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Altona-based chemical companies - development.

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See also:
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History of Australia's chemical industry

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Overview

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The complex today

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Other sites. University of Melbourne (very good).

Background to the formation of the complex

From an international perspective up to around the 1960s, Australia was a very desirable country in which to invest and its chemical industry more than doubled in size. Australia may have been a small market with high construction, labour, manufacturing and energy costs, and with no significant indigenous feedstocks, these were offset by government assistance measures. Assistance promoted higher market prices by imposing substantial taxes (tariffs and primage duties) and restrictions (licenses and quotas) on imports that competed with locally made goods.

The fact that consumers consequently paid higher prices for Australian plastics, pesticides, paints and other manufactured goods was not of general concern in those more affluent times. By international standards, Australians still had a high standard of living that could absorb a reduction in disposable income due to higher priced Australian goods. High prices that precluded exports (other than on marginal terms) was then not an issue.

The politically marketable argument of jobs being created at new production centres meant the visible benefit of protectionism was welcomed while the indirect cost of those regional benefits was more broadly paid for by Australian users and consumers. Also ignored was the natural response by industry to pursue strategies of diversified high cost manufacturing at the expense of international scales and independence of assistance. Discouraged investment in downstream industries was overlooked, and if the impact of the tariff-inflated raw materials costs were too visible, it was simply addressed by another layer of tariffs paid for by the consumer through higher prices. In a Federal system of government, competition was seen more as competition between the states than internationally. The position of Export Manager at chemical companies was generally not created until the late 1980s.

In this environment industry, like any investor, superannuation fund manager or wage earner, simply shaped strategies to the rules of the day and like anyone else will assume a defensive posture when the rules are changed. Political influence was valued reflecting in the profiles of industry associations and, although some companies became highly skilled in government relations and influenced the variations in assistance, others simply took shelter under the umbrella obtained by competitor companies (in this case ICI Australia).

Sadly, the Altona complex, though very profitable for many years, would have grown substantially more competitive were it not for negotiated deferral of tariff reviews in 1979 by ICI that led to the building of a high cost naphtha cracker at Botany New South Wales that served to divide the small petrochemical industry. It was no wonder that during the review, one of the companies sent a telex to government saying that it would still invest "regardless" of the tariff review. A tariff reduction, would actually have helped Altona in discouraging that unfortunate investment. 

Formation background

By the late 1950s, the chemical industry in New South Wales was developing rapidly. The Botany petrochemical complex was diversifying into synthetic resins, two smaller chemical plants operated at Rhodes (CSRC and Timbrol) and even the Victorian-based Monsanto company had established a styrene plant at Silverwater, New South Wales. Although Victoria had a modest chemical industry at Yarraville and West Footscray, it did not have a substantial petrochemical plant unlike its northern rival State. That deficiency was overcome by the then generous assistance regime that enabled a major petrochemical complex for Victoria.

The Altona complex would compete with Botany for a small local market, with no prospects for significant exports, inefficiently using its feedstock (using the C3 coproducts as if the less valuable ethane), in a country with high labour and infrastructure costs and without indigenous raw materials. Despite these disadvantages, the complex became viable by the application of import duties on competing petrochemicals. By taxing competing resins and rubbers, tariffs enabled manufacturers to increase prices by at least 40 per cent to offset those penalties.

The Altona petrochemical complex was promoted by two United States companies, now known as Mobil Oil and Exxon, who owned and operated the petroleum refinery Petroleum Refineries (Aust.) Pty Ltd (PRA, now Mobil Altona Refinery) at Altona.

Comment
The Standard Vacuum Oil company of the USA (Stanvac) was then jointly owned by Mobil and Standard Oil New Jersey to become Esso. Stanvac was dissolved by the US Government in 1962.
The oil refinery partners established a primary chemical feedstock chemical company called the Altona Petrochemical Company Ltd (APC) about 4 kilometres to the west of their refinery.

The strategy of Mobil and Exxon was to supply naphtha (gas-oil) by-product from their refinery to their new petrochemical company APC. At APC the feedstocks would be cracked into three primary chemical feedstocks to supply production units at the new petrochemical complex. Other than the substantial ownership of a small synthetic rubber company that used a small amount of a feedstock product (C4), the two partners initially manufactured only the feedstocks to underpin the proposed petrochemical complex. Their objective was simply to add value to imported petroleum enabled by assistance measures that made even this small and high cost complex viable. Although APC's feedstock products were not tariff assisted, they could capture some benefits of tariffs on resins and rubbers by selling their feedstock at higher prices (and not surprisingly became very profitable - see later).

Several transnational chemical companies progressively established at Altona using APC's feedstocks to produce a remarkably wide and often unrelated range of chemicals. The Mobil-Exxon strategy became very profitable for the principals especially when four years later a partner (Exxon) found itself a half owner of Australia's largest oil and gas reserves in Bass Strait. However, even with access to abundant cheap gas, none of the Altona companies became internationally competitive despite their favourable access to cheap gas reserves. The complex developed by diversification instead of concentrating on internationally competitive products. The assistance structure encouraged industry to use the cheap feedstock to produce a broad range of tariff-dependent (high cost) activities instead of focussing on international-scale plants. Industry was simply following the rules provided by government.

Given the sizeable Bass Strait oil and gas reserves, the Altona petrochemical could be described as almost a lost opportunity for Victoria to develop an international petrochemical industry. Fortunate for ICI, the evolved weakness of the Altona complex permitted Botany to expand without the favourable feedstocks available to its Victorian competitor. Botany today still serves to constrain growth at the better-located complex at Altona.

Protectionism distorted the competitive development of industry precluding international competitiveness. It also meant that customers of the two petrochemical complexes (predominantly downstream chemical and plastics industries) had been paying up to 50 per cent more for their raw materials than if the Australian petrochemical industry had not existed. That cost is passed on to consumers as these industries were also (but not always) assisted by another layer of tariffs to offset their consequent higher material costs.

There were indeed new jobs and local manufacturing facilities that provided a stimulus to Victoria, but this was a regional benefit with side effects. These side effects include foregone investment, reduced international competitiveness, and penalised downstream plastics, rubber and other user industries paid for by the wider community.

It is important to recognise that the distorted development of industry was simply a profit-maximising response to a playing field shaped by national governments. Investing companies simply responded to poorly considered government policies aimed at attracting investment but with very costly side-effects that are today all too evident. The true economic balance sheet for the Altona petrochemical complex in the sense of what could have been, is very red! The Altona complex had significant prospects for becoming internationally competitive but now with aged plants, it would have to compete against other competitive locations in Australia.

Though there are clear signs that the industry is adjusting to changing government policies reflected in an overdue rationalisation, a focus on core activities and measures to improve labour and management efficiencies, it will be some time however before the industry has fully adjusted to the new operating rules. It remains to be seen whether government will provide terms competitive with those enjoyed by overseas competitors to enable the site to achieve its full potential.

