Styrenics Markets impacted further by Economic Downturn
The Styrenics industry has faced difficult market conditions over the last few years, even as other industries achieved peak margins. Producers have struggled with a shrinking market caused by aggressive substitution of the key derivative polystyrene. Now even further pressure is being felt by producers as strong growth sectors such as EPS, ABS and SBR are impacted by crisis in the construction and automotive sectors.
The trend towards consolidation has advanced significantly in recent years, but is expected to continue given the poor economic outlook and pressure from new and increasingly competitive plants in the Middle East and Asia Pacific. Mergers have occurred not only horizontally, to lower costs and consolidate the supply base, but also vertically to improve integration with feedstocks.
Major mergers include INEOS NOVA in North America and Western Europe, Americas Styrenics in North America, Synthos in Central Europe, and LyondellBasell around the world. INEOS’ acquisition of the ABS business from Lanxess gave INEOS a broader styrenics portfolio, but also gave the ABS business access to INEOS’ acrylonitrile, styrene and butadiene. Dwory and Kauchuk merged to form Synthos, while Kauchuk previously purchased styrene and butadiene from Dwory.
Producers have also attempted to exit the styrenics business. Huntsman’s exit is almost complete, following the sale of most of its business to Flint Hills Resources, and the closure of much of the remaining capacity. The business of BASF remains for sale. Dow’s “asset light” strategy and recent partnering of other major commodity businesses suggests that it would also consider the whole or partial sale of its styrenics business. In Japan, earlier consolidations which formed two joint ventures – PS Japan, and Japan Polystyrene – proved insufficient, and all units are now likely to be closed. Mitsui Chemicals and Sumitomo Chemicals will halt two polystyrene plants and dissolve their Japan Polystyrene joint venture by end 2009, while Mitsubishi is anticipated to sell its shares in PS Japan to partners Asahi Kasei and Idemitsu Kosan and shutdown its last styrene plant by 2011.
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STYRENE
While styrene consumption growth has slowed considerably in recent years, 2008 was the first time in at least twenty years that the market actually declined. The main derivative polystyrene has shown minimal growth since 2000 as a result of inter-polymer competition and consumer behaviour changes. The styrene market as a whole however continued to grow during the period of sustained economic growth over 2001-2007. ABS demand benefited from strong growth in automotive and electrical/electronics sectors, and EPS demand was driven by the construction sector.
Part of the decline in 2008 was due to destocking at all points in the value chain when prices collapsed late in the year. Part of the contraction was however genuine demand destruction. The automotive and construction industries globally are responsible for much of the recent growth in styrene demand, but now appear to be hardest hit by the economic downturn.
Although polystyrene has declined globally since 2005, it remains the largest styrene consumer. Among other the derivatives, demand into EPS has accelerated at the highest rates, driven by protective packaging and construction sectors, and an increasing focus on energy conservation in buildings.
Styrene demand into ABS and SBR performed strongly over 2006-7, reflecting high economic growth and the development of automotive industry in developing regions. The economic uncertainty in developed economics led a widespread move away from vehicle purchases, leading to catastrophic losses for several western vehicle manufacturers. While the effect on ABS and SBR was most severe in these regions, the downturn was felt everywhere. Several Asian countries produce vehicles and automotive components for export, as well as consumer and household items for which demand has reduced.
Global Styrene Consumption, 2008, Estimate
Capacity development has recently been concentrated in Asia Pacific and the Middle East. Asia Pacific has been the largest production base since 1997 following huge capacity development in China, South Korea and Taiwan. Saudi Arabia has been the focus of capacity development in the Middle East, although Iran and Kuwait have also recently been active.
Styrene capacity development in the Middle East entered an active phase in 2008, following minimal activity over 2002-2007. Jubail Chevron Phillips started up a major plant in Saudi Arabia in 2008 , while TKSC (Kuwait) and Pars Petrochemical (Iran) both have major plant starts in 2009. Producers of styrene in the Middle East do not have the same level of competitive advantage as e.g. olefins producers, but benefits such as lower energy costs remain considerable in the current energy price environment. The limited availability of benzene has been a barrier to major styrene investment in the past, but increasing aromatics production from both steam cracking and reforming now allows major projects to go ahead. While benzene production is not particularly advantaged in the Middle East, competitiveness is supported by ethylene cost leadership.
Styrene capacity in Asia Pacific accounts for almost half of the global total. The capacity will continue to grow over the forecast period, but at lower rates than seen in the past. Most new capacity will be integrated with ethylene and benzene feedstock sources. Five million tons per year of capacity has been added during the past five years, mainly in China. There have been no new market entrants for some time in Japan, South Korea or Taiwan, but overall capacity has increased as the existing producers have expanded and rebuilt plants to improve their cost position.
