PS Demand Picks Up After Slow Summer

20 November 2000 00:00  [Source: ICB Americas]

By Robert Brown

After a summer slowdown in which demand tailed off significantly, polystyrene producers are reporting an uptick in buying. Still, in contrast to a sizzling first half of the year, demand is relatively soft.

The supply-demand balance for poly-styrene is reasonably balanced, even a little soft, according to Jeff Denton, senior market development manager for polystyrene at Dow Plastics.

"The market is slightly long at this time, but this is typical for the time of year," notes Jim Waguespack, a spokesman for Atofina Petrochemicals.

The current softness of demand comes on the heels of a very strong spring that was followed by a dismal July and August. "We had a year with a lot of ups and downs," says Mr. Denton. "We saw very strong demand and very tight supply in March, April and May. Things slacked off quite a bit in July and August."

"We saw a slowdown occur in late-June, early-July for both polystyrene and expandable polystyrene," says Ron Hornack, vice-president of styrenics sales for Nova Chemicals. Specifically, convertors pre-built inventories of both finished goods and raw materials in advance of several price increases. "When prices started to level off, they clearly stopped buying material, and started moving inventory out, both raw materials and finished goods," says Mr. Hornack.

For the most part, convertors were able to remain out of the market until October, severely driving down demand in the process. "September was weak, but October was very strong and November looks good also," says Atofina's Mr. Waguespack. "By the end of the third quarter, demand started to pick up, and we are seeing that continue into the fourth quarter," adds Mr. Hornack.

Producers estimate a current industry operating rate in the high-80s, up from about 82 percent levels in August. In addition, operating rates are expected to improve in the first half of next year. "We believe demand is going to be a little stronger than the third and fourth quarters of this year," says Mr. Hornack. "Therefore we are forecasting operating rates in the low-90s."

While projections remain positive, producers have been experiencing a margin squeeze, as raw material costs soared earlier this year. Recently, prices for precursor materials, styrene and benzene, have softened. However, producers say this situation has yet to translate to lower costs for them. "Spot monomer has moved down, but that doesn't necessarily equate to lower costs for producers immediately," says Mr. Denton.

Benzene's contract price has slipped to $1.30, while spot pricing is in the range of $1.25 to $1.27. This follows a high of $1.60 earlier this year. Spot sales of styrene in November have been pegged at 26 to 27 cents per pound.

While benzene is trending downward, producers are also feeling the effects of higher energy costs and other factors. "During the fourth quarter, we are seeing some reduction in benzene prices but natural gas prices are increasing significantly and offsetting some of the benzene production," says Mr. Waguespack.

Producers see almost no relief from feedstock costs as long as the price of oil remains high. Crude oil is currently in the $32 to $33 range, where it has hovered for the past few months, despite increases in production by OPEC and the release of a portion of the Strategic Petroleum Reserve by the US government. "Oil has stayed stubbornly in that range," says one producer, "and I don't expect it to come off that range."

In spite of the present soft demand, Atofina Petrochemicals is building a new, 500-million-pound-per-year impact poly-styrene plant at its Carville, La., site. The new unit is expected to be on stream by mid-2002. The company says the new line will increase the facility's capacity to 1.625 billion pounds per year.

The Carville site is also home to the 2.2 billion pound styrene plant which is a joint venture with GE Plastics and is operated by Atofina. "We have pooled Atofina's North America and European technologies to make the Carville integrated site the world's most efficient styrene/poly-styrene production plant," said Scott Davis, vice-president of styrenics for Atofina, at the time of the announcement.

"This investment is in line with our policy to develop worldwide competitive industrial bases," says Arnaud d'Aramon, Atofina's global vice-president of styrenics. "In Europe, we are expanding our production facilities to 1.25 billion pounds annually by 2001. In Asia, we operate a 150-million-pound-per-year polystyrene plant."

Atofina is not the only company adding capacity. Dow, in a joint venture with Asahi Chemical Industry Co. Ltd., is building a 120,000-metric-ton polystyrene plant in Zhangjiagang, China. The company expects startup in the second half of 2002.

In addition, Dow recently completed a 50-million-pound expansion of its Hanging Rock, Ohio, facility. The company expects to see the new capacity come into play in a few weeks, according to Mr. Denton.

Elsewhere, Dow recently brought on a 130,000-metric-ton expansion at its BSL Schkopau, Germany, site, which it took 100 percent possesion of in June.

Dow also recently acquired full ownership of P.T. Pacific Indomas Plastic Indonesia, formerly a joint venture with the Salim Group. That plant, in Merak, Indonesia, produces 50,000 metric tons of Styron polystyrene annually.

In February, Nova closed on its acquisition of Shell's solid and expandable polystyrene business, giving it an additional 495 million pounds of expandable polystyrene, as well as 265 million pounds of solid polystyrene capacity Breda, the Netherlands.

BASF AG and Chatterjee Group have formed a strategic alliance to manufacture and sell polystyrene in India. BASF will hold a majority stake in the venture and assumer operational and management control of Pushpa Polymer Pvt. Ltd. (PPPL).

PPPL has a capacity of 60,000 metric tons of general purpose and high-impact resistant grades of polystyrene in Danej, Gujarat. India's polystyrene market is expected to grow at an annual rate of more than 10 percent.

Through the acquisition, BASF will be the first global polystyrene producer operating in India.

ADIPIC ACID--E. I. du Pont de Nemours and Company will raise all schedule and off-schedule pricing of its Adi-pure adipic acid in North America by 3c. per pound, effective January 1.

CORRECTION--Wacker Polymer Systems redispersible powder was incorrectly identified. Its proper title is Vinnapas RI 541 Z (CMR, 10/30/00, pg. 3)

SOLUTIA Inc. has launched a price increase ranging from 10 to 17 percent on all nylon residential carpet fibers, effective January 1. The company says both branded and unbranded staple and bulked continuous filament products are affected.

"The unprecedented and sustained run-up in energy, raw materials and labor costs forces us to adjust nylon fiber prices upward once again," says Jeff Wolff, vice-president and general manager for Solutia's carpet business. "Clearly, margins have eroded to well below investment economics, and that erosion must be reversed."

Solutia's carpet business has also established an annual price increase policy in response to the marketplace. The company says, barring extreme and unforeseen circumstances, nylon fiber price increases will be implemented once yearly, well in advance of the annual Surfaces flooring trade show.

"We have listened to the marketplace," says Mr. Wolff. "Retailers and mills alike have a huge disdain for price increases made in piecemeal fashion, and virtually all have expressed the need for greater lead time to implement their own price increases successfully. They also want to improve clarity around their costs before the Surfaces show."

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