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Page added on May 30, 2007

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The Petrochemical Plant Strategy

It’s interesting how related various industries are to one another. We often fail to notice many connections. I recently wrote, for example, about the long reach of the housing slump and how it can affect not just real estate agents, but also seemingly far-flung industries and regions such as boats and Latin America. Here’s another event that’s causing lots of ripples: The rising cost of oil.


We all know how it’s bringing misery to many at gas pumps and making us cry when we open our heating bills. But did you realize that the rising cost of oil is also affecting an industry you might not think about too frequently? I’ll let The Graduate whisper it into your ear: “Plastics.”

Why? Well, much of plastic comes from petroleum. That’s why some toy companies, for example, are feeling a real pinch, as the cost of plastic has risen in recent years. If you’re wondering why Barbie’s price just went up, or why those Hot Wheels tracks seem so expensive, this is part of the reason. Hasbro and Mattel are affected by the rising price of oil, just as Southwest Airlines is.


Big Plastic, if you will, is seeking other solutions. Consider Dow Chemical, which recently inked a $20 billion deal with (state-owned) Saudi Aramco to build a petrochemical plant in Saudi Arabia. As the Financial Times has explained, Dow is feeling pressure from rivals in oil-rich countries. Having a plant situated near a cheap and abundant source of oil will help Dow to reduce costs. It is worth nothing that Dow also has a deal with a Libyan oil company to operate a plastics company there.


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