Price and market trends: US polystyrene market players debate potential for more closures

21 April 2014 00:00 Source:ICIS Chemical Business

In a market where tight supply has been used to justify higher prices, US polystyrene (PS) buyers did not welcome a recent announcement by Styrolution that it would be mothballing one of its three US plants by the end of the year.

However, market participants are divided as to whether the announcement was a harbinger of more doom and gloom, or whether this latest in a series of efforts by producers to transform the industry into one that is more sustainable will ultimately succeed.

Overcapacity was certainly the buzzword in 2008 when the industry consolidated to three producers, down from five. US majors Dow Chemical and Chevron Phillips Chemical formed their Americas Styrenics joint venture, and INEOS and NOVA Chemicals expanded their INEOS NOVA joint venture to include styrenics. That joint venture later became Styrolution.

Polystrene insulation Rex Features

 Rex Features

Polystrene for insulation is used in building and construction

Total Petrochemicals used the same excuse in November 2011 when it announced it would permanently shut down a 91,000 tonne/year unit at its Carville, Louisiana plant.

Overcapacity continues to be cited by producers to explain average industry operating rates in the low-to-mid 80% of capacity level.

‘YEARS OF OVERCAPACITY’

In February, Styrolution said its decision to close its 150,000 tonne/year Indian Orchard, Massachusetts plant was triggered by “years of overcapacity in the North American polystyrene market.”

The company says the closure will allow it to optimise its cost structure and allow it to operate more efficiently, which will ultimately help it sustain what executives continue to call “a core pillar of our business.”

But the announcement has left many market participants to wonder whether there will be more plant closures or consolidations to come, and if so, whether further closures would help the market or hurt it.

“I would say logic says that in a market that doesn’t have growth and that has had terrible overcapacity for years, that you are going to see more closures, but I just don’t think you are going to see a lot more,” said Phillip Karig, managing director of Mathelin Bay Associates, a plastics industry consultant.

Karig, who provided background information to the US government during its investigation into antitrust concerns during the 2008 PS consolidations, said the remaining producers have so few plants left that it is hard to see one that is truly vulnerable for closure.

US PS

The announced closure of Styrolution’s Massachusetts plant at the end of 2014 will leave the company with only two plants, including a 400,000 tonne/year plant in Joliet, Illinois and a 190,000 tonne/year plant in Decatur, Alabama, according to ICIS Plants and Projects. Karig said any further plant closures would severely limit its ability to retain market share.

Total Petrochemicals, as well, is not likely to close additional capacity since the 2011 closure of the smallest of its PS units, he said.

The third major producer, Americas Styrenics, has five PS plants, including a 73,000 tonne/year unit in Gales Ferry, Connecticut; an 85,000 tonne/year unit in Ironton, Ohio; a 125,000 tonne/year unit in Joliet, Illinois; a 360,000 tonne/year unit in Marietta, Ohio; and a 115,000 tonne/year unit in Torrance, California, according to ICIS Plants and Projects.

RIPE FOR CLOSURE?

Sources have suggested the California plant is the most ripe for closure, based on its age – it began operating in 1953. Its west coast location, which makes it the most susceptible to competition from Asian imports, as well as the stricter environmental regulations in California are also potential strikes against the plant.

However, others, including Karig, argue that its position as the closest plant to processors in the western US, makes it a valuable asset for Americas Styrenics.

In theory, the consolidations and closures that have taken place in the past six years should help to strengthen the market. However, the market continues to face challenges that keep it from the success that other polymers, such as polyethylene (PE), and even to a more limited degree, polypropylene (PP), have realised.

LITTLE GROWTH

Little to no growth each year has become typical for the PS market, with the 1.1% growth seen in 2013 marking the first time that the industry as a whole has seen improving sales numbers since 2011.

While the re-shoring of some manufacturing to the US may provide some growth opportunity in the PS sector, particularly in appliances and other white goods, the key disposables sector faces ongoing challenges, including polystyrene bans in cities throughout the US.

Other long-term challenges for PS include high cost feedstock benzene as well as new compounds and technological improvements for other resins, such as PP or polyethylene terephthalate (PET), which make them more competitive for uses that were traditionally reserved for PS.

That litany of challenges has some market participants, including at least one US PS producer, saying the market will continue to be at risk for more closures a well as loss of market share from other polymers.

SUPPLY CHAIN VULNERABILITY

Robin Chesshier, vice president for PE, Nylon and PS markets for advisory firm Resin Technology Incorporated, said such closures would be a detriment to the market.

“Additional plant closures and product rationalizations will make the PS supply position more vulnerable to minor disruptions from a logistical and plant perspective,” Chesshier said. “Minor disruptions are now being met with supply allocations and force majeure.”

However, the greatest impact from such closures would be more pricing power in the hands of the producers, she said.

“Removing more material from the supply stream will allow the PS producers to strategically control the supply, which correlates into better pricing leverage for them,” Chesshier said.

A PS buyer agreed, saying producers “have it very closely controlled so there is not, and I don’t believe there will ever be a surplus in the US.”

It remains to be seen whether a less secure supply scenario would scare away those processors still loyal to PS. For his part, Karig said he expects the industry to maintain the status quo.

“Obviously the market hasn’t been growing, but it hasn’t been growing for a long time,” he said. “I think the most likely outcome is that the industry is just going to continue to bump along.”

By Michelle Klump