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POLYSTYRENE: TOO MUCH, TOO SOON Rapid capacity increase depresses margins; now producers are pushing price hike Paige Marie Morse C&EN Houston
ket Monthly, a market analysis newsletter from Townsend, polystyrene prices show a continuing decline throughout olystyrene producers are in the 1997. December prices were between 34 middle of a very poor cycle for the and 40 cents per lb for crystal and impact polymer, experiencing severely de- polystyrene, down from 45 to 50 cents in pressed prices in a market that is fraught late 1996. with overcapacity. In an attempt to reduce some of the "The polystyrene market continues to overcapacity in the market, three producbe a very difficult one," says David Hunts- ers—Nova Chemicals, Huntsman, and man, vice president for polymers at Hunts- BASF—have announced plant closings or man Corp. "We know this business has capacity reductions in recent months. Alpeaks and valleys. Obviously, we are in though these moves may eventually help one of the valleys right now and have the market, they are not expected to offer been for some time." any short-term relief to producers. The problems in this market are not In terms of market growth, polystyrene due to a lack of growth, but instead to sig- appears to be quite healthy, according to nificant overcapacity that will require, at a the Society of the Plastics Industry (SPI). minimum, several months for recovery. Sales and captive-use figures through OcAnd many analysts agree that producers tober 1997 show an increase of 5.6% over have brought this upon themselves. the similar period of the year before. Also, "With new capacity coming on- SPI predictions for total 1997 sales and stream—from Chevron and BASF—there captive use based on the first nine months has been a lot of competition to gain and of the year indicate a 7.6% increase in sales maintain market share," says market ana- for polystyrene over 1996. lyst Jean Meador of the Houston consultHowever, SPI statistics also point out ing firm Phillip Townsend Associates. the supply-and-demand imbalance that "Producers have been very aggressive, op- the polystyrene industry is currently exerating at fairly high rates and causing sig- periencing. Production for the first 10 nificant softening of the price." months of 1997 was up 8.2% over the In the December issue of Plastic Mar- same period in 1996, whereas sales were
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BASF recently brought onstream its polystyrene facility in Aitamira, Mexico.
Polystyrene is made in three forms There are three types of polystyrene polymer: crystal, impact, and expandable. Producers generally refer to the polystyrene market as including only crystal and impact grades, also called solid polystyrene. Expandable polystyrene (EPS) is a separate, specialty product that has different market dynamics and is currently priced about two times higher than solid polystyrene. Crystal polystyrene is a clear, amorphous polymer with good stiffness and electrical insulation properties. It is used primarily in consumer packaging, appliances, and containers. Impact polystyrene is also known as rubber-modified polystyrene. It contains varying levels of polybutadiene to improve its toughness. Primary applications include toys, appliances, and consumer packaging. EPS is a foamed product that is supplied to customers in bead form. It is manufactured by solution polymerization of styrene, forming a lightweight, closed-cell polymer. Its primary markets are construction and packaging. Data from the Society of the Plastics Industry (SPI) include all three types of polystyrene. SPI sales and captive-use statistics through October 1997 represent 45% impact polystyrene, 40% crystal polystyrene, and 15% EPS.
