For the first time in more than two years, Nova Chemicals Corp.'s Styrenix business has posted a quarterly profit.
Pittsburgh-based Nova also has joined with Ineos Group in appointing polystyrene industry veteran Kevin McQuade as chief executive officer of Nova Innovene, the international styrenics joint venture between the two firms.
Nova and Ineos announced in late March they were expanding Nova Innovene to include both companies' North American assets. The venture was launched in 2004 between Nova and British Petroleum plc and initially only included European assets.
The venture will match a similar recent arrangement between Dow Chemical Co. and Chevron Phillips Chemical Co. LP as North America's largest PS makers, based on estimated annual sales. Both ventures will have market shares of about 32 percent.
In the first quarter of 2007, Styrenix - including styrene monomer, North American PS and Nova's share of Nova Innovene - rang up a $15 million profit on sales of $550 million. The unit had lost $37 million in the same quarter in 2006 and hadn't been profitable since the third quarter of 2004.
The improvement came even as North American PS showed an operating loss of $7 million, which was $3 million less than its first-quarter operating loss last year. North American PS sales volume in pounds showed healthy growth, climbing 16 percent to 210 million pounds vs. the same period in 2006.
In a news release, Nova officials said the improvement in solid PS was a result of higher selling prices, lower fixed costs and lower depreciation expenses, which were partially offset by higher feedstock costs.
Nova's polyethylene business also enjoyed a solid quarter, showing operating income of $6 million as sales volume in pounds grew almost 9 percent to 801 million pounds. That business had lost $2 million in the first quarter a year ago. Overall, Nova posted first-quarter profit of $44 million on sales of $1.5 billion.
``We saw a sharp improvement in overall business results in March, which we expect to carry over into a strong second quarter,'' Jeff Lipton, Nova president and chief executive officer, said in a news release.
McQuade has spent most of his 25-year career in the PS market, including stints with Mobil Corp. and BASF Corp. He joined Ineos when the Lyndhurst, England-based firm bought BASF's North American PS business in 2005. Later that year, Ineos bought BP's polyolefins and olefins business in a $9 billion mega-deal.
McQuade currently serves as CEO of Ineos Styrenics. He'll be joined on the Nova Innovene management team by Martin Pugh, who will be managing director of the unit's European business. Pugh currently is managing director of Nova Innovene.
Rounding out the Nova Innovene executive lineup is Chris de la Camp, who will be chief financial officer. He's currently Nova Innovene's finance director.
The expanded Nova Innovene joint venture - expected to launch formally in the third quarter - is anticipated to have annual sales of $3.5 billion and create annual cost savings of $40 million.
In a telephone interview, McQuade said the expanded Nova Innovene venture ``makes sense for both companies and for our customers.''
``The positive thing is that we all recognized that this has been a very tough industry for the last couple of years and that something had to be done,'' McQuade said. ``Margins had been squeezed for both Ineos and Nova.
``But with the [joint venture], we can reduce our cost base and make ourselves more competitive vs. materials like polyethylene and PET. We can find logistical advantages and lower transportation costs. The price of benzene [feedstock] has caused us a lot of difficulty, so we need to look at other production methods to reduce our costs.''
Industry contacts said capacity reduction could result from the expanded venture. Last year, Nova closed a 300 million-pound-capacity PS plant in Chesapeake, Va.; and Dow closed a similar-sized plant in Sarnia, Ontario.
McQuade said comments made by Nova Innovene officials in a news release - about participating in ``necessary industry consolidation'' - were in reference to the venture's overhead structure. But he added that ``everything's on the table'' as the expanded joint venture comes together.
``We're going to take a look at our strategy and at what overlaps we might have in production,'' McQuade said.
Moving ahead, McQuade said new benzene capacities being added worldwide in the next several years could offer the PS market some relief, and allow the product to return to a gross-domestic-product-level growth curve.
``There's growth in our end markets, and polystyrene processes better than a lot of competing materials,'' he said. ``It's still the best material for a lot of applications.''
The PS market has struggled in part because of high prices of benzene, a chemical feedstock used to make styrene monomer. Benzene prices were under $1.25 per gallon for an extended period, but have bounced between $2 and $4 per gallon since 2004. As a result, North American PS prices now are 40 percent higher than they were in January 2004.
The increases have allowed lower-priced plastics to take market share away. U.S./Canadian PS sales for 2006 were down 3 percent vs. 2005, according to the American Chemistry Council in Arlington, Va.
News of the positive quarter sent Nova's stock soaring almost 12 percent - from $30 per share to $33.50 - on April 25. It had started the year around $29. The stock closed April 26 at $32.90.