25 January 2008 14:31 [Source: ICIS news]
LONDON (ICIS news)--Producers’ fortunes in the European polystyrene (PS) market have clearly changed since earlier this decade, when years of oversupply meant poor profit margins and constantly reduced output at most assets.
They have been able to stem the losses that had become so much a feature of this dwindling market for many years, and have even begun to report consistent profit margins.
Producers are still by no means fully satisfied with current margins, however, in spite of the improved margins that are now recorded in this industry.
“The whole industry has struggled for years. We need to put today’s margins into perspective, they are improved, but still far from re-investment levels” said a major European PS producer.
It was the closure of close to 13% of installed capacity, most of it during 2006, which brought about such a marked change in this beleaguered industry.
A lack of profitability in the styrene market in 2004-2005 linked with the rapid escalation of benzene costs finally sparked off the series of closures of PS capacity in ?xml:namespace>
"We saw the profitability of PS pounded by the raw material escalation versus the long market, and simultaneously the styrene margins were being crushed,” said a major European PS producer.
"[There were] some painful decisions around asset closure. The economics gave us no choice."
This was followed by a 40,000 tonne/year PS closure by Total Petrochemicals in Gonfreville, and the shutdown of INEOS NOVA’s (formerly Nova Innovene) 180,000 tonne/year plant in the
BASF then losed its 70,000 tonne/year high impact (HIPS) line in
Such severe supply measures began to have an impact on the market by the end of 2006. By 2007, PS producers began to report regular profit margins not seen for some while.
The change in fortune for producers in the European PS industry impacted negatively on PS buyers, which for some years had enjoyed the upper hand in price negotiations.
Several large buyers had begun to eye polypropylene (PP) as an alternative to PS for new investments but this market also changed, and the price difference between the two rival products was reduced.
BASF took the decision to sell part of its styrenics business, including polystyrene, in mid-2007 in a move to meet what the company called appropriate levels of profitability, in spite of improved margins.
Most industry sources agree that European PS producers have managed to reverse their fortunes during 2007, but there is still work to be done if margins are to improve towards reinvestment levels.
The full article will appear in the 18 February issue of ICB
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