The styrenics market hasn't been good to Dow Chemical Co. and Nova Chemicals Corp. for some time - and it now appears that both firms are approaching the breaking point with their troubled businesses.
In a Jan. 25 conference call, Dow Chairman and Chief Executive Officer Andrew Liveris said the Midland, Mich.-based firm ``has decided to seek and implement a new model'' for both its polystyrene and polypropylene units.
``This decision underscores our seriousness to upgrade our portfolio and pursue our light asset strategy,'' Liveris said. ``Our goal is to better compete in these dynamic businesses. ... We will work with partners who offer added strengths, such as further back-integration in feedstocks or expanded geographic presence.''
Pittsburgh-based Nova followed that on Jan. 31 by announcing a write-down of almost $800 million on the value of its styrenics assets, including PS and styrene monomer. Nova spokesman Greg Wilkinson described the write-down as ``a noncash accounting charge.'' In a Jan. 31 news release, Nova President and CEO Jeff Lipton said the write-down ``clears the decks for action.''
Nova unit Styrenix lost $152 million in 2006 even as sales rose 13 percent to $2.1 billion. Sales volume in pounds was down almost 3 percent. The unit lost about $700 million from 2001-05.
In June, Nova officials said they were considering a sale, joint venture or spinoff of the styrenics business. Wilkinson said Feb. 1 that a joint venture now is considered the best option. He added that the firm was approached with more than one acquisition bid in late 2006, but the terms weren't acceptable.
Dow is the world's largest PS maker, with global capacity of about 4.2 billion pounds; Nova is fourth with about 1.7 billion pounds. In North American PS sales, Dow has a 22 percent market share, tied for the top spot with Nova.
PS has been hampered in recent years by high prices for benzene feedstock, and benzene supplies have been limited by lack of new oil refining capacity and by the placement of much created benzene into fuel markets.
Both Dow and Nova buy large amounts of benzene from outside markets and as a result are subject to changes in price.
Market watchers said there's a possibility the two firms could partner the struggling styrenics units. If that happens, the combined entity would have a sales-based market share of almost 45 percent in North American PS. But the likelihood of such a deal isn't supported by all in the PS field.
Peter Feng, styrenics director with consulting firm Chemical Market Associates Inc. in Houston, said he isn't sure what a merger of Dow's PS unit with Nova's or another firm's would accomplish.
``If you combined [Dow's PS business] with someone else's, you could close down some capacity and improve supply/demand dynamics, but you're still limited by the same factors,'' Feng said. ``Mainly, the price of benzene has become too high.''