And then there were three.
For the second time in less than a month, a major consolidation has hit the North American polystyrene market. The region soon will be left with only three major suppliers of commodity PS grades.
Dow Chemical Co. and Chevron Phillips Chemical Co. LP announced April 10 they would combine their styrenics businesses in the Americas. Midland, Mich.-based Dow will contribute six PS plants and one styrene monomer feedstock plant to the proposed joint venture. Chevron Phillips, based in The Woodlands, Texas, will provide one PS plant and one styrene plant.
The deal comes on the heels of a similar deal in which Nova Chemicals Corp. and Ineos group combined their North American styrenics businesses. Nova and Ineos previously had a similar arrangement in Europe.
A Dow/Chevron Phillips PS hybrid would have an estimated market share of 32 percent of North American PS sales, equaling the Nova Ineos JV. Prior to the combinations, Dow and Nova each had a 22 percent market share, while Chevron Phillips and Ineos each had shares of 10 percent. The third remaining major player is Total Petrochemicals USA Inc. of Houston, with a PS market share of 20 percent.
The PS market has been hammered in recent years by drastic increases in the price of benzene, a chemical feedstock used to make styrene monomer. Benzene had been priced under $1.25 per gallon for an extended period, but in 2004 prices shot up as high as $4. Since then, benzene prices haven't gone below $2 and recently were in the $3.20-$3.60 range.
As a result, profitability and expectations for PS have been crushed. Other materials such as ABS, nylon and polycarbonate have been affected as well, but not to the extent of PS. PS makers had to raise prices to compensate for the surging cost of benzene, resulting in today's per-pound prices being about 40 percent higher than they were in January 2004. The increase also has opened the door for polypropylene and other lower-priced materials to compete with PS.
The U.S./Canadian PVC market consumed more than 6 billion pounds of material in 2006, but sales were down 3 percent vs. 2005, according to the American Chemistry Council in Arlington, Va.
Officials with both Dow and Chevron Phillips said details were unavailable as far as potential sales or employee counts of the proposed JV. Information about executive appointments and headquarters locations also have not been decided.
The JV will include Dow PS plants in Gales Ferry, Conn.; Ironton, Ohio; Joliet, Ill.; Torrance, Calif.; Cartagena, Colombia; and Guaruja, Brazil; as well as a Chevron Phillips PS site in Marietta, Ohio. Styrene monomer will be made at a Dow unit in Camacari, Brazil; and at a Chevron Phillips plant in St. James, La.
Dow North American PS director Jeff Denton described the proposed JV - which should be official in the second half of 2007 - as ``a good deal for both sides and for our customers as well.''
``There will be significant cost benefits in the manufacturing and supply chains,'' Denton said in an April 11 phone interview. ``It will help balance styrene supply between the two companies and give more geographic reach.
``This will provide a very strong and broad product offering to the industry. There might be some overlap in high-volume grades [of PS], but both sides also have some unique products. This is going to be a very customer-centric organization.''
``Styrenics has been a very tough business, but we see Dow as a complementary partner,'' said Chevron Phillips spokeswoman Kammy Reece. ``We expect to realize manufacturing, commercial and feedstock synergies.''
Unfortunately for PS makers, conditions look challenging so far in 2007.
``Demand has remained relatively weak,'' Denton said. ``High costs are still hurting demand, and we're seeing additional interpolymer and intermaterial substitutions. When products move from polystyrene into paper, that's not good for anyone.''
But polystyrene's performance attributes provide hope.
``Polystyrene historically has been a widely used polymer with a tremendously efficient processing window,'' Denton said. ``It's easy to use and still has a lot to offer to the plastics industry.''
