HOUSTON — Nova Chemicals Corp.'s Ron Hornack and Vince Sinclair of Chemical Market Associates Inc. are upbeat about the fortunes of the polystyrene industry, but they're not quite on the same page where the industry's needs are concerned. Sinclair is calling for more industry capacity, while Hornack is endorsing a more cautious approach to allow suppliers to regain some of the profits they have been missing for the last several years.
"In North America, demand is clearly going to outstrip supply," Nova PS Vice President Hornack said at the Dewitt & Co. World Petrochemical Review, held March 28-30 in Houston. "Some capacity has been taken out of the market in the last couple of years and there's been no new capacity."
Calgary, Alberta-based Nova anticipates no new capacity in North America through 2004, although industry insiders expect BASF Corp. of Mount Olive, N.J., and Fina Oil and Chemical Co. of Dallas to announce expansions by midyear.
Even if those plans are enacted, Hornack said it would take 18-24 months for a new line to begin operating at an existing PS site and even longer for capacity at a new site.
At the same time, Nova expects North American PS demand to grow at a 2.6 percent annual clip through 2004, buoyed by growth in markets such as modified-atmosphere packaging and car cups used in fast-food promotions.
Hornack and Sinclair each expect North American PS operating rates to climb past 90 percent this year. Sinclair anticipates that increased demand and continued pressure from styrene prices will lead PS prices to increase until early 2002, at which point average prices would be more than 55 cents per pound.
But after that peak, the market's roller coaster ride will resume, with a precipitous drop that will send prices plummeting below 40 cents per pound by early 2003, they said.
While Hornack isn't strictly anti-capacity, he said it's more important for the industry to restore profitability before forging ahead with expansions.
"Anyone can add capacity," he said. "But when [PS makers] have been profitable, we've added capacity until we're not profitable."
Sinclair, a PS consultant with CMAI, argued at his firm's World Petrochemical Conference that "certain major markets" will need new capacity within the next three years.
Sinclair also expressed concern that surging styrene monomer prices, which helped push North American PS prices up an average of 13 cents per pound since January 1999, could be detrimental to the market by leading processors to look at less-expensive replacement materials.
Although Sinclair isn't throwing caution to the wind in recommending new capacity, he points out that capacity added in 1994 and 1995 has been absorbed by the market, but only after overcapacity led to major industry consolidation in North America and Europe.