Polystyrene Manufacturers Seek Another Large Price Increase

06 September 1999 00:00  [Source: ICB Americas]

By Alex Tullo

In an attempt to pass along rising feedstock costs, polystyrene makers have put out their fourth price increase of the year. Each of the major suppliers is calling for a 3 cent, across-the-board hike, effective October 1.

Like the other three attempts to raise prices this year, the October 1 numeration is a response to similar price increases from styrene monomer suppliers, who have a 3 cent hike on the table for September. Chevron Chemicals, Nova Chemicals Inc., BASF Corporation, TotalFina and Dow Chemical Company are all supporting the October polystyrene initiative.

These companies also put out a 2 cent price increase for September 1. Because of contracts with customers, that move will not be implemented until at least the end of the month. A 2 cent styrene monomer hike scheduled for July was rolled over until August and has still not settled.

"Styrene is on its way up--by how much, nobody knows," says a polystyrene producer. "The bottom line is that if you look at feedstocks, you need a price increase to keep pace."

In January, polystyrene makers implemented a 4 cent increase after styrene monomer suppliers won 1 cent out of the 4 cents they were trying to push through at the end of the year. However, sources say the 4 cent polystyrene increase later eroded to 3 cents.

This May, styrene monomer producers put a 4 cent hike in play and received 3 cents. Polystyrene makers nominated 4 cents in June but got only 2 or 3 cents. According to estimates, bulk prices for general purpose polystyrene run from 38 to 41 cents per pound.

Polystyrene manufacturers blame the increases on rising costs for energy and raw materials. "Feedstocks continue to escalate," says Ron Hornack, Nova's vice-president of polystyrene. He cites ethylene numerations for August and September of 1 cent and 2 cents, respectively, as well as a September benzene nomination of 95 cents per gallon. He expects benzene to eventually rise to more than $1, based on current oil prices.

"The whole hydrocarbon chain is getting more expensive," another producer adds. "You only have to go to the gas station to see that."

Polystyrene suppliers say the increase is necessary, not only to keep up with higher monomer costs, but also to restore profitability to the business, which is trying to climb out of its cyclical trough. Producers note that operating rates have improved to just over 90 percent. Because of moderate growth and little added capacity, they expect utilization to rise even further.

The Society of the Plastics Industry estimates that through June, year-to-date sales and captive use of polystyrene in the US was 3.4 percent higher than in 1998, reaching 3.4 billion pounds. Experts caution, however, that those numbers may be inflated because they include data on expandable polystyrene, which has been booming thanks to the packaging market.

Though there have been incremental increases in production, no one is building new capacity in North America. Earlier this year, TotalFina added 50 million pounds to its nameplate at Carville, La., through a debottlenecking that cost the company only $2 million.

Nova Chemicals took about 120 million pounds of capacity out of the marketplace when it shut down the polystyrene unit in Peru, Ill., that it bought from Huntsman. In recent years, Huntsman and BASF also closed polystyrene units.

The polystyrene market is starting to firm, says Scot Mitchell, TotalFina's global business manager of styrenics, though he notes that the industry's nameplate is high enough to meet the demand.

"There will be room for additional growth without additional capacity," he says. "The market is a good one. The dynamics are improving. We hope that this year is the bottom of the cycle."

"We see the industry as getting fairly close to the point where you would see things turning around," another producer adds. "I look for profitability to improve over the next couple of years, and frankly, it has to. Our owners aren't as tolerant of the cyclicality as they used to be."

The producer says that by delaying projects in the late 1980s and again in the early 1990s, the polystyrene industry altered and extended its current market cycle. He says that if this didn't happen, the industry would have been peaking this year.

Some industry watchers--pointing to the June increase that was not fully implemented--question whether the poly-styrene market can bear another price hike, even with rising raw material costs.

"Pricing has to do with the cost of operating, but it also has to do with what the market will bear," a polystyrene buyer notes. "It seems that resin manufacturers are using the present environment to try to get more money."

"I don't think that customers are going to be very happy about this," a producer acknowledges. Noting that there are many production steps from the oil barrel to the end user and pointing out that in recent years polystyrene makers have done their share of swallowing additional costs, he warns that "someone in there has to be squeezed."

Nova Chemicals, the North American capacity leader since it acquired Huntsman's polystyrene business last year, says that in the long run, polystyrene prices are driven by a number of key factors. These include the supply and demand balances of styrene and polystyrene and the cost of styrene raw materials.

What Nova calls a "healthy and profitable polystyrene supply chain" is another component of pricing. It includes investments in capacity, responsible care and R&D, and it also covers consolidation and the rationalization of high-cost plants.

"It's reinvestment, not only in capacity, but also in capabilities," says Nova's Mr. Hornack. "Industry consolidation is one of our strategies." The company has recently made an offer for the European polystyrene assets of Shell Chemicals. Negotiations for this deal are still underway.

Another of Nova's goals is to make its polystyrene business profitable throughout the entire cycle. "Polystyrene is usually boom or bust," Mr. Hornack says. "The hope is that there's enough in the peak to cover the trough, so in the long run, everybody is okay." He adds that if the market remained profitable, producers would make better investment decisions and customers would enjoy more stability.

Nova's styrenics business had a net income of only $4 million in the second quarter and a loss of $4 million in the first, but it expects the Huntsman acquisition to yield $65 million in after-tax cost savings by 2002. Of that, the company has already realized $12 million.

Nova forecasts that North American demand for polystyrene will grow by 2 to 4 percent per year through 2003. With no new capacity coming on in the region, the company expects operating rates during that period to climb by at least a 2 percent annual rate.

BLOCK POLYMERS--Dexco Polymers, a partnership between Dow and Exxon, is expanding the styrene block copolymer capacity at its Plaquemine, La., facility. The project will add 7 million pounds of capacity at the site and is scheduled to be completed during the fourth quarter of 2000.

EMULSIONS--Union Carbide Corporation's UCAR emulsions systems business unit is raising its prices for all acrylic, styrene acrylic, and NeoCar polymers sold to the industrial coatings, architectural coatings and adhesives and sealants markets, effective October 1. The company says prices for typical 50 percent solids product will increase by 2c. per pound, with the increase ranging from 2c. to 3c. per pound, depending on polymer composition.

POLYESTER--KoSa is raising the prices of its textile filament products by 8 to 10 percent, effective with October orders.

TITANIUM DIOXIDE--Millennium Inorganic Chemicals is increasing its prices for Tiona titanium dioxide sold in Asia-Pacific by $100 per metric ton, effective October 1.

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