Mitsubishi cancels Louisiana MMA plant amid market challenges and rising costs
Key Findings
Mitsubishi’s cancellation of a Louisiana MMA plant is a reasonable decision.
The company had been warned that its Geismar project would make up as much as 47% of its capex budget.
The project faced risks related to project financing, trade dynamics, market pressures, sustainable alternatives and public support.
The decision is a significant and welcome step for investors.
The recent Mitsubishi decision to cancel its plan to construct a methyl methacrylate (MMA) plant in Geismar, La., represents a reasonable corporate move and reflects sound judgment in the face of challenging market dynamics.
The project, announced in December 2020, aimed to utilize Mitsubishi's proprietary "New Ethylene Process (Alpha Process)" technology to establish a 350,000-metric ton MMA plant. Methyl methacrylate is used to produce acrylic resins for plexiglass, paints and other products. The company was expected to make a final investment decision (FID) in mid-2022 and begin construction shortly. It never happened.
In July 2024, IEEFA issued a report on its review of the financial risks facing the project. IEEFA warned the proposed investment for the project would be equivalent to 47% of the Mitsubishi Chemical Group’s capital expenditure budget, and the project risks were significant, including slower economic growth, weak project financing, shifting trade dynamics, market pressures, emerging sustainability alternatives, and growing public opposition. IEEFA warned that proceeding with the project would likely result in financial losses for the company and a waste of taxpayer dollars for the state.
The decision to discontinue the project, disclosed on Jan. 7, marks a significant shift in the company’s investment strategy. The company plans to meet immediate market demand with existing facilities in Tennessee and elsewhere. It cited the problems of failed negotiations for long-term customer commitments and increased capital investment costs due to inflation.
This development highlights the financial and market challenges facing large-scale petrochemical projects.
Long-term forecasts indicate significantly weaker demand growth than previously anticipated. The shift is driven by fundamental changes in the global economy, including a transition toward more sustainable materials, overcapacity within the petrochemical sector, and slower industrial growth.
An October 2024 IEEFA report highlighted the ongoing trend of unfavorable market conditions, declining margins, and projected returns falling short of covering the cost of capital, which are driving the emergence of value-destroying projects. These factors suggest that the challenges facing the industry are not just cyclical but structural.
Mitsubishi expects to record an impairment of approximately 20 billion yen (US$127.9 million) as a result of discontinuing plans for the facility. Even so, the company avoids committing significant resources to a venture with limited profitability and high financial risk. The company also will be able to redirect its capital and strategic focus toward initiatives with higher potential returns and better alignment with evolving industry trends.
The company projects it will establish new business locations and consolidate existing businesses to improve the competitiveness of its MMA business. It also plans to focus on high value-added applications and new applications pursuant to its "New Medium-Term Management Plan 2029."
Mitsubishi should seek to align its future activities with shifting market demands, as well as the growing emphasis on sustainability. Cancellation of the MMA Monomer plant in Geismar should be a step toward new initiatives that adapt to structural changes in the global economy and help position Louisiana to take full advantage of the evolving trends toward a sustainable economy.
