FocusHigh Europe styrene costs hit PS producers

20 February 2008 15:36  [Source: ICIS news]

LONDON (ICIS news)--The European polystyrene (PS) market is watching upstream developments with concern as spot styrene soars to plus $1,500/tonne (€1,020/tonne) and producers lose more margin in monthly business, market sources said on Tuesday.

“We will have lost more margin by the time February PS gets fully settled, and the current styrene situation will influence our behaviour in March,” said one major PS producer.

“Demand has been poor and if people are holding out thinking that they will get some relief in March, they will have to think again.”

General purpose PS (GPPS) prices were up around €20/tonne ($29/tonne) in February, with smaller and medium-sized buyers paying around €1,240/tonne FD (free delivered) NWE (northwest Europe). Large buyers generally benefited from lower levels.

But PS producers have not been able to fully recover the increases in recent styrene monomer contracts and some complained that high spot prices were also impacting on their bottom line.

Spot styrene was assessed at $1,485-1,520/tonne FOB (free on board) Rotterdam on Wednesday morning, as energy costs and production limitations combined with strong buying interest to push prices above $1,500/tonne FOB Rotterdam for the first time since 2006.

The February styrene monomer contracts were done in a range of €1,038-1,075/tonne FD barge NWE. The January styrene contract range was settled at €1,000-1,035/tonne FD barge NWE.

PS buyers have steadfastly refused to pay more than the styrene increase when monomer costs have risen, in spite of the new balance in the PS market brought about by a closure of close to 13% of installed capacity mainly in 2006.

The capacity closures have helped PS producers introduce margin into an industry that was running below full output levels in order to prevent significant oversupply. Current margins were still below re-investment levels, according to producers.

With the supply-demand balance now improved, PS producers would now like to disassociate styrene more from PS pricing, as styrene is often used as the sole argument in PS pricing discussions at large accounts.

“We need to find a way of disconnecting PS from styrene,” said a major PS producer.

Buyers still focused on this aspect of the PS business, however, and several large accounts were still discussing February PS prices based on the monthly styrene increase.

“They were the ones who started linking PS prices to styrene in the first place, and now that it doesn’t suit them they want to change it,” said a large PS consumer.

Demand in the PS market was currently flat, but producers were confident that it would return in March.

The building sector was hit by soft expectations caused by talk of recession, but eastern and central European demand was still buoyant. The packaging sector was steady and moving at high volumes.

The recent sharp resurgence in crude and naphtha values also led players to expect a firmer market imminently.

Polypropylene (PP) prices, while flat in February, were too high for any serious consideration of substitution from PS, and imported product was scarce in Europe.

PS producers in Europe include BASF, INEOS NOVA, Total Petrochemicals, Dow and Polimeri Europa.

($1 = €0.68)

For more on styrene and PS visit ICIS chemical intelligence

By: Linda Naylor
+44 20 8652 3214

< previous article(ICIS Chemical Business podcast November 2, 2009)

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