INSIGHT: Styrenics dynamics drive BASF/INEOS consolidation

30 November 2010 17:34  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Styrenics have been difficult for years: pockets of opportunity contrasted with the loss of volumes in key consumer end-use products such as TVs and automobiles.

Markets have moved eastwards, to where acrylonitrile butadiene styrene (ABS), styrene acrylonitrile (SAN), styrene co-polymers, and even polystyrene (PS) are in much healthier demand.

Dominated by competitive, low-cost producers in the Middle East and Asia, too many players and too much capacity have chased too little demand.

Even prior to the downturn it was widely apparent that for the largest and most diversified European and North American players, something would have to give.

Mature markets demand an approach that focuses on applications, costs and ultimately on more efficient ownership structures.

Thus in June, Bain Capital took control of Dow Chemical’s $3.7bn Styron styrenics business (which includes a few other operations unwanted by Dow, such as polycarbonate).

As long ago as 2005, BASF was urged to divest its styrenics operations.

The downturn scuppered the Ludwigshafen-based German giant’s chances of achieving that, but in September BASF said that the time was right for a spin-off of the assets, as Styrolution, planned for the end of this year.

Now Styrolution is to be the name adopted by the merged BASF styrenics businesses and those of INEOS. Both companies say they will retain expandable polystyrene activities.

BASF will also keep the styrene monomer and PS capacities used to produce foam that it has in Ludwigshafen and at the BASF-YPC joint venture in Nanjing, China.

Greater efficiencies and reduced costs can be expected from the 50:50 joint venture, the companies say, so streamlining and plant closures are probably on the cards. They will want to get operating rates up, which for styrene have been hovering globally at around 82%.

BASF is putting businesses into the joint venture with sales of around €3bn ($4bn), and INEOS operations with sales of some €2bn, joint ventures included. Further financial details, including the amount INEOS will pay to BASF to complete the deal, have not been revealed.

BASF’s Styrolution spin-off will go ahead as planned. When INEOS completes its acquisition of the 50:50 INEOS Nova venture, it will be folded into the new company. The new Styrolution could be established in mid-2011 or when given the go-ahead by anti-trust authorities.

There is some customer concern in ABS, where the number of producers in Europe will fall to three. According to the companies, Styrolution will have 1m tonnes of ABS capacity globally, 2.15m tonnes of PS and 2.80m tonnes of styrene production capability.

Most of its sales would be made in Europe, although in 2009 the Americas would have accounted for 32% and Asia-Pacific for 20% of the total.

One thing the merger might achieve is a more dynamic organisation, and one that is possibly more entrepreneurial.

“The joint venture will deliver new opportunities for innovation and growth," INEOS Capital chairman Jim Ratcliffe said.

“The world-scale assets will secure a sustainable and competitive business that is capable of meeting the long-term needs of a rapidly changing market,” he added.

Styrolution will need to demonstrate all of that. Consolidation in styrenics is likely to prove to be key to survival in a fast-changing world in which the business dynamic is increasingly driven by Asia’s demands.

Globally, the going is likely to prove to be tough for styrenics. Slow demand growth in Europe and North America will contrast sharply with the dynamic in Asia.

Next year, for instance, China is expected to bring about 2m tonnes of styrenics resins capacity on stream, while adding on 400,000 tonnes of styrene monomer. Mitsubishi Chemical plans to exit the styrene monomer business in April/May.

Styrolution will be a global player, with BASF and INEOS contributing complementary products and technology.

($1 = €0.76)

For more on styrene and styrene polymers visit ICIS chemical intelligence
For more on BASF and INEOS capacities visit ICIS plants and projects
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By: Nigel Davis
+44 20 8652 3214

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