15 November 1999 00:00 [Source: ICB Americas]By Jennifer Ouellette
Escalating raw material costs are squeezing producers of styrene-butadiene (SB) latex, despite unanticipated strong demand since the start of the year. Several leading producers recently announced price increases for the fourth quarter, and they indicate that further increases could come early next year if current market trends continue. Most SB latex plants are operating at high rates, but because of the erosion in profit margins, there are few plans for further expansion.
Omnova Solutions, formerly the performance chemicals division of GenCorp, announced a 5-cent-per-dry-pound increase for all SB latex products sold into the carpet industry, one of the largest end markets for SB latex, which went into effect October 15. Two weeks later, the company announced a similar increase of 4 cents per dry pound for styrene butadiene, styrene acrylate acrylonitrile, styrene acrylate, vinyl acrylic, polyvinyl acetate homopolymer and acrylic latex emulsions sold to the paper and paperboard industries, effective November 1.
Reichhold followed suit by raising its prices for all synthetic latex products sold to carpet manufacturers, effective October 18. The company also announced a 5-cent-per-dry-pound increase for its styrene butadiene and styrene butadiene acrylonitrile products, effective November 1.
The increases are largely being driven by a sharp rise in raw material costs. Since the beginning of the year, the price of styrene has gone up 50 percent to roughly 27 cents per dry pound, with spot styrene moving from the low-teens to about 31 cents per dry pound. Butadiene price increases have not been as severe, but the cost of that feedstock has risen 25 percent to about 18 cents per dry pound.
Those increases, in turn, are due to the skyrocketing cost of oil, which has nearly doubled from $11 per barrel at the start of the year to a current level of about $21 per barrel. "Because of the importance of styrene and butadiene to our total cost, and the fact that there have been such wild swings in cost, there's no way our margins are sufficient to cover those swings," says Thayne Hansen, commercial director for emulsion polymers North America for Dow Plastics.
Producers caution that the recent spate of price increases has not been enough to ease margin pressures because raw material costs continue to rise. Most major players not only expect the current increases to hold, they are hinting at additional price hikes early next year.
"The real question is whether future increases will hold," says Darryl Jones, product manager for acrylics and SB latex at BFGoodrich, which raised its own prices for SB latex last July. "I don't believe the underlying factors are going to change in the short term." While declining to confirm any planned increases, he says "I wouldn't rule it out."
BASF has already initiated an additional price increase of 7 to 9 percent for the fourth quarter, and a company spokesperson says that a similar increase will probably be needed in the first quarter of 2000, simply to maintain existing margins if raw material costs escalate further.
"We need to return our business operations to a level of profitability to be able to produce acceptable return on assets and be able to further invest in the business," he says.
According to Mr. Hansen, Dow has no immediate plans to raise its prices. The company prefers to react to changes on a market-by-market basis. "Our position in the marketplace tends to be driven by long-term trends," he says. "We try to avoid reacting to short-term moves." But he notes that if current trends in demand and raw materials costs continue, "There is no way we're going to be able to sustain our current price levels without movement."
The good news, of course, is that demand for SB latex is on the upswing, fueled by a strong showing in the carpet industry, which accounts for roughly 500 million dry pounds of the estimated 1.5 million dry pounds of SB latex sold annually in North America. Demand is also strong in the adhesives and architectural coatings sectors.
"The carpet industry had a tough time in the late 1980s and early 1990s, and they've started to see some growth again," says Mr. Jones. He attributes at least part of that growth to retooling and the implementation of faster production methods at manufacturing sites.
There has also been a slight improvement in the outlook for styrene-based products sold into the paper market, the single largest consumer of SB latex. That sector uses 700 million to 800 million dry pounds annually, but in recent years, it has struggled to maintain healthy margins.
Despite unanticipated outages early this year, which further tightened inventories, most plants are operating at about 90 percent of capacity. However, only a handful of SB latex producers are planning significant expansions. Most prefer to focus on debottleneckings and improvements in processes and technology.
One exception is BASF, which plans to double its capacity for acrylic copolymers by the third quarter of 2000. It also has a joint venture with Fina to produce in-house styrene and butadiene at a new olefins cracker in Port Arthur, Tex., slated to come on in late 2000 or early 2001.
Mr. Dever says the company will realize a 30 percent capacity increase by the end of the year by debottlenecking its SB latex plant at Monaco. He also expects the continued integration of BASF's plant sites to increase their operating efficiencies over the next few years.
During the past 18 months, Dow has added 90 million pounds of capacity to its North American operations to keep pace with growing demand. The company recently modified its total production system to optimize logistics costs.
Omnova has no plans for capacity expansions during the next 12 to 18 months, according to a company spokesperson. The company expanded its Akron, Ohio, SB latex plant last year and made several key acquisitions that brought it four extra facilities in Calhoun, Ga.; Fitchburg, Mass.; Chester, S.C.; and Greensboro, N.C.
Reichhold has also focused on debottlenecking its existing plants and making process improvements, significantly increasing its output, but Rodney Biddle, vice-president and general manager of emulsions, expects additional capacity to be needed early next year if current demand holds steady.
BORSODCHEM, the Hungarian plastics producer, has posted a 34 percent slump in its nine-month pre-tax profits down to Forint 5.2 billion ($21.2 million). The company says higher prices for polyvinyl chloride resin were outweighed by lower MDI and caustic soda prices.
POLYESTER FILAMENT--Wellman Inc. is increasing its prices for Fortrel polyester filament by 7 to 11 percent, effective with January 2000 shipments.
'The prices for polyester filament have steadily decreased over the past three years, and we continue to see an erosion of margins in this segment of our business," says John Hobson, group vice-president of Wellman's fiber group. "The cost of raw materials continues to spiral upwards, and so it is necessary to raise prices accordingly. Wellman is committed to being a long-term, high-quality and highly innovative polyester producer and, to this end, must continue to reinvest in the business."
RESINS--Domestic production of plastic resin totaled 6.6 billion pounds in August, an increase of 4.1 percent relative to the same month in 1998, according to the American Plastics Council.
Production in August was 0.7 percent lower than in July. Year-to-date production in 1999 is 52.1 billion pounds, a 5.3 percent increase over the same eight-month period in 1998.
"Sales and captive (internal) use of plastic resins in August 1999 totaled 7 billion pounds, an increase of 10.1 percent over the same month one year ago," APC says. "August 1999 sales and captive use was up 5.3 percent from the total of the previous month. Sales and captive use in 1999 year-to-date totaled 54.9 billion pounds."
SEALANTS--The US consumed roughly 1.2 billion pounds of sealants in 1998, according to Skeist Inc., Whippany, N.J. The consultancy rates the market at $1.7 billion and expects it to grow at a 3 percent annual rate over the next five years.
"High-volume sealants are based on silicone, polyurethane, polybutylene, poly-vinyl chloride and acrylic latices," the consultancy says in a study of the market. "Polyurethanes are expected to have good growth, about twice the overall rate."
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