OUTLOOK ’14: Europe PS, EPS demand and pricing unclear

By Iain Packham

LONDON (ICIS)–The European polystyrene (PS) and expandable polystyrene (EPS) markets have had a turbulent 2013, particularly the second half, as volatility pushed prices to record highs in September on the back of upstream feedstock cost increases.

As a result of the price volatility, buyers are operating more on a hand-to-mouth basis, keeping inventory levels low. Furthermore, low eurozone growth rates and weak macroeconomic conditions have sapped demand.

“A lot will depend on general economic development in Europe [in 2014],” a PS producer said.

The outlook for demand and pricing in 2014 is unclear, however, given the volatility seen during 2013 and the various factors that could influence prices in the coming year.

An EPS producer said: “On demand, we are cautiously optimistic. I think we have seen the worst in 2013, there should be a rebound in consumption [in 2014], though it is unlikely to be spectacular. After 1-2 years of falling consumption, it should grow in 2014. We would bank on maybe 4-5%. It will be partly related to a recovery of general economy.”

Nevertheless, most PS sources are taking a cautious approach and estimating that the European market will grow by around 1% for 2014.

One PS producer, however, was negative: “In our assumptions, 2014 demand will be lower than 2013.”

It expects that good demand growth in eastern Europe will be offset by falling demand in western and central Europe.

A PS buyer went further: “In general I think PS is a declining market, flat lined, I don’t see it being resuscitated, I only see it going the other way. 2014 I’m seeing flat, maybe being nibbled at by some other polymers.”

PS prices are currently still near their peak and market players are voicing concerns that buyers and end users are looking to substitute PS in favour of more price-competitive materials with better physical properties.

“These days, everybody is taking it really serious to change the material away from PS,” a buyer said.

Another PS buyer said: “The September price rise made the situation worse, to the point where we don’t see a medium-term future with the current price formulation.”

“The current PS price levels, will mid-term, really reduce the demand,” it added.

Any substitution, however, is unlikely to be smooth and straightforward, requiring investment, new machinery and new processes.

A similar trend is occurring in EPS. A producer said: “If we see increases next year, like this year, people will substitute. The only thing is that EPS is hard to replace, but if people do find alternatives, they won’t come back to EPS”. It said the case is the same for both packaging and insulation grades.

The concern over rising EPS prices is being exacerbated by uncertainty around the state of supply in the European market in 2014. Some sources are concerned that several plant closures could result in a tighter market in 2014.

An EPS producer said: “There is uncertainty surrounding companies closing down, taking over others. Are we going to see a shortage next year or too much material?”

It added: “Stability in styrene will help. We’re already sitting too high, over €100/tonne too expensive for EPS. We need stability in styrene.

Not only is the high price impacting demand, but volatility is keeping buyers cautious. Both buy and sell side sources in PS and EPS agree that the market desperately needs less price volatility to lift demand.

The combined effect of high prices and declining demand is shrinking buyers’ margins, who say they are unable to pass on the cost increases like the producers have done.

A PS buyer said: “I think these guys [producers] had a pretty good year compared with other polymers,” one said.

High prices are also said to be stymying R&D activity.

“PS in general doesn’t seem to be an area where there’s a huge amount of R&D by producers. Polypropylene does seem to be certainly more dynamic. PS from my perspective is probably a declining market,” a buyer said.

However, a producer countered: “Most of our [R&D] projects are on reducing costs through technology and lower cost products. Surprisingly R&D has continued.” Nevertheless, it conceded: “Not at the levels of a few years ago.”