SB-Latex Producers Seek to Restore Margins

11 December 2000 00:00  [Source: ICB Americas]

By Robert Brown

With feedstock costs holding steady for the time being, styrene-butadiene latex producers are hard at work restoring almost non-existent margins by launching their fourth price increase in just over a year. However, with crude oil prices still uncertain, it is too soon to gauge how successful producers will be.

Producers launched their most recent increase on the heels of an October 1 increase of 3 cents per dry pound, which saw almost universal acceptance. The October 1 increase was "very successful," notes Robin McCann, marketing director of the paper business unit at Omnova Solutions. Other SB-latex producers agree. "From Dow's perspective, there wasn't a single exception to October's 3 cent across-the-board increase," says Frank Cosmi, commercial director of North and Latin America for Dow's emulsion polymers business.

Spurred on by the success of the October increase, SB latex producers have launched another 3 cent increase for paper and paperboard customers only, effective January 1. The outlook for the January increase is equally bright. "Expectations are pretty high for the January increase," says Mr. Cosmi. "Paper latex prices have a long way to go until they catch up with raw materials cost increases." Omnova's Ms. McCann adds, "The customer acceptance of the January announcement seems pretty good so far."

Earlier this year, latex producers had trouble raising prices, especially on the paper side, which accounts for almost 800 million pounds of annual latex demand out of a North American market of roughly 1.5 billion pounds. The reasons for the pricing difficulties on the paper side vary. One latex producer speculates that pulp and paper producers did not project such a steep rise in pricing in their 2000 budgets and were reluctant to take on additional costs. "The worst thing you can do is spend a lot more for raw materials than you had forecast," the producer notes.

On the carpet side, the second largest end use with roughly 500 million pounds of demand, latex producers had more success with their pricing initiatives this year, but they started from a much lower base, according to Mr. Cosmi. Following a major consolidation in the US carpet industry in 1998, the three largest domestic carpet producers account for two-thirds of industry latex usage. Those companies used their buying power to drive down the price of latex for the carpet industry. "Following consolidation, they had a lot of leverage, and latex prices were devastated by early 1999," Mr. Cosmi notes.

"When monomer prices started to go up, latex prices in carpet applications had nowhere to go but up," adds Mr. Cosmi. Since styrene and butadiene costs began their ascent, prices for latex for use in the carpet business have kept pace with those increases. "That doesn't mean margins are good," notes Mr. Cosmi. "It just means they could not get any worse."

This year, mergers and acquisitions have occurred in the paper industry. Although the full impact of this M&A activity is yet to be seen, such consolidation should have a similar result.

"If you look at today, the five largest consumers of latex in paper consume 60 percent of all latex sold in the paper industry," notes Mr. Cosmi. "Now, you have five customers consuming 60 percent of the product, and four companies competing for five customers' business."

On the raw materials side, butadiene remains tight, with little or no spot material available because of planned and unplanned outages earlier this year. Butadiene operating rates continue to rise, but because the industry is unable to reach reinvestment economics, no new capacity is scheduled.

Styrene has come off and settled in the 26-to-27-cent range for November. But since crude oil began its meteoric rise, raw material costs have soared. Taking the average costs of the main components, styrene and butadiene, in the fourth quarter of this year, and benchmarking them against their low point in 1999, shows that raw material costs are up 15 cents on a per-pound-of-latex basis, according to Mr. Cosmi.

Despite the present pricing difficulties, Dow expects to triple its emulsion polymers business, which has sales of nearly $1 billion, in the next 10 years. To do so, the company will emphasize mergers and acquisitions, expansions and the introduction of new products.

Dow's merger with Union Carbide will also give the company Carbide's emulsion polymers business, which focuses mainly on the paints and coatings market.

Dow is also building a 22,000-dry-metric-ton SB latex plant in Zhangjiagang, China, which is scheduled to be on stream in the spring of 2002. The plant will be the company's first in China and its fifth in Asia. In addition, Dow is expanding its capacities incrementally in Sweden, Italy, Brazil and North America.

CARBON BLACK--Degussa-Hüls AG is launching a á1,500-per-metric-ton increase for its grade of extra conductive carbon black, effective January 1.

EMULSIONS--The dispersions and paper chemicals business unit of BASF Corporation will raise prices for its styrene-butadiene emulsions by 3c. per dry pound and styrene-acrylic emulsions by 6c. per dry pound for the North American paper coatings industry, effective January 1 or as contracts allow.

EPOXY RESINS--Effective January 1 or as contracts allow, Reichhold will increase the price of its Epotuf liquid, solid, solution, blend, novolac and waterborne epoxy resins and epoxy curing agents by 5c. to 7c. per pound.

The epoxy products and intermediates business of Dow Chemical is also raising its epoxy resins and hardener products, effective January 1. The off-list selling price for its solid solution epoxy resins (600 series), solid epoxy resins (600 series), epoxy hardeners, epoxy blends, epoxy glycol resins (700 series), DEN epoxy novolac resins (300 and 400 series) and brominated resins (530, 540 and 590 series) will increase by $110.20 per metric ton.

FIBERS--KoSa is increasing the prices of its technical fiber products by 5 to 22 percent, depending on market segment, effective with orders on January 2. Included in the increase are the company's technical filament and tirecord product lines. The company says the increase is necessitated by raw materials cost increases and general conditions in the global technical fibers marketplace.

MELAMINE--Effective January 1, DSM Melamine Americas Inc., will increase the price for melamine by 6c. per pound. The company says global supply/demand remains the primary driver of melamine prices over the long-term, but raw materials cost increases have now added another dimension to the managing of its global melamine business.

POLYURETHANES--Dow Plastics has launched a 10c. per pound increase for its thermoplastic polyurethane (TPU) resins in North America. The company says the increase will be in effect for all shipments of Pellethane TPU elastomers, Isoplast engineering TPU elastomers, and Prevail engineering resins made on or after January 1.

The price increase is a direct result of the continued rising costs of raw materials and feedstocks, according to Scott Moore, North American product manager for engineering compounds at Dow Plastics. "Prices for all key raw materials in TPU production are escalating at rates that have exceeded producers ability to keep up with price," says Mr. Moore. "With continued tight market conditions for raw materials expected for 2001, this price increase is needed to offset the rising manufacturing costs for TPU products," he adds.

POLYVINYL ALCOHOL--Effective January 8 or as contracts permit, Celanese Chemicals will increase its global selling price for polyvinyl alcohol by 5c. per pound in the US and Canada and by $100 per metric ton in Europe, Latin America and Asia.

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