Investments
Petroleum Refineries (Aust.) Pty Ltd (PRA), an oil refinery operated by Mobil and Exxon at Altona, provided the stimulus for the development of the Altona petrochemical complex.

Comments
Originally Standard Vacuum Australia, in 1990 Exxon sold its share in the PRA oil refinery to Mobil although retaining its share in the petrochemical plants. It is now known as the Mobil Altona Refinery.

Premiers Bolte (Victoria), Cahil (New South Wales) and Playford (South Australia) were actively bidding for the industrialisation of their respective State. Victoria had the larger refinery, tyre and automotive industries that would benefit from a nearby petrochemical complex.

The existence of Bass Strait oil and gas reserves that would provide the complex with favourably priced ethane feedstock, was not known - it was simply a time of high import tariffs and restrictions on imports.
Comments
In 1960, Dr Weeks a consultant geologist established a royalty agreement with BHP in the event of discovering oil in Bass Strait. He was assisted by Dr Temple an Exxon lawyer (Australian Financial Review, 6 March 1992, page 14). The existence of Bass Strait reserves was at best conjectural and planning for the complex had already begun in the late 1950s.

Import restrictions by way of licensing were withdrawn in 1960 (ie. during construction of the Altona complex).

The Altona petrochemical complex was commissioned in August 1961 (ie. some twenty years after the establishment of its Australian competitor ICI at Botany New South Wales) at a cost of $62 million. It was located about 4 kilometres from a petroleum refinery (Petroleum Refineries [Australia]) operated by the venture partners of petrochemical complex venture partners (ie. Mobil and Exxon) south west of Melbourne, Victoria.

The link to the refinery was important as oil refineries can produce a range of oil and gas fractions of which typically about 5 per cent is available as naphtha (as gas oil which produces a similar range of feedstock co-products to naphtha but less ethylene and more aromatic hydrocarbons.). Naphtha may be cracked into three primary petrochemical feedstocks - ethylene (C2), propylene (C3) and C4 (a butane and butene isomer mixture).

Comment
Feedstocks produced are typically 40% C2, 15% C3, 5% C4 and a mixture of pyrolysis gasoline, fuel gas and aromatics (totalling 40%). An ethane cracking plant, as the later to be established SCAL 2 unit, produces up to 84% ethane.
Feedstocks

Initially three USA-based chemical companies established contracts with Mobil and Exxon's newly formed company Altona Petrochemical Company (now Kemcor Australia) to purchase the feedstocks as follows;
bullet Union Carbide Australia Ltd (UCAL) would purchase the ethylene to manufacture polyethylene plastic resin with a tariff of 40 per cent.
bullet Dow Chemical (Australia) Limited (DOW) would purchase the ethylene to manufacture ethylene dichloride (EDC) with a tariff of 40 per cent.

Comments
Dow was actually operating as a joint venture, CSR-Dow (hereafter referred to as simply Dow as the association with CSR lasted only seven years). CSRC closed down its styrene polymerisation plant at Rhodes, New South Wales (page 116) and relocated to the Altona complex.

Dow would also purchase some ethylene to manufacture their polystyrene (with benzene feedstock purchased from BHP steel works) for which a tariff of 40 per cent was available.

bullet BFGoodrich Chemicals Ltd (Goodrich and now Australian Vinyls Corp) would purchase the EDC from Dow to make PVC plastic resin with a tariff of 40 per cent.
Comment
Goodrich was actually operating as a joint venture, BFGoodrich-Dow (hereafter referred to as simply Goodrich as the association with CSR lasted only seven years).
bullet Australian Synthetic Rubber Company (ASR), 70 per cent owned by the principals Mobil and Exxon (through APC) and, until 1988, with 30 per cent ownership by the Goodyear Tyre and Rubber Company (who owned the technology), would use their C4 feedstock (and styrene from CSR-Dow) to produce synthetic rubber with a high tariff of 50 per cent.
Comment
Note that prior to the adoption of the Brussels Tariff system in Australia, some rates were specific rates (eg. 3 pence per pound of rubber). The rates mentioned in percentage terms are the equivalent (ad valorem) to those specific rates as adopted with the Brussels system.

It is not unreasonable to assume that the principal's subsidiary ASR would have been a profit centre given the high import tariffs for rubbers. (Perhaps some of the profits were shared with Dow through higher styrene prices and with APC for higher feedstock prices.)

Therefore, Altona's development was initially centred on the two feedstocks produced by APC's oil-gas cracker. The feedstocks were sold to the chemical manufacturers to produce chemicals whose Australian price could be raised by between 40 and 50 per cent above what they could have been imported at without tariffs (ie. without Australian-based manufacturing).

These two feedstocks were applied by the three companies to produce;
bullet Low density polyethylene by UCAL in competition with ICI. The plant originally had a capacity of about 7 000 tonnes per year and competed on approximately equal terms with a similar sized plant at Botany.
bullet Ethylene dichloride (EDC) by Dow to be sold to Goodrich (then BFGoodrich-CSR, to manufacture PVC. Dow established a mercury-cell chloralkali plant to produce the chlorine required for the manufacture of EDC.

Comment
The unusual relationship between Dow and Goodrich in Australia, which was to last nineteen years, came about as Dow's US principal had expertise in the manufacture of agricultural chemicals, particularly 2,4-D and 2,4,5-T herbicides that required chlorine and caustic soda.

The arrangement between Dow and Goodrich was terminated in 1980, when Goodrich began to use imported VCM - (an intermediate chemical which is readily polymerised to PVC).

Dow was believed to have had plans to manufacture these chlorine-using herbicides in Australia. By manufacturing another chlorine-based chemical (ie. ethylene dichloride), even if only as a raw material for another company, it provided a convenient outlet for Dow's surplus chlorine until its herbicide chemical market and manufacturing capacity was established.
bullet Styrene monomer by CSR-Dow made from benzene produced at BHP's steelworks. The styrene would be sold to ASR to manufacture styrene butadiene rubber. Until 1964, the styrene would also be polymerised to polystyrene at CSRC's plant at Rhodes, New South Wales until it established a polymerising plant at Altona.
bullet Styrene butadiene synthetic rubber by ASR in a plant with a capacity of 30 000 tonnes per year.
Comment
Five years later, ICI and Phillips Petroleum established a joint venture as Phillips Imperial Chemicals to produce synthetic rubber (and carbon black) at Kurnell, New South Wales. The venture operated for 17 years until 1983 sharing the Australian market with ASR. After its closure, ICI sold its C4 feedstock to ASR (after processing in Japan).
The required styrene monomer would be purchased from CSR-Dow (although ASR would also purchase the styrene from Monsanto, who had begun to operate as APL in New South Wales).

Dow would be competing with Monsanto for the benzene (BTX) feedstock produced as by-product at BHP steel plants. Supplies of this important feedstock would diminish with changing coking practices by BHP.

