Document J3x9qmr9ndGzLOnmN5VzbLBQ2

TO: ADMINISTRATIVE FOR: H. E. O'CONNELL FROM: C. W. WOLFE RE: VCM SALES DATE: APRIL 17, 1970 CC: DCL RMP RES In the 1972/1976 period, increased purchases of VCM by Tenneco Plastics from Shell could possibly lead to a significant profit-generat ing situation for TCI. If THCD markets its own VCM production to others, letting Tenneco Plastics purchase its entire requirements from Shell for the life of the Shell contract, an additional $4,910,600 might be gener ated. This is based on equating probably market price to the pricing on the last increment purchased from Shell. If we use the average price that Tenneco Plastics will probably be paying to Shell under the current pro posed purchase schedule, we would probably generate an additional $2,520,000 over a five-year period, as opposed to transferring THCD product to Tenneco Plastics at the average Shell price. This is based on a 4.2b/lb. net back for THCD sales. The dollar savings to TCI are significant, and this approach should the_total amount of VCM required by 2.U market in 1971 by purchasing VCM from others, (3) we feel confident that we can market the VCM output of our plant at prices^bove the transfer price. I feel the answers to all three of these^Se affirmative. I urge that we get concurrence from TCI management to proceed on this course of action once we get confirmation from Shell that the quantities required can be provided at third increment pricing. 000268 ) 2 The amount of VCM that we would have to market is estimated as follows: MM POUNDS - VCM year PLASTICS' ESTIMATED DEMAND PROBABLE VCM PRODUCTION'1) POSSIBLE AVAILABILITY^2> 1970 171 1971 240 171 171 1972 308 160 160 1973 350 179 121 1974 409 190 111 1975 454 181 81 1976 508 176 56 NOTES: ^Based on R & H Acetylene Sales Contract. (2)Assuming additional acetylene sold to D. B. or GAF. The latest Shell proposal that we have in THCD hands quotes on the following requirement 1972 75 - 100 1973 100 - 125 1974 1975 125 - 150 160 - 200 1976 180 - 225 first increment of 75,000,000 pounds 4.17 cents per pound second increment of 75,000,000 pounds 3.89 cents per pound third increment of 75,000,000 pounds 3.64 cents per pound fIs & 000269 3 The average unescalated prices(D for the quantity Plastics to purchase from Shell would be as follows: year VOLUME - MM LBS. PRICE - C/LB. 1972 148 4.03 1973 171 3.98 1974 219 3.91 1975 273 3.85 1976 332 3.82 We expect that the amount of VCM that we would sell rather than transfer to Tenneco Plastics could be moved at levels above the average saleprice or at levels significantly above the base price on the last increment to be purchased from Shell. (We assume this increment and price could be expanded to include the additional quantities.required.) We would anticipate making two to three year export contracts with com panies such as Solvay, Pechiney, Reposa, Mitsui, Mitsubishi, etc., to provide a base load for our sales program. We would also expect to par ticipate in short-term contracts and spot domestic business at levels higher than the Shell price structure. We do not conceive that during the period of the Shell contract that spot VCM prices will fall below our Shell contract price. Assuming that our outside sales of VCM average a plant net back of 4.2<: per pound, we would anticipate profit generated by purchasing Plastics' total requirement from Shell as follows: ^^Escallation on purchases should wash out with increase in THCD sales price. 000270 4 YEAR LAST INCREMENT PRICING AVERAGE SHELL PRICING 1972 $ 896,000 $ 272,000 1973 1,002,400 394,000 1974 1,054,000 551,000 1975 1,013,600 634,000 1976 985,600 669,000 TOTAL $4,951,600 $2,520,000 As optimistic as this picture looks, we must remember that capital investment in increased storage capacity would be required. I estimate that $500,000 should allow us to double our storage capacity and increase our loading rate to levels that would insure our ability to handle both an export program and a domestic program, possibly without a tank car fleet. The new storage might possibly be refrigerated rather than pres sure to conserve capital investment. I urge that these concepts be presented to TCI management for re view, and if we initiate such a program, that we immediately take steps to buy and sell product in the export market for 1971. CWWjjem 000271.