Thousands may be sacked in chemicals shake-out

SEVERAL thousand workers in western Europe's petrochemicals industry are likely lose their jobs in the biggest shake-up of the sector for more than a decade.

The cuts are part of a radical restructuring plan developed jointly by the region's 31 producers of ethylene, the industry's most important basic product, to reduce massive overcapacity. They include British Petroleum, BASF, ICI and Shell.

The plan, to be submitted to the European Commission for approval next month, involves the creation of a DM550m ( pounds 220m) industry fund to help close inefficient plant.

The overall aim is to reduce capacity by 1.5 million tonnes to about 17 million tonnes a year. In the UK, the plan could threaten 800 jobs at BP's Baglan Bay site in Wales and Exxon's plant at Fawley.

Although the proposals concern ethylene, used to make plastics and synthetic fibres, experts believe it could become a blueprint for tackling overcapacity in other parts of the chemicals sector.

Key elements of the plan, spearheaded by Association of Petroleum Producers in Europe, include:

Ethylene producers will contribute DM30 per tonne of their installed capacity towards the fund.

Companies will make sealed bids to shut down their obsolete plants. In return they will receive cash from the fund to offset some of their closure costs.

Winning 'bidders' will have to dismantle their plant and will undertake not to build new plant at the site for five years.

Some experts fear that without a sharp cut in ethylene capacity, the industry's future could be at serious risk. Petrochemicals is one of Europe's most important industries, providing direct employment to 600,000 with another 3 million jobs indirectly dependent on it.

However, little progress has been made in scaling back overcapacity. Many European producers are state-controlled and have been reluctant to close plant because of the impact on jobs.

Producers have also been reluctant to make the first move for fear that they would simply surrender market share. In consequence, ethylene prices have fallen sharply over the past three years, leading to huge losses in the industry.

It is understood the proposals have received considerable support from most of the APPE's members, including the big German companies. But some - thought to include ICI - are unwilling to contribute cash as they feel they did not cause the overcapacity.

One merit of the proposals is that they do not require funding by taxpayers. But it is unclear whether the EC's competition authorities will approve the plans although they have been kept abreast of their progress.

The move, if approved, is expected to raise ethylene prices. But one senior industry figure said: 'This restructuring is important for the industry's long-term future. The rationalisation will raise ethylene prices from disastrous to barely economic levels. Without it the industry is heading for a bloodbath. Most producers are not even covering their cash cost of producing ethylene at present.'