Suppliers Struggle With High Costs, Low Margins

Companies processing styrenics hope this year will be less of a roller-coaster ride than 2002, which early-on saw major volume increases, due to inventory replenishment, followed by a second-half slump and resin supply outages.

Inventory levels near the end of 2002 were low at suppliers, weighed down by high raw-materials costs and low margins. “Producers were largely unsuccessful in recovering the full cost of rising monomer prices,” says Lee Fagg, business manager at consultant Tecnon OrbiChem, London.

“We need a correction,” says Karl-Heinz Förster, head of marketing for styrenics commodities at BASF, Ludwigshafen, Germany. “We don’t know what styrene monomer will do.” The situation could be aggravated by any surcharge caused by price rises in hydrocarbons stemming from a war in Iraq. Several major producers posted price increases for polystyrene for Jan. 1 and Feb. 1.

“Consumer markets have not been good,” says Förster, who adds, “realistically, we can’t expect a huge turnaround in 2003.” Chris Pappas, styrenics president of Nova Chemicals, Pittsburgh, PA, says, “2003 will be very challenging, especially the first six to nine months. Monomer should tighten [going] into 2004, and that will drive profitability [across] the chain.” Bertrand Nusbaumer, Atofina’s Paris-based European general manager for polystyrene, reports 2002 growth in Europe was 3 to 4 % — the first growth in three years — and he expects similar growth in 2003.

“Through much of 2002, the industry was operating some level of order control,” says Clay Dunn, vp. of Dow Chemicals’ global PS business.

“People say operating rates are in the high 70s, but that is inconsistent with the industry being on order control.” Dunn says that “on a real capability basis,” Dow expects to be close to full utilization in 2003.

Matters aren’t better in Japan, where a new joint-venture company, PS Japan, Tokyo, starts up in April. Incorporating the PS interests of Asahi Kasei, Mitsubishi Chemical, and Idemitsu Petrochemical, it will be Japan’s largest producer. (The current leader is A&M Styrene, a 50/50 joint venture of Asahi Kasei and Mitsubishi Chemical, which is ahead of Japan Polystyrene, a Mitsui Chemicals/Sumitomo Chemical venture.) In July, modern plastics sister publication Chemical Week reported the founding companies as saying that “the environment surrounding the PS business has become increasingly severe year-by-year due to a prolonged stagnation of domestic demand; a shift overseas of consumers’ production bases; and fierce competition with overseas manufacturers.” Merging the businesses was “indispensable.”

Restructuring, including plant closures, is likely to follow, though there are no details yet.

Suppliers continue to restructure to improve their cost position, but generally loathe to slash R&D budgets. “We think of R&D from a long-term perspective,” says Förster. “There will be no strategic changes…projects are more focused than they used to be.”

Since the Fina-Elf Atochem merger in 2000, Nusbaumer says Atofina has realized synergies in R&D and technical support. “We want to supply strong support, but not at any cost.”

Nova is looking for improvement through a rationalization plan that includes capacity reduction (75,000 tonnes/yr of expandable PS in Carrington, England, were shuttered last October, as were solid PS reactors totaling 80,000 tonnes/yr of capacity in Breda, Netherlands, and Chesapeake, VA) and increased product differentiation. “Nova now has 12 to 14% of differentiated products in its portfolio… We envisage taking that to 30% by 2005,” says Pappas.

The moves take in EPS and solid PS, including improved EPS beads that will enable it to extend its cup end-market business into soup and noodle bowls; the Arcel PS/polyethylene interpolymer beads that are suited for direct shipping of consumer electronics (which is increasing as more consumers buy over the Internet); and halogen-free flame-retardant grades for television and computer enclosures.