In 1986, Polysar Limited was Canada’s largest chemical company with $1.8 billion in annual sales. Based in Sarnia, Ontario, Polysar was the world’s largest producer of synthetic rubber and latex and a major producer of basic petrochemicals and fuel products.

The results for NASA Rubber division for the first nine months were not as good as expected. Sales volume was up and feedstock costs were down resulting in a gross margin that was better than budget. The fixed costs of the butyl rubber plant were high. The plan had yet reach to the capacity. The European Division had taken less output than projected. Pierre Choquette needs to work on a strategy for the Board presentation.

The operations of the company were structured into three groups basic petrochemicals, rubber, and diversified products.

As the largest Group in the company, Rubber Group produced 46% of Polysar sales. Rubber products, such as butyl and halobutyl, were sold primarily to manufacturers of automobile tires; others uses included belting, footwear, adhesives, hose, seals, plastics modification, and chewing gum.

The Rubber Group was split into 2 operating divisions that were managed as profit centers: NASA (north and south America) and Erow (Europe and rest of world). In addition to the two operating profit centers, the Rubber Group included a Global Marketing Department and a Research Division. The costs of these departments were not charged to the 2 operating profit centers, but instead were charged against Group profits.

A key component of Polysar’s strategy was to be a leader in high margin, specialty rubbers. The leading products in this category were the butyl and halobutyl rubbers, which were manufactured from feedstocks such as crude oil, naphtha, butane, propane, and ethane.

Polysar manufactured butyl rubbers at 2 locations, NASA Division’s Sarnia plant and EROW Division’s Antwerp plant.

NASA Butyl Plant: Sarnia 1 was dedicated solely to the production of halobutyl. Sarnia 2 produces butyl; its annual production capacity for butyl was 95000 tones. During 1985, the plant produced 65000 tones.

EROW Butyl Plant: its annual nameplate production capacity of the Antwerp plant was 90,000 tones. In 1985, the plant operated near or at its nameplate capacity. The Antwerp plant was operated to meet fully the halobutyl demand of EROW customers; the remainder of capacity was used to produce regular butyl.

In 1981, the plant’s output was 75% regular butyl and 25% halobutyl; by 1985 halobutyl represented 50% of the plant’s production. Since regular butyl demand outpaces the plant’s remaining capacity, EROW took its regular butyl shortfall from the Sarnia 2 Plant. In 1985, 21,000 tones of regular butyl were shipped from NASA to EROW.

NASA shipped approximately one-third of its regular butyl output to EROW. Costs varied between Sarnia and Antwerp due to differences in variable costs (primarily feedstock and energy), shipping and currency rates.

In September and October of each year, NASA and EROW divisions prepared production estimates for the upcoming year. These estimates were based on estimates sales volumes and plant loading (capacity utilization). Since the Antwerp plant operated at capacity, the managers of the Sarnia 2 plant needed to know how much regular butyl Antwerp would need from the Sarnia 2 plant.