US EPS price hikes gain traction on tight supply, high feedstocks

Michelle Klump

08-Jul-2014

US EPS price hikes gain traction on tight supply, high feedstocksFocus story by Michelle Klump

HOUSTON (ICIS)–Tight supply and higher feedstock costs are lending support to proposed price increases in the US expandable polystyrene (EPS) market, sources said on Tuesday.

All three major US producers were heard to have announced increases of 5 cents/lb ($110/tonne) for implementation in mid-July, while one Canadian producer, Nexkemia, announced a 7 cent/lb increase for 1 July, sources said.

The proposed increases are based on higher feedstock benzene prices, which rose by 80 cents/gal in July to $5.28/gal. Some producers have said that such a large increase in benzene costs actually justifies an increase of as much as 7-8 cents/lb for EPS, adding that it is possible that producers will need to seek an additional increase in August.

In addition to the higher feedstock costs, buyers and producers have said supply is as tight as it has been for a very long time, caused in large part by a series of planned and unplanned outages in recent months as well as a few months of strong demand.

The outages, including a five-day planned outage at NOVA Chemicals’s Pennsylvania plant in mid-June as well as a more than three-week outage at Flint Hills Resources’s Peru, Illinois plant earlier in the month, have limited supplier inventory levels.

Also, on 27 June, BASF announced it would have to put customers on allocation because of higher than usual demand as well as reduced availability in transportation options, according to a customer letter obtained by ICIS.

“Our plant is operating at maximum capacity and warehouses are being replenished based on previously forecasted demand for July and August,” the letter states. “Currently, we are experiencing on average three days delay for orders shipping from our US and Canada warehouses and six days for orders shipping direct to customers from Mexico.”

The letter states that the situation is expected to continue throughout the third quarter.

One buyer said that it has orders out with several producers, but recent delivery delays have it concerned about getting enough resin to its plant.

“We are down to just a few days of inventory,” the buyer said. “Everyone owes us material … If we don’t get it, we will have to shut down.”

Another buyer said that one of the US producers said it will take nearly a month to deliver its most recent order of resin.

The tight supply and long delivery times, as well as the higher prices, has that buyer looking to place orders with Asian suppliers. The buyer said that once the July increases are implemented, there will be a 10 cent/lb spread between US and Asian prices.

While typically buyers prefer to buy domestic resin because of the long lead times of as much as six weeks for delivery of material from Asia, that advantage is starting to go away.

“If you have to order a month out, there is not a lot of benefit from buying domestic delivery-wise,” the buyer said.

However, one factor that has some buyers worried about imported resin is a potential longshore workers strike at the ports of Long Beach and Los Angeles in California. Such a strike could hinder delivery of imports, sources said.

Before any price increase, current US EPS prices were assessed by ICIS at 105-109 cents/lb DEL (delivered) for block material and 103-107 cents/lb DEL for package material.

Major North American EPS producers are BASF, NOVA Chemicals, Flint Hills Resources, Styrochem, Nexkemia, Polioles and Polidesa.

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