Low growth and pressurized margins are likely to remain obstacles for North American polystyrene makers in 2002.
``Right now, the main thing is raw material costs,'' Scott Davis, vice president of Atofina Petrochemicals Inc.'s styrenics business, said March 22 in Houston. ``Styrene monomer can move up immediately, but since we give our customers price protection, we don't see [an increase] for a while.''
As a result of styrene jumps - as well as upward moves in PS feedstocks benzene and ethylene - the 3 cent-per-pound increase that's gone through to most PS buyers has not done much to improve PS makers' bottom lines. So PS producers have announced a second round of 3 cent increases set for April 1, said Davis.
Sales have picked up in early 2002, but as with other commodity plastics makers, PS producers are unsure if the uptick represents inventory building or actual new growth.
``January, February and March were strong when compared to typical sales for those months,'' Davis said. ``There was a little bit of pre-buying going on, but it could be May or June before we get an accurate picture as to how much [of increased sales] is restocking and how much is new.''
Atofina and other PS makers have their work cut out for them, coming off a year in which U.S./Canadian sales dropped almost 7 percent, according to the American Plastics Council in Arlington, Va. Sales into the food-service market - which accounted for more than 25 percent of domestic PS use in 2002 - were off 9 percent.
PS makers have idled some capacity and dropped their operating rates below 80 percent, but still will have to contend with 500 million pounds of new capacity coming up from Atofina in Carville, La. Davis defended Atofina's decision to add capacity, saying market conditions justified the move when it was announced in late 2000.
The new Carville capacity is running at more than 50 percent, but Atofina is limiting production to match sales, Davis said. Output on other PS lines has been reduced to offset the new material, he added.
Vince Sinclair, a consultant with Houston's Chemical Market Associates Inc. consulting firm, took a more severe look at PS expansions by Atofina and others, as well as the global and domestic PS market in general.
``You'd think people could find something better to do with the money, but there always seems to be some excuse for building polystyrene plants,'' Sinclair said at his firm's World Petrochemical Conference, March 20-21 in Houston.
The domestic and global PS markets are coming out of bubble-type demand similar to that experienced in the technology sector, Sinclair said.
``The U.S. certainly stands accused of being a major negative for the world PS market,'' he said. ``Its behavior over the last couple of years does fit with the bubble theory and, even with consumer spending remaining relatively strong, it has taken awhile to draw all the chain inventory down.''
Sinclair expects global and domestic PS demand to climb about 2 percent this year, although domestic operating rates could slide slightly from 77 percent to 76 percent.
Atofina's Davis also anticipates 2 percent growth in 2002, buoyed in part by increasing business in plastic lumber and other construction-related end uses.
``I'm more optimistic now than I was at this time last year,'' he said. ``Some customers are saying demand is flat, but quite a few are saying volume and demand are both good.''