AKRON, OHIO — A 3 cent price increase has taken hold in the polystryrene market as producers look to rebuild margins that were seriously eroded in 1997.
Buyers' initial resistance to the Jan. 1 increase gave way to acceptance as major suppliers refused to budge.
``The margin situations were destroying the market,'' a major Pennsylvania-based PS buyer said. ``Nobody was making any money.''
One executive at a PS supplier added, ``The pain had gotten unbearable.''
Before the ink had dried on those new invoices, some major PS producers, including Dow Chemical Co., BASF Corp. and Huntsman Corp., already had used the success of the hikes to announce a new round of 3 cent price increases, effective April 1.
PS officials said the urgent need for margin improvement was the biggest factor that pushed the Jan. 1 increase through while two similar attempts failed last year.
``Prices had fallen to the point where no one was able to sustain any reinvestment economics in the business,'' said Dow PS business manager Bob Koaches. ``[The increase] just had to happen.''
``The biggest thing was that overall profitability was not acceptable,'' added Wade Little, PS sales manager for Chevron Corp., of Houston. ``Most producers posted operating losses in 1997.''
But Little added 1997 was still a very strong demand year in PS, as growth rates of 6.8 percent were nearly double what experts and analysts had predicted at the start of the year.
This growth carried through the end of the year as December demand outpaced November for the first time in at least six years, according to Little.
Packaging items topping the PS growth list are single-serve and carryout containers and cutlery, as well as oriented PS used in cake domes, cookie carriers and salad containers.
The increase went through in spite of dropping feedstock prices. Styrene was under ``severe downward pressure'' in January, while benzene prices slipped as much as 30 cents that same month, according to Jean Meador, a consultant with Houston's Phillip Townsend Associates Inc.
``Everything is against the hike,'' Meador said. ``Suppliers must have presented their cases very well.''
Although Chevron has not announced an April increase, Little said two sets of factors could influence the new attempt. Potential softening in styrene prices could work against it, while traditional second-quarter sales increases — prompted by business at amusement parks, baseball parks and fast-food chains — could increase its chances for success.
Several buyers contacted recently said the soft raw materials situation caused them to doubt how long the first 3 cent increase would last.
``We might be getting some of that back in the spring,'' a New York-based buyer said.