyethylenes at Botany (polypropylene closed).·
PVC (imported VCM) at Laverton North as Australian
Vinyls Corporation which is now being promoted for sale.·
Horitech film manufacturing (Deer Park)
Consumer products
Surface finishes (paints and
varnishes - Dulux etc) · Water based house paints at Rocklea,
Qld · Clayton, Victoria - manufacture of a range of solvent-based
& water-based paints, powder coatings and Laverton, Victoria - manufacture
of paint resins.
Home market adhesives, sealants (Selleys). Adhesives,
sealants etc (Selleys Chemical Company) at Padstow NSW and Huntingdale,
Victoria.
Comment. Dulux can now compete compete
with ICI PLC in world markets (principally UK being extended by ICI Plc).
Advance Sciences.
Manufacture of the commodity urea and phenol formaldehyde
resins at Deer Park, Victoria for use in composite wood (particle and ply).
In competition with Borden Australia both using methanol from BHP.
Some specialist pharmaceuticals.
Scientific (laboratory) instruments GBC (part interest).
There is today reduced economic or management synergies
holding divisions together which could expose three potential divisions
with sub-divisions;
A. Consumer products where manufacturing is
secondary
Ceramics
business sold
B. Chemicals and polymers
Ammonia chemicals
C. Other
Chloralkali
Ethylene oxide chemicals.
A possible scenario for Orica is for it to focus
exclusively on value added products and explosives with the production
of ammonia linking it to the manufacture of sodium cyanide and the urea
formaldehyde adhesives.
ICI Ceramics operated the Z
Tech ceramics plant in Western Australia is now owned by Millennium
Chemicals (after a purchase by Hanwha).
Chemlink Pty Ltd ABN 71 007 034 022. Publications 1997.
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