DeWitt Aromatics '04: Styrene capacity set to balloon

23 September 2004 13:19  [Source: ICIS news]

LONDON (CNI)--Hard-pressed styrene manufacturers were told on Thursday that they face a dangerous poker game over the next three years, as they gamble that world demand will increase fast enough to protect their margins against the depredations of new capacity expansions in Asia and the Middle East.

 

Chris McCloskey, DeWitt's vice president of marketing and economic studies, told the DeWitt Aromatics Conference in Paris that the sky-high benzene price has already left conventional styrene producers operating at zero to negative margins, even though styrene prices have soared too. 

 

The reason is that plants are operating below the utilisation rates at which ethylbenzene (EB) dehydrogenation technology produces positive margins.

 

"If the economy continues to move forward at its current pace of 3-5%, it's easy to imagine this persisting another six months to a year", McCloskey warned the conference.

 

But the longer-term threat comes from the numerous Asian and Middle Eastern styrene capacity expansions now planned - almost 2.5m tonne/year for 2006 and a further 1.8m tonne/year for 2007.

 

According to McCloskey, unless world gross domestic product (GDP) shows strong annual growth of 4-5% region, this expansion will cause an "unacceptable" fall in styrene plant operating rates accompanied by further loss of margin.

 

"Everything depends on the strength of the economy and the timing of capacity additions", he warned.

 

The inescapable conclusion is that the styrene industry will be sitting on a knife-edge over the next few years, facing serious consequences if world growth falters. Unless some of the planned construction projects are cancelled - most likely one of the two Saudi expansions at Sadaf and Chevron-Phillips - operating rates will fall to the mid-70s percent level.

 

"By the end of 2008, we expect that at least one and perhaps two North American players could exit the industry, and the West European styrene industry may also see some rationalisation", McCloskey said.

 

By: Peter Mitchell
+44 20 8652 3214

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