Major polystyrene makers have made a move to improve poor profit margins by announcing 3 cent-per-pound price increases effective Jan. 1.
The increases were announced early last week by Dow Chemical Co. of Midland, Mich., BASF Corp. of Mount Olive, N.J., Huntsman Corp. of Salt Lake City, Fina Oil & Chemical Co. of Dallas and Nova Chemical Co. of Calgary, Alberta.
``We've had several months of deteriorating prices and margins, but we've seen above-average demand in the last few months,'' Huntsman PS marketing director Bill Brengel said in a Dec. 4 telephone interview. ``We're really pleased with both high-heat and general-purpose demand. They're both growing at a faster pace than what the historical pace has been.''
North American PS sales through September showed a 5.6 percent increase over the same period last year, according to the Society of the Plastics Industry Inc.'s September report. PS production was up 8.6 percent in the same period, according to Washington-based SPI.
But the PS market has struggled to show similar gains in pricing, which has dropped an average of 4 cents since midsummer. Previous price increases scheduled to go into effect in early August were pulled back because of strong buyer resistance, which many industry officials chalked up to a reaction to new capacity brought on by Chevron and BASF.
The new increases may have better chances of going through because the PS market's seasonal pattern is shifting, according to Nova market intelligence leader Steven Cummings.
``We're seeing sales being more consistent from month to month and less seasonal,'' Cummings said Dec. 4.
``Most food packaging and disposables used to be sold for summertime use, so the market would fall in October, November and December. But with changes in lifestyles, more and more food is take-out and convenience food. You don't have to go on a picnic to use it.''
The perception of recent plant closings and capacity reductions by BASF, Huntsman and Pittsburgh-based Bayer Corp. — which combined will remove almost 400 million pounds of capacity from the market — also could boost the increases, several industry officials said.
The closings ``could provide an opportunity for reduced inventory levels in the industry,'' said Brengel, who added that inventory days have fallen from the mid-50s to the high 40s in recent months.
Bob Koaches, PS product manager for Dow, said industry response to new capacity may have been an overreaction, since those additions will not hit the market all at once.
``The net addition will be about 200 million pounds, the equivalent of a single train in this industry,'' Koaches said. ``That changes the outlook somewhat, but it won't all be seen this year.''
Dow's reasoning for the increase attempt echoed that of its competitors.
``Pricing is just terrible,'' Koaches said. ``If it doesn't improve it will be difficult for companies to maintain the investment they've made in the product.''