Polystyrene buyers are facing a not-so-sweet 16 in August.
That's the amount in cents per pound that most North American PS makers will be seeking in price increases during that month. Across the board, producers are blaming never-before-seen highs in prices for benzene, a feedstock used to make styrene monomer.
``We're seeing unprecedented feedstock costs,'' said Chris Pappas, styrenics president for PS maker Nova Chemicals Inc. of Pittsburgh.
``Prices for polymers have been moving up in the last nine months or so, but margins have been nonexistent. The price increases have been made just to keep pace with feedstocks.
``Benzene has been on a record tear,'' he added. ``Our goal in the immediate future is to secure enough benzene so our needs are met.''
After being under $1.50 per gallon for much of 2001-03, benzene prices cracked the $2 mark earlier this year and continued rising, with July contract prices settling at $3.07. Spot prices were flirting with the $4 mark in late July.
``Benzene at $3.07 is atrocious,'' said Jeff Denton, PS marketing manager for Dow Chemical Co. of Midland, Mich. ``Then it's hit $4 in the last five to seven days. And when you look at increased demand for benzene and styrene monomer, it could lead you to believe that the situation could continue for some time.''
Dow, Nova and North America's three other major PS makers - BASF Corp. of Mount Olive, N.J., Atofina Petrochemicals of Houston and Chevron Phillips Chemical Co. LP of Houston - all are net buyers of benzene. Nova said it can supply about 20 percent of its benzene needs internally, while industry estimates of the benzene integration levels of other PS makers range from 10-60 percent. North America's major merchant benzene suppliers are ExxonMobil Chemical Co., BP Chemicals, Shell Chemical Co. and Equistar Chemicals LP.
Benzene is a relatively small part of the product stream coming out of oil refineries, and no new refining capacity has been added in North America for at least 10 years. In addition, some older benzene capacity was taken out of use in 2000 and 2001. Short-term outages in North America, Europe and Asia also have tightened the benzene market.
``It's all cost push,'' said Kevin McQuade, BASF's PS business director. ``We understand the issues our customers are having [in raising prices for their products], but the rise in benzene has been so extreme that we have no choice but to pass it on.''
PS makers already have attained an average of 10 cents per pound in price increases in 2004. Going back to the start of 2003, a net gain of 18 cents per pound has been secured.
On injection molding grades of high-impact PS, that means prices are up an average of 16 percent since the start of 2004 and 33 percent since the start of 2003, according to the Plastics News resin pricing chart.
If all 16 cents takes hold in August, the market will see a one-month price upswing of roughly 22 percent.
``The real push-shove is going to be between the Wal-Marts, the processors and the consumers,'' said Pat Duke, a PS analyst with DeWitt & Co., a consulting firm in Houston. ``But until feedstocks come down, the derivatives part of the industry has to deal with higher prices.''
PS makers are working the August hikes as follows:
* Aug. 1 - 4 cents for Nova and Chevron Phillips; 6 cents for Dow and BASF (4 cent hikes plus removals of 2 cent temporary voluntary allowances); and a 2 cent TVA for Atofina.
* Aug. 16 - 12 cents for Nova; 10 cents for Dow, Atofina and BASF.
* Aug. 18 - 10 cents for Chevron Phillips.
Chevron Phillips had not issued a decision on its earlier 2 cent TVA, sources said.
Proof of the challenges facing PS makers can be found in Nova's first-half financial report. Although the firm's styrenics sales - including styrene monomer - were up 30 percent to $992 million, the unit had an operating loss of $47 million. In the same period last year, Nova's styrenics business lost $61 million.
Nova's sales volumes in pounds for solid and expandable PS increased almost 8 percent to 1.1 billion pounds in the first half.
North American PS demand growth was positive in the first five months of 2004 and could be even higher by the end of the year, industry officials said. U.S./Canadian sales of solid and expandable PS were up 2 percent through may, according to the American Plastics Council in Arlington, Va. PS makers said total 2004 growth should be in the range of 3-4 percent.
PS accounted for much of that growth, with domestic sales up almost 11 percent.
PS sales into the building and construction market also were up almost 13 percent, while sales into the dominant food-service sector - which accounted for almost 36 percent of January-May domestic sales - were up only 1 percent.