Altona and Botany in 1961

Before the fortunate discovery of significant oil and gas reserves in Bass Strait in 1965 (ie. four years after its establishment), the Altona complex was equally competitive with the Botany complex. Feedstock costs and the scale of plant were similar and neither complex was internationally competitive so that both could only export at marginal terms (ie. at substantial discounts to the Australian market price).

The C2 feedstock was used to make polyethylene and the C4 stream for synthetic rubber. Neither Botany nor Altona maximised the value of the C3 stream from their LPG/naphtha crackers as it was used to manufacture chlorohydrocarbons that could have been produced from ethylene (the use of C3 and C4 allows naphtha crackers to compete with gas-based crackers). Goodrichcompeted with the Botany plant for the comparatively small Australian PVC market. Although ICI had been using the older and comparatively expensive acetylene route, it was integrated into a large and well established chlorohydrocarbon manufacturing operation.

Comment
The PVC plant was however less competitive. Two years later in 1963, ICI introduced new lower cost technology and feedstock to produce EDC on competitive terms to BFGoodrich (EDC is dehydrochlorinated to VCM and then polymerised to PVC).

Flow chart of Altona in 1961

Development from 1961

The hub of the Altona petrochemical complex was the naphtha (oil gas) cracker (SCAL 1) which three decades later today has a production capacity of about 80 000 tonnes per year of ethylene, propylene and butadiene. Then, though tiny today, the Altona cracker like Botany's unit started one year, was of modest size. Larger and more competitive units could obviously not be justified when the Australian market was divided between two plants. The structure of the complex is summarised in 29.

The first company to expand at the site was ASR in 1963 by commissioning a very small 10 000 tonne polybutadiene synthetic rubber plant commissioned in 1966. Dow Chemical was next to expand.

Dow Chemical
Dow had formed a partnership with CSR Chemicals as CSR-Dow (Dow) based at Rhodes, New South Wales, who had been polymerising imported styrene monomer. Under severe competitive pressure from Monsanto, at nearby Silverwater, New South Wales, CSRC's relationship with Dow as an established manufacturer of styrene, was a way of salvaging its strategy to remain in the styrene/polystyrene industry.

Dow could produce more styrene than required by ASR for its styrene butadiene rubber. In 1964, Dow commissioned a small (minuscule at today's standards) polystyrene plant at Altona with a production capacity of about 24 000 tonnes per year. The polystyrene unit at Rhodes was decommissioned.

Dow and Monsanto (then as APL) were technically equally competitive in the polystyrene market and each had free access to benzene (BTX) feedstock from BHP. Nevertheless Monsanto provided strong competition and increasingly took market share from Dow. Dow could either compete by discounting, wait to increase sales to rubber producers or diversify into other styrene products. ASR had no prospects for exports because the high price of its rubber.

Comment
Again, ASR like any tariff assisted operation, was largely confined to the Australian market (from 1966 sharing it with Phillips in New South Wales until its closure in 1983). Even if ASR had access to more C4 feedstock, it could not compete in overseas markets. To compete overseas it would have to discount the price of its rubber by at least one-third as a 50 per cent tariff inflated the Australian price by a similar percentage.

There was also a suspicion that ICI would soon establish a rubber plant in New South Wales (as occurred in 1966, using the styrene from nearby Monsanto).

Comment
ICI's plant co-produced C4 - an important feedstock for synthetic rubber.
A diversification strategy was adopted and three years later in 1967, Dow began to sell styrene monomer to BASF - a new company at the complex producing expanded polystyrene.

Bass Strait Oil and Gas

In 1965, Australia's largest oil and gas reserves were discovered in Bass Strait by BHP and Esso (Esso via Exxon was a partner in APC). Six years later in 1971, cheap ethane was being used in a newly built steam cracker (SCAL 2) with a production capacity of 100 000 tonnes of ethylene per year (ie. about twice the size of the more expensive to operate oil-based cracker at Botany).

Comment
The price that APC now pays for the ethane obtained from its Bass Strait reserves is not known. ICI has indicated to the Industries Assistance Commission (IAC Report 390, The Chemicals and Plastics Industries, AGPS, 30 May 1986) that it paid about $100 per tonne more for its feedstocks. The extension of the Petroleum Resource Rent Tax in 1990, to apply to net income from the Bass Strait project, may have reduced APC's feedstock advantage.
SCAL 2 (which can also process LPG) ntherefore complemented APC's ten-year old gas oil (naphtha) using SCAL 1 unit producing 80 000 tonnes of ethylene. The then ten-years old SCAL 1 gas oil unit was required to provide the C4 for ASR's rubber plant (which benefited from a substantial 50 per cent tariff and probably quite profitable despite its small size), and the C3 for Hoechst for their polypropylene plant (see Hoechst next).
Comment
Of course Hoechst established after the discovery of Bass Strait gas, so APC could have decided to phase out SCAL 1 and make that intention clear to Hoechst. However, concentrating exclusively on cheap Bass Strait gas was not a costeffective decision because APC could obtain high prices for the C3 and C4 feedstocks sold to these two assisted plants. The conclusion is that with lower tariffs, Altona would have started with a SCAL 2-type ethane unit - a very different outcome with no C4-using ASR or C3-using Hoechst built at Altona.
Hoechst Australia Limited

The next entrant to the Altona complex was Hoechst Australia Limited- a subsidiary of a major German chemical company (the first of two that was not of US origin). In 1966, Hoechst established a plant to manufacture high density polyethylene synthetic resin (HDPE) and polypropylene (using an energy efficient new Zeigler catalyst) with a modest capacity of about 18 000 tonnes per year. A high tariff of 60 per cent applied to LLDPE compared to LDPE at 45 per cent.

Comments
While HDPE is a polymer made from ethylene it does not compete in the market with low density polyethylene (as then produced by UCAL [later Compol] at Altona, and by ICI at Botany). In the tariff-influenced playing field of that time, this new application for the feedstock was a rational business decision.

This is a typical example where the benefits of assistance flow upstream to the supplier who is able to obtain a higher price for a raw material that is not tariff assisted. Another example in a reverse sense, is Kemcor (formerly APC) offering its feedstock customers a rebate if used to make products for export (see DITAC Study Report op. cit. 1992). (Chemicals exported from Australia are generally sold at a discount to the local [tariff-inflated] level to be competitive.)

From APC's perspective, it could obtain a higher value for its ethylene by selling it to a producer of HDPE than by selling it to UCAL. UCAL could only expand if it took market share from ICI or began to export - but both these options required lower prices. It was simply more profitable to encourage another ethylene-using activity at Altona to take advantage of a 60 per cent tariff for HDPE resin, than to scale-up UCAL's LDPE plant. In other words it was more profitable to use the ethylene for another application even if it detracted from internationally competitiveness.

