Domino effect fears over chemical industry

Redundancies and temporary shutdowns are hitting the headlines on almost a daily basis.

Redundancies and temporary shutdowns are hitting the headlines on almost a daily basis. But how worried should we be when Wilton – the ‘bedrock’ of Britain’s chemical sector – begins to feel the effects? Karen Dent reports.

CLOSURE of Invista’s textile plant and the temporary shutdown of part of the cracker complex at Wilton for maintenance and refurbishment have sparked calls for Government aid to help Teesside’s chemicals industry navigate its way through the economic downturn.

Saudi chemicals giant Sabic is taking advantage of a lull in demand caused by the global economic crisis to carry out an eight-week maintenance and refurbishment at the cracker. All 200 staff will continue to work normal hours.

But 300 jobs will go when the Invista plant at Wilton shuts its doors and Dow Chemicals, which has sites at Billingham Seal Sands, Middlesbrough and Wilton, is planning redundancies internationally, although it has not yet said where the axe will fall.

The future of the Petroplus oil refinery at Stockton is also uncertain; its Swiss owners are deciding whether to close it or convert it into a storage terminal. Around 200 jobs rely on the plant.

Industry expert Paul Hodges is looking at Teesside’s chemical cluster as part of a project for One North East, umbrella body the North East Process Industry Cluster (Nepic) and local councils.

“What’s clear at the moment is that it’s not good at the moment. Several plants are either shutting completely or slowing production. That’s clearly not positive news,” said Mr Hodges, who is chairman of Cheshire-based consultancy International eChem.

“The Teesside area is clearly the central part of the process engineering industry in this country as far as chemicals are concerned. It is responsible for billions of pounds of sales, there are other companies that depend on Teesside to run their plants.”

Businesses operating from the former giant ICI plant at Wilton are now owned by different chemical companies, although the set-up of the cluster means the whole chain is interlinked and to an extent, the different firms remain dependent on one another.

“At ICI, the raw materials came in one end and went out the other. Now you’ve got independent companies negotiating their own contracts,” said Bob Bolam regional officer with Unite, with responsibility for the pharmaceutical and chemical industries.

“It’s like a pack of dominoes, if one of the chemical companies goes down, the effect is felt on the rest of the companies.”

Former ICI employee and now economics adviser for the Chemical Industries Association, Alan Eastwood, says the set-up at Wilton is typical of the sector.

“There are many chemical clusters around Europe,” he said. “In order to minimise the logistical costs and maximise safety they tend to put these plants in close proximity and use pipelines to ship things.”

Because of this, a break in the chain if a company was to close or halt production is likely to have repercussions on other businesses on the same site.

“We have got these large supply chains in industry, particularly so in the chemical industry.

“It is a risk that if you get a vital link broken, then you can have problems. It’s important for a grouping to have balanced product flows, you need to have outlets.”

Although the closure of the Invista plant was bad news for Teesside, it was not in a vital stage in the supply chain.

“It could have been worse but they at least are at the end of a link. They will rebalance and we hope in time the waves will wash over,” said Mr Easton.

But it is crucial that other links in the chain continue to operate normally, according to International eChem’s Paul Hodges.

He said: “In some ways you are dependent and some ways you are integrated. Soap and detergents are hugely dependent on Wilton.

“If you look at the plants around the cracker, they are dependent on it because it was designed that way by ICI. ICI wanted to reduce costs by maximum integration – utilities, energy – and you get hit in a number of ways.”

He says the Government must act to ensure the Wilton site remains sustainable because it is a vital cog in the UK economy.

“What I’m trying to flag up at the moment is the economic outlook of Teesside is not good and the Government needs to be starting to look at it. I don’t think one can understate the severity of the situation. It is as least as bad as the early 1980s.

“You can’t run a modern society without a chemicals industry, it is one of the bedrocks. It is very innovative, there are always new technologies coming through. The skills base, the process engineering skills around Teesside, this is the absolute jewel in the crown for the country. We can’t allow these skills to go.”

Bob Bolam from Unite agrees. The union is meeting at the weekend to formalise its strategy to fight for the future of the industry and letters are being sent to MPs.

He said: “The chemical sector deserves some recognition from the Government. It is a blue-chip industry. We are concerned about the industry and we hope we can weather the storm.”

Like the wider economy, the parts of the chemical industry to feel the pain of recession are those feeding into the housebuilding and automotive industries.

Businesses supplying the raw materials for new homes and vehicles have seen their market shrink at an alarming rate in recent months. The base and commodity chemical sector produces the goods that go to make new windows, carpets and flooring and manufactures the polymers, paints, glues and lubricants used by the motor industry.

Dr Stan Higgins, Nepic’s chief executive, says these companies are suffering the knock-on effect from the lack of credit available.

He said: “The commodity chemicals companies are struggling because people don’t want to buy items that they have to borrow money for. There are problems selling polymers and plastics. If you sit in a car, it’s all polymers.

“The commodity chemical companies that make those big ticket items all their supply chains are backed up and waiting for the upturn. The companies in that supply chain, there is a problem but we will come out of that.”

But he insists that the region’s chemicals and processing sector as a whole remains in rude health and expects to see more jobs created than lost during 2009. He points out that only around 100 of the North East’s 500 chemical businesses are based on Teesside.

“Probably 60, 70, 80% of the chemical industries in this region are doing all right. They are still employing and recruiting people,” said Dr Higgins.

“We still have to eat, people still want to dress up and put their make up on. The 12 pharmaceutical companies are doing very nicely thank you.

“We’ve seen a number of specialist chemical companies being purchased in this region, management buy outs, for example or other companies buying them. That shows there must be some value in them.

“We do have a problem with the few commodity companies. We have a handful of companies out of the 500 connected with the car industry and housebuilding.”

Although the Invista’s textiles plant is to shut up shop, Dr Higgins said it would be wrong to blame the credit crunch for that decision.

“It would be struggling to survive anyway. It [the credit crunch] wasn’t the real reason,” he said. That was more to do with that most nylon is now used in the Far East. That factory is 50 years old and completing with modern factories closer to the market.”

And despite the problems surrounding the base and commodity chemical makers on Teesside, there is still massive investment being made in the sector.

The £250m Ensus bioethanol plant at Wilton – the biggest in Europe – is about to be commissioned and is due to be operational this summer. Sabic, which owns the Wilton cracker, has spent £200m developing a low density polyethylene (LDPE) facility. And Newcastle-based recycling and recovery company Graphite Resources is building a £50m facility in Gateshead.

“There are problems but there are positives,” said Dr Higgins.

“There are plenty of things happening that outweigh the negatives. It is a balanced picture out there – it is not all doom and gloom.”

Kevin Rowan, the TUC’s regional secretary, agreed that the mood at the moment is “more caution than concern”.

He said: “There has been some considerable investment in the last couple of years. The industry is certainly doing very, very well in terms of its GVA [gross value added] returns.

“The pressure on capital is making companies more cautious. The increase in businesses setting up here has certainly slowed down but I don’t think anyone is reaching for their parachutes yet.”

The Chemical Industries Association’s Alan Eastwood is also wary but optimistic about Wilton’s future.

“We have a pretty resilient chemicals industry in the UK but these are exceptionally tough times,” he said. “The chemicals industry on Teesside has been very resilient and we would hope that would remain.”

You can’t run a modern society without a chemicals industry, it is one of the bedrocks. It is very innovative, there are always new technologies coming through

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