Styron calls for new approach in European PS pricing

By Peter Gerrard

LONDON (ICIS)–Major polystyrene (PS) producer Styron has called for a new approach to European PS price negotiations because of what it believes to be a significant shift in the balance of supply and demand in the market.

In an exclusive interview with ICIS on Thursday, Paul Moyer, general manager plastics for Styron, enlarged on the company’s press release of the same day in which it announced that it intended to adopt a new approach to negotiations.

“The intention is to de-couple pricing from styrene monomer, which does not adequately depict the value of the polystyrene in any given application” said Moyer.

He asserted that the monthly styrene monomer barge contract has been more of a “constraint” than an anchor in the settling of PS prices in the discussions that ensue between sellers and buyers every month.

“Margins [for producers] have been compressed, particularly over the summer, but now is the time for industry players to focus on the value of the resin in a particular application”.

Styron’s new strategy has been prompted by a reduction in PS production capacity arising from the closure this month of the 200,000 tonne/year plant operated by Styrolution in Marl, Germany, and also by the conversion of one of Total’s production lines in Feluy, Belgium from PS to expandable polystyrene (EPS).

The closure of the Marl facility alone is estimated to represent approximately an 11% reduction in capacity in western Europe, in the eyes of producers bringing about a substantial shift in the market’s balance of supply and demand.

Others are less convinced that a reduction in installed capacity will have a lasting impact on market balance, pointing to impending production from two new plants in the Middle East.

“There is a small window they [European producers] are trying to exploit. The reality is the picture isn’t changing,” said one buyer.

A distributor was even more forthright.

“They are kidding themselves if they think the market is balanced to tight.”

The distributor acknowledged, however, that PS offered the smallest margins in its portfolio.

Nevertheless, producers insist that they see, in Moyer’s words, “a change in the landscape”, which should last at least through 2013.

With European lines of production having been retired, they state that operating rates are now well over 90%, and it is this that is driving distinct movement in favour of suppliers.

Mr Moyer dismissed the potential threat from imported Middle Eastern material because the reliability of supply and product quality available from existing European producers would take a long time for new entrants to establish.

A Styrolution company source said the Marl closure was a cost-cutting exercise. “Polystyrene is a commodity and margins are linked to asset utilisation and utilisation is higher, so prices need to be higher,” the source said.

While acknowledging that high utilisation rates were a crucial factor in producers’ ability to secure improved margins, which “have been almost unsustainable,” Moyer emphasised that his company’s engagement with its customers was a “collaborative partnership.”

“The key is to understand the value of our products to our customers,” he said, adding that this also strongly implied higher prices.