HOUSTON (April 14, 10 a.m. EDT) — When faced with the challenge of the North American polystyrene market, industry executive Peter Sykes went down an elevator shaft, while industry consultant Alex Lidback went golfing.
Let's start with Sykes.
Speaking via teleconference from Dow Chemical Co. headquarters in Midland, Mich., Sykes told attendees at DeWitt & Co.'s World Petrochemical Review in Houston that PS makers have to “reconsider price protection” given to their customers, in light of the speed with which feedstock increases hit PS makers.
“Nobody likes to pay higher prices, but unless [PS makers] get better prices, we won't be able to invest in additional plants and product development will diminish over time,” said Sykes, who is North American commercial director for Dow's PS unit.
“Price protection is given when prices are rising, but not in a falling price environment. It's like going up an escalator and down an elevator shaft.”
Sykes identified a pair of problems plaguing the industry both in North America and around the world. The first is overcapacity, which he estimates at almost 500 million pounds in North America and 650 million pounds in Japan. Latin America and Southeast Asia each have twice as much PS as they need, based on current demand.
The other factor is an increased expectancy among PS buyers and consumers of flat or decreasing pricing. This “everyday low price” mentality — ushered in by American retailers Wal-Mart, Home Depot and Kroger and European retailers like Carrefour of France and Ahold of the Netherlands — has put PS makers in a “pinch point,” where increases in raw materials have wiped out productivity gains.
As for the golfing Lidback, he compared recent PS and styrene monomer history with the “Amen Corner” — the very difficult 11th, 12th and 13th holes at Augusta National Golf Course.
The PS/styrene market went through its own Amen Corner in the past several years, with several producers leaving the field, but things are looking a little better as they finish the round on holes 14 through 18.
U.S. PS operating rates should surpass 80 percent in 2004 as after-tax returns — which had been under 5 percent — climb above the 10 percent mark, said Lidback, a consultant with Chemical Market Associates Inc. in Houston.
But PS makers must be wary of competition from paper and glass in the food-service sector. New competition could arise if higher PS prices lift prices for finished goods, Lidback said at his firm's World Petrochemical Conference, held March 26-27 in Houston.
For 2003, Lidback anticipates U.S./Canadian PS domestic demand growth of just over 2 percent. A sizable drop in export activity should drop overall growth to slightly less than 2 percent.
The industry achieved part of the goal set by Dow's Sykes when it advanced a 4 cent-per-pound energy surcharge in early March. That move combined with a previously announced 3 cent February increase to boost prices an average of 10 cents per pound to date in 2003.
BASF Corp. of Mount Olive, N.J., also helped lessen the oversupply situation in February when it cut 12 percent of its North American PS.