up only 5.6%. This discrepancy in growth suggests that inventory levels are building, leading to a destabilization of prices. Stephen Korkmas, polystyrene product manager at Dallas-based Fina, agrees with these observations: "Demand is up, but the fact remains that there is severe overcapacity. At current pricing levels, the industry cannot sustain the resulting margins." Dow Chemical, North America's largest polystyrene producer, offers a cautious but less dismal view of the market. "We are currently seeing a typical response to new capacity coming onstream," says Clay Dunn, Dow's global business director for polystyrene. "We anticipate some shortterm effect on pricing. Long term, we see slow but steady growth in polystyrene demand in North America—about 2.5% per year—over the next 10 years, with balanced supply and demand." Dow's current estimates of demand for polystyrene are 6 billion lb for the U.S., 6.6 billion lb for North America, JANUARY 19, 1998 C&EN 19
business and 21 billion lb globally. The global an nual growth rate is estimated at 4.3% for the next 10 years. Bill Greene, vice president for styrenics at Nova, notes that many producers are "bleeding," but he is more optimistic about market opportunities, citing a 4% market growth rate for North America and 5% globally. "The packaging market is the main growth engine for polystyrene, and it continues to be quite strong." Another issue affecting several polysty rene producers is that styrene prices are at very low levels. In general, low prices for monomers can benefit polymer producers by reducing their raw material costs. How ever, most of the major producersincluding Dow, Huntsman, Nova, and Chevron—are back-integrated to ethylene and benzene for styrene manufacture, and Fina has access to styrene through a joint venture with General Electric. "When the polystyrene market is rough, back-integrated producers try to extract value at styrene," says William Kuhlke, president of consultants Kuhlke & Associates in Houston. Right now, these producers cannot get a good price for ei ther product in this chain. "When looking at the integrated sty rene chain, it is unprecedented to see a time when styrene and polystyrene have been as badly depressed as they are right now," says Huntsman. And styrene raw material costs are also up, notes Fina's Korkmas. "Ethylene is higher than we thought it would be at this time, and benzene has spiked to $1.15 per gal for January." However, he
removing about 6% of North American production capacity. As of Jan. 1, Nova ended its tolling arrangement with Bayer at Bayer's Addyston, Ohio, fa Annual capacity cility. In the October 1997 an (billion lb) Plant sites nouncement, Greene said this re 1.6 Dow Chemical Joliet, III. duction of capacity by 80 million Midland, Mich. lb will allow Nova's "remaining Torrance, Calif. sites to run near capacity and Pevely, Mo. will improve our cost position." Allyn's Point, Conn. By the end of this month, Hanging Rock, Ohio Huntsman will complete the Sarnia, Ontario shutdown of its Willow Springs, .1.2 Belpre, Ohio Huntsman 111., plant and three production Chesapeake, Va. lines at its Belpre, Ohio, plant Joliet, III. (C&EN, Nov. 10, 1997, page 7), Peru, III. removing 150 million lb of ca pacity. This marks the first time 1.1 Joliet, III. BASF that this typically aggressive pet Altamira, Mexico rochemical and polymer player 1.0 Carville, La. Fina has closed a production facility because of market conditions. 0.8 Nova Chemicals Decatur, Ala. BASF closed its plant in HolSpringfield, Mass. yoke, Mass., in November and Montreal, Quebec has accelerated the closure of its 0.8 Marietta, Ohio Chevron Santa Ana, Calif., plant from late 1998 to this summer. Together, 6.5 TOTAL these closures remove 155 mil a C&EN estimates for crystal and impact polystyrene, including ex lion lb of annual production. pansions and closings expected in 1998. In its November 1997 an nouncement, BASF said, "These continues, "While styrene margins have actions reflect highly unsatisfactory mar been poor, most people thought they ket conditions and the industry's rapid would be even lower by this time than shift to a manufacturing model character ized by modern large-scale facilities." they are." At the same time, however, BASF is add In response to the poor market condi tions, Nova, Huntsman, and BASF have an ing polystyrene capacity at its two remain nounced closures of production facilities, ing manufacturing sites in North Ameri-
Dow Chemical is the largest North American polystyrene producer
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ca—Joliet, HI., and Altamira, Mexico. The Joliet site will be expanded from 520 million to 760 million lb per year in thirdquarter 1998. The plant in Altamira began production in July 1997, adding 315 million lb of annual capacity in North America. BASF notes that the product from this plant is for both the North and South American markets. BASF's switch from smaller production sites to large-capacity lines reflects a change in the polystyrene production dynamics that is also occurring in other plastics industries. A difference for polystyrene is that its market cannot handle the capacity as well. "The polystyrene market is slower growing and smaller overall than other polymers such as polyethylene and polypropylene," says Huntsman. "The technology that is available today allows a single line to make 250 million to 300 million lb of product, which has a major impact on a market that only grows at 3% per year." The advantages of large-scale