Scope for demand growth in SM, PO - Shell

26 June 2008 07:02  [Source: ICIS news]

BANGKOK (ICIS news)--The styrene monomer and propylene oxide markets are competitive and challenging but there is still scope for demand growth and profitability, with China a key driver and integrated production essential, a senior Shell manager said on Thursday.

Speaking at the 4th Asian Aromatics and Derivatives Conference in Bangkok, Yeay-Yee Fang said that SM and propylene oxide PO demand growth would remain strong in Asia, with the region accounting for 50% of global SM demand growth.

Fang is Shell‘s General Manager of styrene monomer (SM) and propylene oxide (PO) and derivatives.

“Between 2005 and 2012, China’s SM demand growth is predicted at 2.5m tonnes,” he said.

However, “despite strong regional growth, Asia Pacific continues to be affected by overcapacity”, and where the 1990s had seen demand growing by around 5% per year, it was now closer to 3%.

Profitability in the styrenics chain had been affected by high feedstock prices, although this looked likely to change, he added. 

“High benzene prices have been a major reason for a shift in the value chain upstream,” Fang said. 

“Benzene, and, to a lesser extent ethylene, have been where the value was whilst SM and polystyrene [PS] have been squeezed.

“Benzene pressure will be eased by expansions in China.  Between 2002 and 2013, as much as four million tonnes will be added, and little of this will be on-purpose.  This new capacity is expected to add to global supply.

With no further investment in SM production expected in Europe and developments in the Middle East scratching the surface of growth, it was likely that Asia would consequently be a centre for growth he added.

“There is a potential wave of SM investments in China. Growth in SM demand is focused on Asia, PO demand also,” he said.

PO, Fang said, was “often named as the most versatile building block in the chemicals world”.  With applications in the automotive, seating, air transport and construction industries, all strong within Asia, growth could be expected to continue.

The construction industry was also a driver for expandable polystyrene (EPS), used in insulation, he said, and increasing energy costs would likely also see growth in this sector.

Given the current economic environment, however, Fang saw a future only for those producers, such as Shell, who were sufficiently integrated.

“Fortune does not favour the brave,” he said.  “It favours those with an integrated position.

“Shell believes that SM and PO and their derivatives have a future in Asia Pacific, albeit in a very challenging and competitive environment.  As challenging feedstock and oil costs impact the market, those producers with strong integration are best placed to compete.”

The two-day conference ends on Friday.

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By: Peter Salisbury
+44 20 8652 3214

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