The HDPE plant could be adapted to use propylene to make polypropylene. However this more valuable feedstock was in effect shared with Dow who used it to produce EDC until 1973 when enough propylene was available for Hoechst to commence polypropylene production.

Affect of Hoechst

There are now three polyethylene plants at Altona instead of one large and more internationally competitive operation (using cheap Bass Strait oil and gas).

Comment
Especially as the benefits of the discovery of oil and gas at Bass Strait one year before Hoechst established at Altona could have been anticipated. Tariffs brought forward the establishment at Altona and influenced (distorted in economist terms) the range of products produced.
The entry of Hoechst to Australia as a new manufacturer of another ethylene polymer was promoted as a positive endeavour. A new high performance plastic was manufactured for which there was rapidly growing demand and, politically important, the Hoechst plant created jobs at Altona. On the other hand, Australia's plastics processors were now paying about 40 per cent more for their plastic resin (especially with that high tariff) reducing their competitiveness and prospects for exports of articles made from this high cost plastic.
Comment
A tariff of 60 per cent applied to HDPE. Not only high compared to other resins, including LDPE (at 40 per cent), because of competition from polypropylene (and even ABS) resins, Hoechst was believed to be selling its HDPE resin at only about 40 per cent above international levels (ie. it was underutilising assistance - the tariff was comparatively too high!).

That is not to imply one form of polyethylene is preferable to the other, but simply that tariffs promoted fragmentation to higher cost units at Altona and by that prevented the petrochemical and downstream industries becoming internationally competitive. Again, industry was simply responding to government policies - their actions were rational and modern technically efficient plants were installed.

The Altona investments created jobs and stimulated employment in the Victorian region but there were also direct and indirect costs to the Australian economy. These costs includes lost investment and downstream penalties that are not brought to account by some economists promoting the value of the Altona complex to Victoria.

Altona 1966

From 1966, initial growth in production at Altona came about by increasing the utilisation of installed capacity and by debottlenecking (reducing volume restrictins in the manufacturing process). Total production increased along with the rapidly growing Australian demand for plastic and rubber goods. However, the growth in scale of individual production units was far below that required to match the newer petrochemical plants in Saudi Arabia, Mexico and Canada.

Comment
The output unlike their competitors was locked into the Australian market. This growth was still higher than the manufacturing average as plastics continued to replace more traditional materials such as steel, wood and leather providing average growth about twice the increase of population.
With access to adequate and competitive Bass Strait reserves, Altona could have participated in world growth by consolidating its development. Instead assistance policies encouraged the companies to pursue diversified fragmented growth to service the small Australian market.

The total turnover from the complex grew, but the very important benefit of scale of individual plants (ie. individual plant turnover) was foregone. That is not to suggest that poor corporate judgments were made - indeed the contrary, the companies were simply responding to the rules provided by Australian governments. From the perspective of the company's management, there were more profits by pursuing diversified growth than by scaling up to match overseas competitors by reducing unit production costs. It was of course a strategy that relied on governments to maintain price-inflating measures - not unreasonable given that once assistance was in place, industry could (and has) promote the politically sensitive threats of lost jobs, vulnerable plants and lost investment.

A Different Scenario

It is interesting to speculate on the form of Australia's chemical industry today had tariffs been lower. Without substantial import tariffs, neither the Botany or Altona chemical complexes could have profitably produced such a wide range of chemical products at such limited scales of production to share the small Australian market.

One scenario is that Botany would not have developed beyond its chloralkali nucleus (ie. declining from the crucial pre-1983 status before the installation of the ethylene cracker) and Altona would instead have developed as an ethane-based polyolefin complex from 1971 using the newly discovered Bass Strait gas (perhaps under a lower level of assistance to initiate the venture). Although many companies would not have established in Australia, the polyolefin manufacturers would have been more competitive if not world competitive. These companies would have been producing lower cost synthetic resins and chemicals for what would have been more competitive downstream (plastics) industries. Australia would have had a better chance of developing similar to say Canada that uses cheap gas feedstocks for their internationally-competitive petrochemical plants.

Even in subsequent years, the Altona complex could have developed into a more efficient basis, but time and again, government assistance distorted investment plans and supported weaker activities. Assistance was necessary to maintain the Botany complex without the feedstock advantage of its competitor at Altona. Botany was made viable and the Altona Petrochemical Company became profitable. ICI was diversified and could tolerate an underperforming naphtha cracker.

BASF

Increased production of ethylene from APC, including for Hoechst's new HDPE plant also increased the co-production of the C4 feedstock.

Comment
The increased co-production of C3 would not be economically utilised until 1973 when a polypropylene plant was established at Altona. In the interim, the potentially valuable C3 was reformed to ethylene (to make EDC for PVC).
In 1967, ASR established a small polybutadiene synthetic rubber unit with a capacity of just 10 000 tonnes per year made viable by a tariff of 50 per cent. With the polystyrene market increasingly dominated by Monsanto and with ASR now sharing the Australian rubber market with the new Phillips rubber plant at Kurnell, there was little room for growth in Australia's small market. With its styrene monomer plant operating well below capacity, Dow had to increase throughput by selling its styrene monomer to another company instead of adding more value by converting it in its underutilised polystyrene plant.

In 1967, BASF Australia Limited (then Badacol Chemicals) established an expandable polystyrene (Styropor) plant at Altona that has a production capacity today of about 8 000 tonnes per year.

Comments
Dow's decision to sell styrene to a styrene derivative manufacturer just six years after establishing itself at Altona as a styrene and polystyrene company, signalled the beginning of a progressive weakening of its potential in Australia. Manufacturers aiming to strengthen their competitive position increase production and support for their key products to achieve important scale economies. The decision to sell styrene to BASF may have enabled Dow to increase output from its styrene unit but that did not benefit its key downstream underutilised polystyrene unit.

Diversified small scale manufacturing became the norm at Altona (and all manufacturing) and BASF began to manufacture a range of products. Chemicals produced by BASF included acrylic dispersion copolymers from imported monomers and chemicals that were formulated for use as film-formers for paints, water-based adhesives and coatings for paper, textiles and leather.

For thirty years until its closure, BASF operated a nearby pigment manufacturing plant, Pigment Manufacturers of Australia in partnership with ICI.

The diversification strategy extended beyond the varied applications of APC's feedstocks, and BASF became the first manufacturer at the complex to use imported or basic Australian chemicals to produce a range of specialty chemical products.

Development after Bass Strait

Altona's development after 1971, (ie. after using Bass Strait gas) may be summarised as spreading, diversification, feedstock competition and scale increasing.
bullet Horizontal spreading

Dow between 1970 and 1972;

bullet

installed a styrene butadiene latex plant.

Comment

The styrene butadiene latex is produced by different technology to that used by ASR for styrene butadiene rubber.

This plant reflected the stiff competition from Monsanto in polystyrene and its limited sales of styrene to BASF (about 8 000 tonnes per year). The plant helped use more styrene though not addressing Dow's weakening position in styrene chemicals.