production versus smaller plants are still debated in the industry, primarily because the market is intermediate in size yet has steady but slow growth rates. Huntsman Corp. operates multiple plants located close to end-use markets and customers. "Our reduced transportation costs more than offset some of the scale differences of the larger lines," says Huntsman. "There is a trade-off between having the efficiencies of scale at one location and having a smaller scale but multiple locations closer to your customer base." In contrast, Korkmas at Fina maintains that its four-line, single production site with an annual capacity of 1 billion lb provides significant operating efficiencies that keep costs low. Dow is an intermediate case—its proprietary manufacturing technology provides incremental capacity expansion with rninimal capital investment. This allows the company to keep pace with the slow growth expected in North America, according to Dunn. Regardless of specific production size, producers are hoping that these closures will help stabilize prices and possibly support the 3-cent-per-lb price increase that was announced last month for Jan. 1. "The announced rationalization is a positive first step toward restoring the balance to the polystyrene market," says Huntsman. "It also supports what we have been telling our customers all along about the seriousness of the financial situation of the market." Both Fina's Korkmas and Nova's Greene
Fifty years of Styrofoam This year marks the 50th anniversary of Dow Chemical's Styrofoam brand, the world'sfirstextruded polystyrene foam product. Styrofoam has been manufactured continuously since the late 1940s, and it remains the leading product of its type in the world. Brand Products Styrofoam was introduced as an insulation material for the construction industry, which continues to be the dominant application today. Other uses and densities. Styrofoam is made from that take advantage of the product's ri- crystal polystyrene using hydrochlogidity and high thermal and water re- rofluorocarbons as blowing agents. Dow is celebrating this anniversary sistance include marine applications, low-temperature warehouses, and floral with the launch of a new logo for Styrofoam brand insulation. The logo retains arrangements. "While the basic characteristics have the familiar blue color of the original remained," remarks John Somerville, and incorporates a skyline of commerDow's commercial director of North cial and residential buildings that deAmerican building materials, "we have picts its primary market. Also in 1998, Dow will begin a fourinvested 50 years of research, development, and marketplace input to contin- year program as the exclusive supplier ually come up with new technologies, of rigid foam insulation to Habitat for Humanity, International. In addition, applications, and variations." Currently, there are hundreds of Styro- the Dow Chemical Co. Foundation will foam products in use—varying in size, donate $1 million to Habitat affiliates in strength, edge treatment, facing options, each year of this program.
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add that recently announced price increases for styrene may help to bolster support for the polystyrene increases. However, Greene says, "there is some push back from customers on this. Some customers are questioning the timing around the increase, because they may not be able to pass it along to their customers." Consultant Meador is less optimistic about the price increase, noting a failed attempt last summer. "The 4-cent-per-lb increase nominated in June 1997 was pushed back, and finally it just disappeared because the supply-and-demand fundamentals were against the hike. I do not have much optimism about the full 3-cent-per-lb January increase. Producers will have to wait until the curtailed production from the closures removes some of the excess product from the market." Meador also reports that December contract prices continue to show some erosion, and prices for off-grade product—often a leading indicator for prime material—declined 1.7 cents per lb from November to December. Another issue that concerns polystyrene producers is the uncertainty of the export market. This has become an increasingly important market for polystyrene, with SPI estimates showing a 15% increase from 1996 to 1997 to 8.6% of the sales and captive-use market. In addition, the recent Asia-Pacific financial crisis was not fully considered in many industry estimates of exports, and the extent of its impact is unclear (C&EN, Dec. 15, 1997, page 18). The export market was stagnant in the fourth quarter, according to Meador, and few producers expect much improvement in 1998. Market analyst Kuhlke strongly cautions that the export market will be poor in 1998. He notes that differences in endof-year prices between the U.S. and Asia, which he estimates at 35 cents per lb in the U.S. and 30 cents per lb in Asia, will reduce most of the overseas opportunities. "Shipping product to Asia will be very tough in 1998," says Kuhlke. "I expect exports to take a dive in 1998. Then where will producers move that extra product, especially if the U.S. market slows?" It looks like 1998 will be a difficult year for polystyrene producers, but they are in control of their own fate. "A price increase will be an uphill battle for producers," says Meador. "It will be interesting to see how disciplined producers will be and whether they will actually walk away from business if they cannot get the price they seek."4
