31 May 2013 09:38 [Source: ICB]
As market conditions become untenable, producers seek an exit strategy. Major consolidation is in the works
Important changes in polystyrene (PS) production ownership are looming in Brazil, with two out of three producers on the sales block, according to market sources at the Feiplastic Exhibition in Sao Paulo.
Producer Innova has been for sale since late last year, as state-operated owner Petrobras shows interest in leaving the PS market.
Unigel is now only producing PS from its plant in Guaruja
Unigel, which bought PS plants from Germany's BASF and US-based Dow Chemical in recent years, was also said to be for sale, totally or partially, a statement echoed by reports from such publications as O Valor Economico.
According to market talk, potential transactions could result in one company controlling the styrenics production of Brazil, as happened with the olefins and polyolefins market now controlled by Braskem.
Some mentioned the name of Videolar, the third PS producer, as one potential buyer. Others mentioned chemical producer Elekeiroz as a potential suitor with deep pockets. Yet others said that it was equally possible that all PS plants would end up with Braskem, although there was no clear rationale about how this would make sense.
Despite the speculation, there is certainty that conditions in the PS market will change soon, because market conditions are becoming untenable.
Unigel is producing PS out of one plant, the Guaruja facility purchased from Dow, and has idled the San Jose dos Campos plant.
For a while, the company operated both plants at 50% capacity, doubling the fixed costs for the same production.
More importantly, Unigel has debt of more than reais (R) 1.7bn ($830m, €650m) and it is now seeking to cancel it by the sale of one, several or all of its segments, which include acrylates, packaging, fertilizers and PS.
The problem for Brazilian PS has been that domestic production far exceeds demand.
Whatever the outcome of negotiations, it appears that a major announcement could happen before the end of June, according to market sources.
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