Dow's already weakening competitive position at Altona was further reduced in 1977, when BHP as its major supplier of benzene feedstock (from its steelworks) formed a joint company with Dow's competitor Monsanto to manufacture styrene at West Footscray (page 140). The association of its previous raw material supplier with its competitor, forced Dow to import all of its benzene feedstock (principally from Japan). Monsanto formed an arrangement with Dow to import benzene.
bulletused imported ingredients to produce;

bulletBisphenol A epoxy resins; and
bulletPropylene glycols using imported and expensive to transport propylene oxide. About 32 000 tonnes of propylene oxide is currently processed in two small plants.
Comments

The polyols consists principally of mono propylene glycol (industrial and food grade), di-, and tripropylene glycol. Most is industrial grade propylene glycol used to produce unsaturated polyester resins. Some ethylene oxide from ICI's Botany plant is also used to produce polyols.

Dow remains competitive by the bulk increasing freight cost benefit of processing propylene oxide with low value water and basic chemicals available in Australia. (Dow exports about 7 per cent of production, ie. about 3 000 tonnes of polyols).

bullet Diversification

Union Carbide in 1972;

Commissioned a 35 000 tonne high density polyethylene (HDPE) plant in competition with the nearby Hoechst plant (that could also use the same plant to produce polypropylene). It was later modified to produce linear low density polyethylene (and expanded in 1981).

bullet Feedstock competition

The tariff induced competition for APC's feedstocks was described by way of example for Hoechst who competed with UCAL for ethylene to use in its HDPE plant). Another example is Dow.

Dow in 1973 established a small ABS plastic resin (acrylonitrile butadiene styrene) plant using;
bulletC4, which was in limited supply and required complementary imports by ASR for its synthetic rubber plant;
bulletacrylonitrile, which was imported; and
bulletstyrene, which from 1977 was produced from imported benzene.

bullet Scale Increasing

Hoechst between 1973 and 1975;

bulletmodified its HDPE plant that can produce40 000 tonnes per year of polypropylene.
bulletexpanded its plant to a capacity of 42 000 tonnes per year of HDPE.

Comment
The ethylene could instead have been used by UCAL who had established an HDPE plant three years earlier to improve the scale of production. Although the tariff for HDPE had been reduced from 60 to 45 per cent in 1973, it was still higher than for LDPE polyethylene (inherently more expensive to produce and yet with a lower tariff).

Union Carbide in 1981;

Expanded its LDPE and HDPE/LLDPE polyethylene plants to about 55 000 tonnes each per year. (It appears that the plant did not produce LLDPE in other than small amounts and instead is largely confined to produce HDPE.)

Comment
The course of investment and development at Altona was clearly one of diversification promoted by assistance but it was hardly unique. Industries producing whitegoods, textiles and motor vehicles, indeed most areas of Australia's manufacturing sector, developed by diversification (although many are now more advanced in their rationalisation process). This petrochemical complex is but a microcosm of the aberrant effects of assistance. (From the mid 1970s, about the time of the general tariff reductions initiated by the Whitlam Government, there has been little substantial new investment at the complex.)

Dow 1977

Dow was subject to two significant changes in 1977 - one involving its major customer Goodrich and the other by its major competitor Monsanto when:
bulletGoodrich, began to import VCM.

 

VCM (vinyl chloride monomer) is one step closer to PVC than EDC (ethylene dichloride) and is expensive to transport. The importation and conversion to PVC is relatively simple and made viable by a substantial tariff (30 per cent). It is not clear why ICI as a manufacturer of VCM did not seek protection (a tariff) against imported VCM (thereby forcing Goodrich to pay duty on the raw material if not made non-viable). Perhaps ICI obtained more profits by taking advantage of the substantial tariff as in 1979 ICI invested $36 million in an isolated VCM polymerisation plant at Laverton (near the Goodrich plant). ICI could say it had intentions (for a petrochemical complex) but the plant still stands alone.

EDC had been purchased from Dow to manufacture PVC (via VCM). It also expanded the capacity of its PVC plant to 62 000 tonnes per year.

Comments
Goodrich remained in the business of manufacturing PVC but now used expensive to transport imported VCM in a low value adding activity.

It was obviously not a negligible value adding activity to the company - it was a negligible if not a negative value to Australia, made viable with a 30 per cent tariff protecting ICI's plant at Botany. The PVC was now at least 25 per cent more expensive to plastics processors than if Australia did not protect that activity.

Therefore, in 1977 Dow lost both its EDC market and its Australian benzene/BTX feedstock supplies. Sixteen years after establishing itself, Dow's presence in Australia as a chemical manufacturer was vulnerable.

bulletMonsanto formed a partnership with BHP to manufacture styrene at West Footscray using BTX feedstock - a by-product from BHP's Whyalla and Port Kembla steelworks. It required Dow to begin importing benzene (and BTX) feedstocks.
Comments
Monsanto's stronger position in Australia was once again shown. CSRC, who by that time no longer operated as a joint company with Dow (ie. as CSRC-Dow) saw Monsanto (as APL, see page 139) build a polystyrene plant just 5 kilometres from its own styrene polymerising plant.

The other significant (and aging) chloralkali plant in Victoria is operated by ICI at Yarraville to produce chlorine for town water.

Three years later in 1980, Dow closed its chloralkali plant. In 1984, to avoid direct competition with Monsanto in the polystyrene market yet increase utilisation of its styrene plant, Dow established a small expandable polystyrene plant.
Comment
Monsanto did not have an expanded foam plant but diversified to produce a range of styrene derivatives, including unsaturated polyesters (commonly called fibreglass resin), ABS and styrene butadiene latex.
Compol

In 1983, UCAL sold its polyethylene manufacturing business (ie. LDPE, LLDPE and HDPE) to the Altona principals APC, and was renamed Commercial Polymers (trading as Compol). The sale left the Union Carbide Corporation of Australia without manufacturing plants in Australia as its former Timbrol plant at Rhodes had already closed.

Comment
The sale of UCAL's plant marked the beginning of APC's (in actual fact, Mobil and Exxon given APC consolidation into Kemcor Australia in 1992) increasing control of polyolefin activities at the Altona petrochemical complex. Although the sale of UCAL was perhaps also a reflection of the global restructuring of the Union Carbide Corporation, Australian events were relevant.
In the year that UCAL sold its polyethylene plants to its feedstock supplier at Altona (APC), ICI commissioned a comparatively large ethylene cracker at Botany. That decision signalled ICI's intention to upgrade its aging and expensive to operate low density polyethylene plant (announced four years earlier in 1979). Although that plant was deferred until 1992 (as an LLDPE plant), increased polyethylene capacity at Botany would increase UCAL's vulnerability. UCAL could have perhaps negotiated a lower price with APC for the ethylene feedstock to compete but Hoechst could presumably bid against UCAL to expand its HD polyethylene production, placing a floor price for APC's ethylene. Hoechst was clearly signalling its interest in ethylene as in 1989 the company invested $45 million to improve its HDPE/PP plant.

