EUROPEAN PETROCHEMICAL FIRMS TO WEIGH CAPACITY REDUCTIONS

EUROPEAN PETROCHEMICAL FIRMS TO WEIGH CAPACITY REDUCTIONS

European petrochemicals companies meet here on Thursday to discuss plans to

cut back production of ethylene, the basic building block of plastics.

The Association of Petrochemicals Producers in Europe (APPE) has proposed setting up a fund worth 550 million deutsche marks ($323 million) to help finance plant closures.The European Commission's antitrust division has set out several conditions for approving the cutbacks, which the companies claim are necessary to stave off a wave of bankruptcies.

The commission has approved coordinated cutbacks in the petrochemicals industry before.

This time, European Union competition commissioner Karel Van Miert said the companies must show that the crisis facing the industry isn't just a dip in the business cycle but a real structural recession, that the cutbacks will not delay necessary rationalization and that the crisis is not being used by less competitive companies to avoid taking action to boost their efficiency.

Some industry executives say the crisis afflicting European petrochemicals goes far beyond a temporary mismatch between supply and demand.

European chemical output is flagging while the Pacific region has become the fastest growing, according to Edward Wilson, vice-president for strategic planning, Dow Europe.

Europe is suffering from high monopoly energy prices, low labor productivity, high environmental costs and a punishing tax regime, Mr. Wilson told a recent industry conference.

U.S. ethylene manufacturers are earning twice the return on their investment as the best European companies, Mr. Wilson said. The average rate of return in North America in 1991 was 28 percent compared with the European

average of 13 percent.