OUTLOOK ’19: Europe EPS sentiment mostly bullish for 2019 despite counteracting pressures

LONDON (ICIS)–Sentiment in the European expandable polystyrene (EPS) market is mostly bullish for 2019, with some concerns over the EU ban on single-use plastics, and macroeconomic risk weighed against firm demand for insulation material and tight supply for certain grades.

EPS growth in 2018 was dependent on the sector and region of Europe.

The northwest European construction sector Europe was said be stable to firm with milder weather in Q4 compared with last year allowing the building sector to continue with projects for longer.

Packaging grade demand was said to also be either in line with or above GDP growth and both grades are expected to match or better general growth in Europe for 2019.

However, in late October the EU Parliament voted to approve a directive which would outlaw a range of single-use plastics within the bloc by 2021.

Although the proposed list of plastic products to be banned is anticipated to impact the general purpose polystyrene (GPPS) market far more, depending on how the final legislation is finalised and interpreted, the directive could still impact some EPS products.

“At the moment, the major part of the EPS market is not affected [by the directive],” one producer commented.

For some participants, tightness in certain grades is more of a certain than buying appetite being affected by the proposed EU directive.

White grade EPS has continued to tighten in 2018, with little capacity expansion in the grade over the last decade, while buying interest has remained high in key markets.

The majority of new production investments in the market have tended to focus on grey or graphite material which offers better insulation properties than its white counterpart.

In 2018, for example, BASF increased capacity of one of its grey grades by 20,000 tonnes/year, through de-bottlenecking measures.

“[Our] operating rate for white is sold out, so [there will be] some substitution of white material to black material,” a producer commented.

“This [development] already supports an increase in the fee between white and black [grades],” it added.

Record lows for Rhine river levels in the fourth quarter of 2018 and restocking and pre-buying activity in the market highlighted how tight EPS fundamentals could be if demand was high and a major producer faced production difficulties.

Tightening dynamics and volatile styrene monomer costs put countervailing pressure on EPS prices in Q4 2018, with most grades not falling in line with feedstock prices.

With Rhine levels having somewhat recovered in December, producers having the opportunity to build stocks over the holiday period and demand in Q1 for insulation grade material expected to be weaker amid poorer weather, availability is set to improve in early 2019.

If some tightness does arrive for white grade EPS, imports from other regions could potentially make-up for shortfalls, depending on price and availability.

For example, as the economic situation in Turkey deteriorated in the summer of 2018, participants in that market sought to export more material to Europe as the local market slowed.

Longer-term demand within the EU for insulation grade material could well continue as some incentives and legislation at both national and EU levels look set to promote energy efficiency, as they have done in previous years.

“Growth… for the year [2018 was] 5-10% [for us]. [It is an] inflation market right now: in France the government is giving grants [for improving household energy efficiency] and we can supply that market,” a buyer commented.

However, one risk could come from macroeconomic slowdown or recession either indirectly from the US-China trade war or as a consequence of a hard Brexit, although some businesses will likely be more impacted than others from these issues.

Focus article by Ciaran Tyler