Europe PS output cut on demand, valuation issues

05 December 2008 09:55  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS news)--European polystyrene (PS) producers are slashing production levels to accommodate poor demand and minimise the devaluation of stock, several market sources said on Friday.

"We have cut our high impact PS (HIPS) line in Marl, Germany, to continue to manage our inventories and limit our stock financial devaluation," said Pierre Minguet, business director of polystyrene at INEOS NOVA.

“In the light of high rubber costs and the lack of success in implementing a substantial increased premium of HIPS over general purpose PS (GPPS), we have taken the decision to cut production further," said Minguet.

Polybutadiene is an essential ingredient in the manufacture of HIPS, and prices rose steadily throughout 2008, which have affected PS producers' costs.

"People are not willing to pay for the rubber content of HIPS, so we won't restart the line before January when we have the demand for it," Minguet said.

Other producers confirmed that they were running significantly below capacity.

"We are not looking for volumes in a weak market where we won't gain share," said Jaroslaw Michniuk, head of BASF's European styrenics business unit.

"We have to prepare the ground for recovery and keep a close eye on margin," he said.

GPPS prices were falling below €900/tonne ($702/tonne) FD (free delivered) NWE (northwest Europe) on a net basis, most sources agreed.

PS prices were still linked very closely to upstream styrene prices.

In November, PS producers had managed to hold on to some of the record-high drop in monomer contracts.

They argued that the stock they held would lose too much value if they relinquished the full styrene drop, and PS buyers were largely sympathetic to their arguments.

December styrene monomer barge contracts were settled this week in a range of €580-602/tonne FD NWE, representing between a rollover and a decrease of €108/tonne from November.

PS Prices were widely expected to drop by more than the fall in monomer. Initial December PS business was being done €150/tonne below November.

Several PS producers expected market prices to pick up in the first quarter of 2008, simply because production had been cut back so much that any upturn in demand could lead to shortages.

PS production was running at 60% in some cases, with some producers hinting that output could be as low as 50%.

"Buyers won't come back in droves in January, but industry inventories are so low that it could become a problem next month," said a PS producer.

PS demand had been running at minus 10% at the end of October, compared with 2007, and sources conjectured that the fall-off in growth could be even greater by the end of the year.

"This reduction in volumes is clearly not all down to demand," said the PS producer.

"A big portion is down to destocking. Restocking will probably take place in the second half of 2009."

PS buyers' inventories were very low. Several distributor sources reported that they had been unable to cover requests for prompt delivery.

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

($1 = €0.78)

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By: Linda Naylor
+44 20 8652 3214

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