INSIGHT: Styrolution looks to extensive production network

05 October 2011 20:44  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--In creating Styrolution, BASF and INEOS have established an extensive network of production assets and a broad styrenics technology base, yet change is likely over time.

The styrenics business continues to be transformed as customer industries shift from developed world to emerging market economies. Inter-polymer competition with thermoplastics remains strong. But niche products are doing well and styrenics polymers have carved out their place in, for instance, food packaging and certain automotive applications.

Over the past 10 years huge parts of the market have shifted to Asia. The world’s polystyrene (PS) production capacity has been reduced by close to 1m tonnes. In the past six years alone a quarter of global polystyrene (PS) capacity and a quarter of acrylonitrile butadiene styrene (ABS) capacity has been taken out of the market.

CEO Roberto Gualdoni describes Frankfurt, Germany, headquartered Styrolution as “a pure styrenics player with a pure styrenics mentality”. Given its geographic and product spread, the company has, he says, a strong starting position.

Launched officially on 1 October this is a €6.4bn ($8.5bn) turnover company – with pro forma 2010 EBITDA (earnings before interest, tax, depreciation and amortisation) of €407m.

It has a number one capacity position in styrene monomer, polystyrene (PS) and styrene co-polymers, according to Nexant data for 2010, and a number two position in ABS. It has legacy technologies from the likes of Huls, Monsanto, Bayer, BASF, DSM and Amoco.

“We have the volume plus the technological set-up,” Gualdoni said on Monday in an interview with ICIS. “We have quite a diversified portfolio,” he added, the statistics pointing to 31% of pro forma 2010 sales in packaging, 23% in household goods, and 18% in electrical appliances and electronics.

All these customer segments are cyclical but their business cycles tend to be different. Given its customer industries spread, Styrolution will be close to the consumer and a potential bellwether for manufacturing industry health.

Styrolution will have to run particularly efficiently. It is probably the last big consolidation in the global styrenics business which has seen numerous players exit the scene. So with consolidation essentially complete, a period of integration and reflection is likely to be followed by one in which cost savings are made and in which growth is possible.

Styrolution has monomer production assets in North America and Europe, with polymer capacities in the US, Mexico and Europe, in India, Thailand and South Korea. Both INEOS and BASF have kept parts of their former styrenics businesses so as to capture expected growth in expandable polystyrene (EPS), an important insulation as well as packaging material.

BASF, for instance retains its styrene monomer capability in Ludwigshafen, Germany as well as EPS assets there and INEOS retains SM production also in Germany.

Styrolution, on the other hand, balances out to some extent the monomer and polymer producing capabilities of the 50:50 joint venture partners.

Former INEOS SM capacities in North America, and Nova SM in Canada, are now to be run in parallel with former BASF PS, ABS, acrylonitrile styrene acrylate (ASA) and styrene butadiene copolymer (SBC) facilities in Mexico. Styrolution also has PS capacities in Decatur, Alabama, Indian Orchard, Massachusetts, and Channahon, Illinois, its regional headquarters.

In the Americas, BASF was short of SM and INEOS long. Styrolution will be a net buyer. Gualdoni sees good product economics in future with the expected increased availability of ethylene given shale gas-related expansion plans.

In Europe, Styrolution links back to the cracker on the integrated BASF site at Antwerp in Belgium. It has SM, PS, ABS and SBC capacities there, fed with upstream feedstocks on long-term supply contracts.

Specialty products are made in Cologne, a former Bayer ABS production site that has also been run by Lanxess and INEOS. There is PS capacity at Trelleborg in Sweden.

In Ludwigshafen, Styrolution has ABS/ASA, styrene acrylonitrile (SAN) and high heat resistant AMSAN co-polymer production capacities. There are compounding facilities at Shwarzheide in Germany.

Spain’s Elix Polymers is a new company that will run ABS capacity  in Tarragona, Spain, divested by the Styrolution partners as required by the EU competition authorities.

Matching output to customer demand is really the name of the game now in Europe and North America from a product, sales and technical aspect.

In India, Styrolution is second to leading player Supreme. It has PS, at Dahej, a site with great chemicals potential, and ABS, ex Bayer, at Vadodara, both in the state of Gujarat.

In Map Ta Phut in Thailand it has ABS production and in Ulsan, South Korea, PS, ABS and compounding facilities. Gualdoni calls the latter “a fantastic site” in terms of efficiencies.

“I think we are near to the situation where you really need to have the bread and butter supplier close to you,” he adds.

There has been enough underlying demand (for PS) to balance out the production cutbacks but it is clear that real growth is now in the emerging economies. Developed world markets are driven to a greater extent in speciality areas. “There is a lot of innovation to be tackled,” according to Gualdoni.

“The idea is to solidify our position in the developed world," he said. "With our clout, technology and market position, we should be able to expand in the developing world, either on our won or in partnerships.”

Some 75% of the Styrolution commodity output is from plants in the first or second quartile in terms of cost efficiency, he says.

That does not mean, however, that costs can't be taken out of the business. Before fully knowing what the new company will look and feel like, Gualdoni estimates that between €100m and €150 in costs can be taken out of the business.

Styrolution is taking an holistic approach to the styrenics business, he says. Debt will be about two times EBITDA and the company should be generating enough cash to be able to think about the future.

Output growth is probably down the line but partnerships may be possible in emerging market economies.

Styrolution will be “a formidable global player,” Gualdoni says, "with a number one position in a transformed industry.”

($1 = €0.75)

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By: Nigel Davis
+44 20 8652 3214

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