APC's dominance at Altona was slowly increasing. Although the 1992 proposed acquisition of Mobil's interests by Hoechst was withdrawn, the management of the Mobil and Exxon companies at the Altona complex (ie. APC, Compol and ASR) were rationalised as the Kemcor Australia company.

Abandoned Expansion

In July 1989, the Altona Petrochemical Company Ltd announced plans for a $100 million expansion to its ethylene plant which by 1992 would increase production from 180 000 to 300 000 tonnes per year.

Comment
Similar plans were announced and withdrawn during the late 1970s soon followed by plant expansions at the Botany complex. Ironically, the announced plans were made at a time of major declines in tariffs which had been actively promoted as being essential for investment in the chemical industry. For example, the Australian Chemical Industry Council produced a publication in September 1986, Recipe for Disaster - Springboard for Development. Anticipating the significant tariff reductions following the Industries Assistance Commission recommendations, the industry association indicated that $300 million in new projects would be `lost'. There appears to be a difference between intentions of individual companies and that of the whole industry (net investment).
The proposed, (and from a national perspective, overdue) expansion would come about by extracting more ethane from available Bass Strait gas that would enable Compol and Hoechst to double production of polyethylene resins.Typical of the benefits of scale, the increased production was promoted to occur without increasing employment. Five months later, Altona's expansion plans were publicly deferred. Also in 1989, ICI announced plans to establish a new polyethylene (LLDPE) plant that was commissioned in 1992 and upgraded its now three-decade old LDPE plant.
Comment
The irony is that although ICI Botany uses more expensive feedstocks, its ethylene plant had reserve production capacity. That reserve capacity would allow an expansion of output on a marginal cost basis - low enough to offset the higher cost feedstocks compared to Altona who would have to invest or expand its ethylene plant.
Between APC's announcement of the expansion program and its deferment, the demand fell and the Australian price of polyethylene fell about 30 per cent.

The Altona Complex Today

In September 1991 hen Hoechst proposed to purchase the interests of Mobil with the sale of the Hoechst plant to the new partnership (ie. of Exxon and Hoechst). Hoechst withdrew that proposal and Mobil and Exxon have a joint management company called Kemcor Australia that confirms the progressive consolidation that began in 1983 with the sale of Union Carbide to APC.

It spent $45 million in 1989 on its plant and negotated with the Government of South Australia for access to its ethane. In 1997, the Altona operation of Hoechst were purchased by Kemcor to become the sole manufacturer of HDPE, sharing the market for polypropylene with Basell and polyethylene with ICI Australia.

Strategic overview

Altona is very well located with natural gas supplied by pipeline from Bass Strait and naphtha brought in from Bass Strait after processing at the nearby Mobil Altona Refinery. Altona therefore had a substantial feedstock cost advantage over the Botany complex. The more recent pipeline supply of ethane to ICI's petrochemical complex at Botany will have eroded some of that advantage. The major penalty at Altona is simply inadequate scale.

Gas and naphtha feedstocks are processed by Kemcor in two crackers with a combined output of about 180 000 tonnes of ethylene. The SCAL 1 unit (1961, upgraded 1989 to current technology) is a gas oil cracker with a capacity of 80 000 tonnes of ethylene, 50 000 tonnes of C3 and 20 000 tonnes of C4 per year. SCAL 2 (1971) is an ethane cracker with a 100 000 tonne ethylene capacity.

The primary petrochemicals, ethylene, propylene and butadiene are manufactured for use at the complex. Other primary intermediates notably vinyl chloride, propylene oxide, acrylic monomers and styrene are imported (styrene is believed to be purchased from Huntsman). Therefore, although imported raw materials represent about 20 per cent by value of all raw materials, for some companies and processes, such as Auseon, Dow and BASF, they represent over 50 per cent.

Outlook

The management of the petrochemical complex has consolidated (and like its Botany-based competitor) to its core businesses of manufacturing polyolefin polymers (as signalled by its intention to expand in 1989).

Although the 1989 proposed expansion was abandoned in response Botany's ability to expand at lower cost and an economic downturn, Altona's future as a polyolefin manufacturing centre is anticipated to strengthen. To its long term advantage, the complex has access to competitive Bass Strait gas reserves that will promote its focus on its core activities in polyethylene resins. The other companies at the site, namely Dow, Auseon and BASF, will depend on tariffs and anti-dumping assistance to remain viable with their intrinsically high cost activities.

With adequate ethane supplies, the Altona complex has potential to expand production of polyethylenes to world class scale as previously announced and subsequently withdrawn. ICI's decision in 1983 to install a substantial ethylene plant (that has led to its new focus on polyethylene production despite a fundamental feedstock disadvantage) has served to restrain Altona's growth to international scale. This decision still affects industry development, and ICI is now building a $300 million pipeline to bring gas to Botany from South Australia.

Ironically tariffs have slowed the internationalisation of the Altona complex and, given the reserves of available gas, it is almost an opportunity lost to Victoria. Early elimination of tariffs would have promoted industry rationalisation and the growth of polyolefin production at the Altona complex. For this to occur the Federal government would have had to have the commitment to resist the lobbying by companies, trade unions and State government. It would have to accept the inevitable closures of many low value adding activities including some of Dow, Auseon (once Geon Australia the former BFGoodrich) and BASF, and at Botany of the ethylene oxide and PVC plants. That scenario is politically difficult to promote as jobs associated with additional polyolefin production at Altona would not be enough (at least in the short term, ie. current political cycle) to offset losses associated with these rationalised activities. The broader and less visible gains to the Australian community (especially to the plastics sector) would not be readily seen by the trade unions and the voting public. Some plants would be held hostage to claims for retention of anti-dumping and import tariffs.

These reduced assistance promoted losses have to be placed into context with the opportunities and the current status. For example in Victoria, only about 60 per cent (or less) of the substantial reserves of Bass Strait ethane gas is effectively extracted for use as feedstock by Victoria's petrochemical industry and available for at least another three decades.( Eco Systems study of August 1990 prepared for the Victorian Government said only 10 petajoules of ethane is extracted while 25 petajoules would be available by year 2000 where one petajoule is about 20 000 tonnes of ethane.). The reserves could be the basis for Altona to develop into an international export-oriented petrochemical complex competitive with overseas plants. Had the Altona companies not been discouraged by government policies to concentrated on key products in keeping with their potential instead of diversifying into a range of assistance-dependent activities, it would have curtailed subsequent restrictive developments at Botany.

That favourable change would be difficult if not impossible to promote today unless combined with substantial and offsetting concessions and economic reform. Wholesale closures could otherwise be induced in today's climate.

