Aromatics '05: Styrene, PS margins decline

15 November 2005 19:03  [Source: ICIS news]

COLOGNE (ICIS news)--Margins for styrene and polystyrene (PS) have declined despite the supply/demand balance getting tighter and overall industry profitability improving, Nexant ChemSystems consultant Lee Fagg said on Tuesday.

This is because margins are moving upstream instead, Fagg said at the 4th European Aromatics & Derivatives Conference.

He explained that the value shift upstream is as a result of a tighter benzene market, over investment in styrene capacity, increased levels of integration as well as reduced buying power from fewer large-volume merchant buyers.

As value moves further away, styrene producers in Europe and North America have been less interested in investing. This has opened the door for the Middle East to once again maximise its cheap feedstock advantage, a position extended by the higher crude oil prices.

Fagg said that nearly 2.5m tonne/year of new styrene production is expected in the Middle East over the next few years. In the 2007-08 timeframe, two plants are expected to start up in Saudi Arabia, one in Iran and one in Kuwait.

Fagg predicted that further industry restructuring and consolidation will take place. “The industry has seen lots of changes in the last five years as producers’ position themselves aggressively and more changes are to come,” said Fagg. He said that various options exist and players will pursue different strategies.

One option would be to exit the derivatives business and focus solely on styrene. This move was adopted by Lyondell who now focuses entirely on the merchant styrene market. Another strategy, albeit one hard to adopt in practice, warned Fagg, would be to exit styrene completely and sell benzene on the open market, and pursue other olefin derivatives.

Another choice, and one adopted by BASF and Dow Chemical, is to pursue further downstream integration, spreading risk and seeking out higher value niches. A final option is to increase geographic coverage and improve flexibility of supply.

The 4th European Aromatics & Derivatives Conference is organised by International E-Chem, European Chemical News and ICIS-LOR.


By: Peter Taffe
+44 20 8652 3214



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