Sasol to build R2.1bn octene plant - 17 January 2006

sasol to build r2.1bn octene plant

cape town - petrochemicals group sasol yesterday outlined plans for the construction of a r2.1 billion plant at secunda that would double its output of octene, a raw material that gives special features such as elasticity and strength to plastic products, to 200 000 tons a year.

the additional capacity would be exported, said sasol spokesperson johann van rheede. the plant was scheduled to go into production in the second half of 2007. the new capacity would give sasol control over a third of the world market for octene. global octene consumption is currently about 500 000 tons a year.

although the company would not disclose the size of the investment, a submission to the securities and exchange commission (sec) in the us shows that the sasol board approved a r2.055 billion investment in an octene facility in september.

according to the submission, the cost had been revised upwards from r1.265 billion, but the reasons were not disclosed. the information was contained in an f20 form submitted in compliance with sasol's listing in new york of american depositary receipts.

the company first announced its intention to expand octene capacity in a brief statement last year. it said yesterday that technology group linde had been awarded the contract to design and build the octene plant. the german industrial gases and manufacturing group built sasol's first two octene facilities as well as three other alpha-olefin plants at secunda.

van rheede would not disclose who the buyers of sasol's additional octene production would be, but us chemicals giant dow chemical, which is the world's largest user of octene, is the most obvious candidate.

sasol first started producing octene in 1999, and the year before it was reported to have signed a 10-year supply contract with dow. the us group said at the time that it wanted to enter into discussions for any new material coming out of secunda.

"it's likely to be dow simply because dow is the pre-eminent supplier of octene," said one analyst. dow uses octene in combination with ethylene to produce polyethylene granules, which are sold to converters for use in products such as plastic-wrap film.

other users of octene include huntsman and nova in north america; idemitsu, mitsui and asahi in japan; and hyundai and sk corporation in south korea. octene gives characteristics such as elasticity, flexibility, impact resistance and strength to plastic consumer products.

up to now, sasol's export destinations for octene have included europe, the us, argentina and thailand, via richards bay. trevor munday, the deputy chief executive of sasol, said the new facility "comes on the back of growing global demand from plastics manufacturers for this hydrocarbon molecule".

sasol produces liquid fuels and petrochemicals from coal or gas via a unique technology. it can selectively separate octene and other alpha-olefins from its synthetic gas feedstream, with its yields exceeding those achieved from the traditional method of cracking oil.

"their raw material is a fraction of the cost of everyone else's, which far more than compensates for the location of the plant inland," said the analyst.

in its sec submission, sasol said that of its r19 billion in unspent capital commitments, r15 billion would be spent in 2006 and r9 billion would be spent on projects in south africa. on the jse yesterday, sasol closed 1.4 percent weaker at r213.95. the top40 index was also 1.4 percent lower.