For example APC as the feedstock supplier to the complex (and now part of Kemcor) has been one of Australia's most profitable manufacturing companies. In 1989, The Top 1000 Companies produced by the Business Review Weekly, ranked APC as the fifth ranking profitable company and the most profitable manufacturer with a return of 116 per cent on shareholders' equity (in 1983 it was the most profitable company in Australia, again with over 100 per cent returns to its shareholders). Today Kemcor has declared that all its projects over $15 million will be deferred expecting no significant expansion over the next 5 years and is reducing employment by some 20 per cent. In 1993, The Top 1000 Companies listed the consolidated APC as Kemcor, with a loss of $9.7 million. Like its Botany competitor, Kemcor now shows little capacity to absorb further reductions in assistance.

The economic contribution of Altona to the local economy (though not clear given the downstream costs on users) is overshadowed by investment that could have developed with full and well applied access to the Bass Strait feedstocks and the consequent favourable impact on downstream plastics and other user industries. Diversification, unnecessary competition and competitive applications of feedstocks at Altona, created what may indeed be commonly described as Australia's largest integrated petrochemical complex. The cost of this fragmentation was oversighted.

Governments clearly followed short term or regional biased initiatives, predicated on narrow-visioned aims to promote industrialisation. There is also evidence of misunderstanding as shown in a range of reports about Australia's chemical industry produced at Federal and State levels that in their vagueness serve only to restrain initiatives that could have promoted the internationalisation of industry.

Comment
In 1984, and during the Industries Assistance Commission inquiry into the industry, it is interesting to note that one chemical company at the Altona complex sent a carefully worded telex indicating they would invest in a new polyolefin project "regardless" of the Commission's recommendation (which was already widely predicted to be a reduction in assistance). The telex puzzled many of the staff at the time. A reasonable interpretations is that the company would have been advantaged with a reduction of protection (import tariffs) on its own product as its Australian competitor would have been hurt more than itself. It would have gained market share and scale economies utilising cheap Bass Strait gas. Had the Fraser government maintained the agenda for tariff reform, Victoria's chemical industry would have been far stronger and internationally competitive than it is today.

The Altona Complex Today (updating required)

The Altona complex today is described in terms of its companies, feedstocks and products.

Hoechst
In January 1997, Hoechst sold its polyolefin (polypropylene and HDPE) operations located at the Altona complex to Kemcor Australia. Kemcor as a result produces some 260 000 tpa of polyolefins compared with 250 000 tpa by its competitor ICI. The sales ends 31 years of Hoechst buying ethylene and propylene from Kemcor (and is predecessor Altona Petrochemical Company) while also competing with its feedstock supplier in the polyethylene market. Hoechst had even attempted to negotiate with the South Australian government to purchase its ethane. The purchase by Kemcor leaves it the virtual owner of the Altona petrochemical complex.

Hoechst also sold its pigments, masterbatches and surfactant businesses to Clariant, trading to Fernz Corp and other activities to various other companies.

Internationally, Hoechst merged most of its specialty chemicals business with Clariant, creating the world's largest dedicated specialties
producer, with sales of US $5.8 billion per year. Hoechst also purchased the remaining stake in Roussel Uclaf and the Cookson's pigments business. Under the merger deal, Hoechst spun off specialties-excluding food additives, bulk pharmaceuticals, and separation products-into an independent company which was transferred to Clariant in exchange for a 45 per cent stake in the newly merged company.

Hoechst on the Internet

Companies

The Altona complex is now occupied by five companies;
bulletQenos (formerly Kemcor Australia), that since 1992 includes the former;
bulletAltona Petrochemical Company Ltd (APC) (manufacturing the principal feedstocks for Altona);
bullet Dow Chemical (Australia) Limited, bullet Australian Vinyls Corporation (formerly Auseon Ltd, that was formerly Geon and before that BFGoodrich Chemicals Limited). Exxon Australia Ltd, a subsidiary of Esso Australia Ltd, has a 50 per cent joint venture equity with Mobil Oil Australia in Kemcor. Esso owns half the Bass Strait feedstocks with BHP so that in consequence Exxon, directly and indirectly has a significant vertical role in Australia's chemical industry. There is therefore common ownership at the Altona complex between the raw materials, feedstocks and the rubber and plastic resin companies. The other production units are largely unrelated and many are candidates for rationalisation.

Altona supplies over half the value of Australia's primary petrochemicals and polyethylene production and all of its synthetic rubber. It has an annual turnover of about $500 million and employs about 1 000 persons (Kemcor now employs about 840 persons, reduced from 1 020 beginning 1992). With the purchase of Hoechst, employment is anticipated to reduce by a further 200.

Products
bullet Ethylene - of the 180 000 tonnes capacity, sales are to;
bulletThe previous APC subsidiary Compol, up to 105 000 tonnes for;
bulletLDPE (capacity about 50 000 tonnes) (closed in 2000); and
bulletHDPE or LLDPE (a swing plant with a capacity of about 90 000 tonnes); and
bulletThe former HDPE plant operated by Hoechst (the plant can also produce polypropylene). It is believed to produce about 60 000 to 70 000 tonnes of HDPE per year using ethylene purchased from its competitor Kemcor.
bullet Propylene - of the 50 000 tonnes produced;
bulletPolypropylene about 45 000 tonnes of polypropylene from the former Hoechst plant; and
bulletHuntsman at West Footscray, purchases about 5 000 tonnes per year to manufacture phenol and acetone (via cumene).
bullet C4 (butadienes) Up to 20 000 tonnes to the former ASR plant to produce synthetic rubbers (about 25 000 tonnes styrene butadiene (closed in 2000) and about 10 000 tonnes polybutadiene).
Altona complements production by imports of about 10 000 tonnes per year of butadiene - about 5 000 tonnes for ASR and 5 000 tonnes for Dow.  

Until 1993, styrene had been manufactured by Dow in a minuscule plant with a capacity of about 25 000 tonnes per year. Styrene is now imported or purchased from Huntsman and marketed jointly with Huntsman as a joint venture company,Polystyrene Australia located in Footscray.
Styrene is used to produce its expanded polystyrene sheet (about 10 000 tonnes), and styrene butadiene latices. Dow's polystyrene plant has a capacity of only about 25 000 tonnes per year but believed to be operating at around half capacity. Styrene monomer is purchased by BASF (about 10 000 tonnes for expanded polystyrene).

Dow operates other small low value-adding chemical manufacturing operations including the manufacture of propylene polyols (made from imported propylene oxide reacted with water and imported alcohols), a range of low volume styrene-based polymers, polystyrene foam sheet and other minor chemicals.

bullet Styrene
bullet Other chemicals
Comment
About 90 per cent of Dow's polyols are sold to produce flexible polyurethane foam (reacted with imported isocyanates such as TDI).
Since decommissioning its chloralkali plant in 1980, (when BFGoodrich resorted to importing VCM instead of using ethylene dichloride from Dow) PVC synthetic resin is manufactured from imported vinyl chloride monomer. The plant has a capacity of only about 62 000 tonnes per year (against new plants being installed at around 250 000 tonnes). It operates independent of other units at the complex.

