K 2007: Sweet New Deal for Polyethylene

For many years, the United States enjoyed a cost advantage for olefinic plastics because of lower prices for natural gas used to make feedstocks. It looks now like Brazil may become the country with a feedstock cost advantage because of its huge sugar cane crop. “We have needed more capacity in South America to meet growing demand for polyethylene,” says Diego Donoso, commercial director for basic and performance plastics in Latin America for Dow Chemical. “For the last two years we haven been studying alternative feedstocks.” Dow chose sugar cane as  a feedstock for a projected plant for economic reasons. Sugar cane is “advantaged” any time the price of oil is over $40 a barrel, Donoso told me at the Dow Business Center at K 2007. Oil has been trading at record highs over $80 a barrel.  Dow is teaming with Brazilian cane producer CrystalSev to build a 700 million lbs/yr polyethylene plant in Brazil—the biggest such plant ever contemplated. Construction is expected to begin next year and finish in 2011. The molecular structure of the finished plastic will be identical to the structure of plastics made from hydrocarbons. As such  the material has no sacrifice in properties, and is fully recyclable in normal streams.  The environmental argument is, of course, also compelling. Donoso told me that 4.4 pounds of carbon dioxide will be consumed for every pound of plastic created. Dow rejected any notion of making PE from corn-based ethanol because the carbon dioxide numbers did not work. Dow is the biggest producer of PE in the world. There’s another interesting note to this story. It fits into a Dow transformation process called “asset light” in which Dow reduces its equity footprint in basic plastics, whose price volatility has battered corporate profit predictability in the past. Dow and partner CrystalSev are each putting 50 percent equity in the new company that will make sugar-based PE in Brazil.