CMAI '05: PS market in oversupply, faces challenges

31 March 2005 23:39  [Source: ICIS news]

HOUSTON (CNI)--The road ahead is not an easy one for polystyrene (PS), according to Alex Lidback of Chemical Market Associates, Inc (CMAI).

 

Speaking at the CMAI-sponsored World Petrochemicals Conference here, Lidback pointed out that although 2004 PS prices were higher compared with 2003, producers also suffered from a serious cost push. Benzene prices increased dramatically in 2004, pushing the entire styrenics chain higher.

 

But PS was not alone when it came to price increases. The good news for the PS industry is that some of its competitors have seen significant price increases as well. PS prices were up 80% from December 2002 to December 2004. Polyethylene terephthalate (PET), polypropylene (PP) and steel have seen slightly higher percentage increases in that period, Lidback said.

 

But the PS market is in oversupply. By 2004, capacity additions had resulted in 2m tonne/year of excess capacity in a market that is only approaching 11.6m tonne of total demand.

 

The real problem, said Lidback, is that there is more capacity coming. Counting known projects, he said some 1.5m tonne is expected to be added between now and 2010. But there is still plenty of time for additional projects to surface as it takes only 18-36 months to bring on a new PS unit.

 

Demand growth on a global basis is forecast to be relatively modest at an average annual rate of around 3%. Capacity will remain in excess and, despite a gradual improvement over the next five years, overall operating rates are still expected to be relatively low at around 82% by 2009.

 

Developed regions such as the US, Western Europe and Japan are heavily dependent on packaging as their primary outlet for PS. Demand for PS in the packaging market tends to be relatively mature and as a result, demand growth is lower in developed regions.

 

This low growth coupled with overcapacity leads to low margins, ultimately facilitating a painful transition of capacity into fewer and fewer hands over the years, said Lidback. This raises the question of whether current players should exit the business, stop investing or try to find new applications to re-kindle demand.

 

At this point, there are no clear answers, Lidback said, adding that in the near term no major changes are expected.

By: Malini Hariharan
+65 6780 4359

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