Therefore, excepting Auseon (PVC), BASF (the acrylics and other specialty chemicals but purchases styrene from Dow) and Dow (polyols and other minor activities), the Altona plants are reliant upon ethylene or propylene produced by Kemcor. With only low value purchases of raw materials, these three companies are unimportant to Kemcor.

The following chart summarises the current status (note that the Hoechst HDPE and PP operations were acquired in 1997 by Kemcor Australia). The complex today - polyolefin-based like its competitor in NSW

Overview

Altona is very well located with natural gas supplied by pipeline from Bass Strait and naphtha brought in from Bass Strait after processing at the nearby Mobil Altona Refinery. Altona therefore had a substantial feedstock cost advantage over the Botany complex. The more recent pipeline supply of ethane to ICI's petrochemical complex at Botany will have eroded some of that advantage. The major penalty at Altona is simply inadequate scale.

Gas and naphtha feedstocks are processed by Kemcor in two crackers with a combined output of about 180 000 tonnes of ethylene. The SCAL 1 unit (1961, upgraded 1989 to current technology) is a gas oil cracker with a capacity of 80 000 tonnes of ethylene, 50 000 tonnes of C3 and 20 000 tonnes of C4 per year. SCAL 2 (1971) is an ethane cracker with a 100 000 tonne ethylene capacity.

The primary petrochemicals, ethylene, propylene and butadiene are manufactured for use at the complex. Other primary intermediates notably vinyl chloride, propylene oxide, acrylic monomers and styrene are imported (styrene is believed to be purchased from Huntsman). Therefore, although imported raw materials represent about 20 per cent by value of all raw materials, for some companies and processes, such as Auseon, Dow and BASF, they represent over 50 per cent.

The management of the petrochemical complex has consolidated (and like its Botany-based competitor) to its core businesses of manufacturing polyolefin polymers (as signalled by its intention to expand in 1989).

Although the 1989 proposed expansion was abandoned in response Botany's ability to expand at lower cost and an economic downturn, Altona's future as a polyolefin manufacturing centre is anticipated to strengthen. To its long term advantage, the complex has access to competitive Bass Strait gas reserves that will promote its focus on its core activities in polyethylene resins. The other companies at the site, namely Dow, Auseon and BASF, will depend on tariffs and anti-dumping assistance to remain viable with their intrinsically high cost activities.

With adequate ethane supplies, the Altona complex has potential to expand production of polyethylenes to world class scale as previously announced and subsequently withdrawn. ICI's decision in 1983 to install a substantial ethylene plant (that has led to its new focus on polyethylene production despite a fundamental feedstock disadvantage) has served to restrain Altona's growth to international scale. This decision still affects industry development, and ICI is now building a $300 million pipeline to bring gas to Botany from South Australia.

Ironically tariffs have slowed the internationalisation of the Altona complex and, given the reserves of available gas, it is almost an opportunity lost to Victoria. Early elimination of tariffs would have promoted industry rationalisation and the growth of polyolefin production at the Altona complex. For this to occur the Federal government would have had to have the commitment to resist the lobbying by companies, trade unions and State government. It would have to accept the inevitable closures of many low value adding activities including some of Dow, Auseon (once Geon Australia the former BFGoodrich) and BASF, and at Botany of the ethylene oxide and PVC plants. That scenario is politically difficult to promote as jobs associated with additional polyolefin production at Altona would not be enough (at least in the short term, ie. current political cycle) to offset losses associated with these rationalised activities. The broader and less visible gains to the Australian community (especially to the plastics sector) would not be readily seen by the trade unions and the voting public. Some plants would be held hostage to claims for retention of anti-dumping and import tariffs.

These reduced assistance promoted losses have to be placed into context with the opportunities and the current status. For example in Victoria, only about 60 per cent (or less) of the substantial reserves of Bass Strait ethane gas is effectively extracted for use as feedstock by Victoria's petrochemical industry and available for at least another three decades.( Eco Systems study of August 1990 prepared for the Victorian Government said only 10 petajoules of ethane is extracted while 25 petajoules would be available by year 2000 where one petajoule is about 20 000 tonnes of ethane.). The reserves could be the basis for Altona to develop into an international export-oriented petrochemical complex competitive with overseas plants. Had the Altona companies not been discouraged by government policies to concentrated on key products in keeping with their potential instead of diversifying into a range of assistance-dependent activities, it would have curtailed subsequent restrictive developments at Botany.

That favourable change would be difficult if not impossible to promote today unless combined with substantial and offsetting concessions and economic reform. Wholesale closures could otherwise be induced in today's climate.

For example APC as the feedstock supplier to the complex (and now part of Kemcor) has been one of Australia's most profitable manufacturing companies. In 1989, The Top 1000 Companies produced by the Business Review Weekly, ranked APC as the fifth ranking profitable company and the most profitable manufacturer with a return of 116 per cent on shareholders' equity (in 1983 it was the most profitable company). Today Kemcor has declared that all its projects over $15 million will be deferred expecting no significant expansion over the next 5 years and is reducing employment by some 20 per cent. In 1993, The Top 1000 Companies listed the consolidated APC as Kemcor, with a loss of $9.7 million. Like its Botany competitor, Kemcor now shows little capacity to absorb further reductions in assistance.

Change is required. The economic contribution of Altona to the local economy (though not clear given the downstream costs on users) is overshadowed by investment that could have developed with full and well applied access to the Bass Strait feedstocks and the consequent favourable impact on downstream plastics and other user industries. Diversification, unnecessary competition and competitive applications of feedstocks at Altona, created what may indeed be commonly described as Australia's largest integrated petrochemical complex. The cost of this fragmentation was oversighted.

Governments clearly followed short term or regional biased initiatives, predicated on narrow-visioned aims to promote industrialisation. There is also evidence of misunderstanding as shown in a range of reports about Australia's chemical industry produced at Federal and State levels that in their vagueness serve only to restrain initiatives that could have promoted the internationalisation of industry. Comment
In 1984, and during the Industries Assistance Commission inquiry into the industry, it is interesting to note that one chemical company at the Altona complex sent a carefully worded telex indicating they would invest in a new polyolefin project "regardless" of the Commission's recommendation (which was already widely predicted to be a reduction in assistance). The telex puzzled many of the staff at the time. A reasonable interpretations is that the company would have been advantaged with a reduction of protection (import tariffs) on its own product as its Australian competitor would have been hurt more than itself. It would have gained market share and scale economies utilising cheap Bass Strait gas. Had the Fraser government maintained the agenda for tariff reform, Victoria's chemical industry would have been far stronger and internationally competitive than it is today.

 

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