Comment: PS firms must optimise value chain - Chem Systems

19 June 2001 12:32  [Source: ICIS news]

LONDON (CNI)--Polystyrene (PS) producers need to concentrate on increasing the value they extract from the styrenics chain to improve profitability, consultancy Chem Systems said in its latest market commentary.*

"For players in the styrenics business, a key challenge is to establish the right business structure and level of integration to create a sustainable business across the cycle," said Chem Systems. "Those that do not see the opportunity to achieve this should exit the business."

European PS producers are suffering from several months of price erosion caused by overcapacity in the market. AtoFina, Dow, BASF and EniChem have implemented cutbacks in PS capacity in Europe and announced price increases for June and July.

Chem Systems said the price hikes reflect the increasing pressure on the styrenics business to identify the correct business structure for a robust, viable business model.

The impact of non-optimal integration can be seen in the extreme cycles of monomer and polymer prices over time, Chem Systems said. "In some value chains there is a trend to divide value approximately as in margin sharing, but styrene-PS has no apparent stability to support this approach."

An analysis of the value chain involves identifying costs and services incurred and added value generated to satisfy customer requirements along the chain. Chem Systems noted that the value chain can highlight where real competitive differences can be achieved through best practice but should not be confused with operational effectiveness. In commodity markets such as polymers, operational effectiveness is not sufficient to generate real value, it said.

Chem Systems' value chain evaluation method identifies key strategic factors and provides a framework to:

• Identify where in the value chain most value is created, leading to the best financial return.
• Identify the key success factors in extracting value.
• Highlight the "hot spots" within a value chain, which can enhance competitive positioning.
• Recognise the real value and cost of differentiation, and the contribution of added value products.

Failure to understand competitive positioning within the value chain can result in sub-optimal performance and poor strategic positioning by:

• Underestimating the actual cost of a chosen strategy.
• Creating uncertainty in regional positioning and investment strategy.
• Causing low volume but highly differentiated products adversely affecting overall performance.
• Underestimating the cost of technology development and ongoing support.
• Incorrectly and inappropriately focusing on marketing and production planning.
• Creating an imbalance between stages in the value chain.

Companies need to evaluate which product types are advantaged and which product range is the most applicable and robust, said Chem Systems. Ownership of a technology should be a decisive advantage, and the benefits of serving specific markets addressed. Companies should also evaluate whether the advantages are scalable.

In the case of PS, the value chain is highly volatile, and appears to be unattractive for many producers, said Chem Systems. It is liable to deteriorate in the future as styrene monomer (SM)/propylene oxide (PO) increases its market share and downstream opportunities for value creation are limited.

*The importance of extracting value through the styrenics chain can be obtained through the Chem Systems website at: www.chemsystems.com/industry/

By: Anna Jagger
+1 713 525 2653

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