October 9, 2018 / 11:34 AM / 9 days ago

Covestro to invest $1.7 billion in Texas chemical plant

FRANKFURT (Reuters) - Germany’s Covestro will invest 1.5 billion euros ($1.7 billion) in a new plant in Texas to produce the main chemical used in polyurethane foams, taking up a challenge posed by rivals’ growth plans.

The plant will primarily serve North American customers, the former plastics unit of Bayer said on Tuesday, with production expected to start in 2024.

It will replace the company’s existing chemicals complex in Baytown and have more than five times the capacity.

Demand for MDI, used in polyurethane foams that go into building insulation, refrigerators and wind rotor blades, has outgrown production capacity over recent quarters and companies are scrambling to build new plants over the next four years.

They include BASF and China’s Wanhua and SLIC Ltd, as well as Sadara, a joint venture between DowDuPont and Saudi Aramco.

“Even under a conservative scenario of those projects all progressing as announced, there is still an urgent need for us to invest further to meet the strong demand and to further develop our leading market position,” Covestro’s Chief Executive Markus Steilemann told Reuters.

The new Baytown plant will have capacity to produce 500,000 tonnes per year, dubbed world-scale in size. The existing plant there, which produces 90,000 tonnes a year, will close.

Longer-term demand for MDI is expected to increase by about 5 percent a year, which would absorb an additional world-scale plant about every 18 months in the industry, Steilemann said.

Covestro’s recent investments had favored Asia and Europe, creating pent-up capacity needs in North America, he said.

The project is part of an enlarged investment budget unveiled in July. The group said at the time it would increase investment this year to between 650 million and 700 million euros, up from 507 million euros in 2017, with further annual expenditure over the next three years to reach as much as 1.2 billion euros.

Annual expenditure on the Baytown project would likely peak over the 2021-2023 period, Steilemann said.

($1 = 0.8731 euros)

Reporting by Ludwig Burger; editing by Thomas Seythal/Maria Sheahan/Susan Fenton

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