POLYSTYRENE
Global polystyrene consumption in 2008 dropped back almost to its 2001 level. The negative effects of high and volatile styrene feedstock prices, competition from polypropylene, and consumer behaviour changes were compounded by the slump in demand in almost all sectors resulting from the global economic downturn.
The media closures sector has been hit by the increasing preference for digital music download sales, which have been growing at over 20 percent per year. The increase of digital music has severely impacted CD sales, and with it the use of polystyrene media enclosures.
There remain several GPPS applications with a strong growth outlook, for example in packaging and disposable cutlery. GPPS is also used to produce foamed polystyrene, so called extruded polystyrene (XPS). This is a good heat insulation material for floors, walls and roofs as, having a closed cellular structure, it does not absorb water. XPS differs from EPS in that it does not have a blowing agent dissolved in the resin, but is instead simply melted and blown using an agent.
In developed markets, the packaging sector is the largest application area for polystyrene, in such products as disposable cutlery, vending cups, egg trays, meat trays, salad boxes, soups bowls and hamburger clam shells. Its usage in food packaging has however stagnated, partly due to the increasing preference for paper-based products which are promoted as being more environmentally friendly. XPS has also faced sustained substitution pressure from competing materials such as polypropylene and PET, but there are some applications where polystyrene remains the polymer of choice.
Global Polystyrene Capacity Additions/(Closures)
Total Petrochemicals remains the largest global producer of polystyrene, while two new joint ventures, INEOS NOVA and Americas Styrenics (Dow/Chevron Phillips), take the second and third places respectively. Both of the mergers led to the rationalisation of some old and uncompetitive plants. BASF put a large proportion of its styrenics portfolio up for sale in 2007, including its polystyrene business, but is still looking for a buyer.
Total capacity of polystyrene in North America has declined steadily since its peak in 2002, and most of the closures have been made as part of cost reducing measures by the partners in the two new joint ventures. In Western Europe, almost half a million tons per year of polystyrene capacity have been closed over 2005-9 in the face of declining local demand and lack of competitiveness in export markets. Part of the closures came subsequent to the formation of INEOS NOVA, and part were carried out independently by Dow.
EXPANDABLE POLYSTYRENE
The dependence on the construction sector in North America and Western Europe provided several years of strong growth up until 2007. The construction sector however has been at the heart of the global financial crisis. The United States has seen a long period of excessive construction activity, creating housing stock that the population was ultimately unable to pay for. The residential construction industry is therefore faced with a potentially long period of low activity, while the market digests housing stock which remains unsold or unoccupied. Despite the drop in house prices, finance for house purchases has become more difficult to obtain, thus slowing the rate at which the excess housing inventory can be sold. The new housing market will therefore face a sustained period of low operations, before adjusting to a “normal” level somewhat lower than was seen over 2005-6. The construction market in Western Europe has slowed significantly, but only certain regions have a major overhang of unsold housing stock. While the regions share problems in the residential construction sector, both will also see strong demand for EPS to improve the energy efficiency of commercial property. New builds of all kinds will have a higher content of insulation products such as EPS in order to meet new energy efficiency targets.
The Asia Pacific EPS market is around half of the global total. Demand in packaging applications face ongoing substitution pressure from various products, ranging for polyethylene foam to paperboard. Demand in the packaging sector depends on demand for exported goods, and therefore depends to some extent on the condition of the developed economies. The ongoing high GDP growth rates around the Asia Pacific region and other trends such as urbanisation and increasing uptake of electrical appliances will support local EPS end use demand, and thus provide a robust growth outlook.
EPS will remain the fastest growing of the major styrene derivatives, supported by ongoing efforts to reduce energy consumption in buildings. The packaging sector will benefit from the increased consumption of electrical and electronic appliances by the growing middle classes in regions such as Asia.
Global EPS Capacity Additions
Almost three million tons of EPS capacity has been added in Asia Pacific since 2000, accounting for over 80 percent of global capacity addition. Developments in China accounted for over 90 percent of the Asia Pacific total, and have massively outstripped consumption growth.
Unlike styrene and GPPS/HIPS, the EPS market is dominated by regional rather than global players. Six of the ten largest producers globally are Chinese, with Loyal Chemical being the market leader, followed by Chinese Wuxi Xingda Group. Almost a quarter of global capacity is held by three Taiwanese companies; Loyal Chemical, Ming Dih Chemical and Taita Chemical while BASF, a global player, holds seven percent after the expansion at Ludwigshafen.
Acrylonitrile Butadiene Styrene (ABS)
Global ABS demand has been under pressure from inter-polymer competition, especially from polypropylene and lately polystyrene, which are competing particularly at the lower-specification end of the automotive sector. Recent development in high gloss polystyrene is a new threat for ABS for decorative parts. However, ABS remains the material of choice in most applications in the key electronics/electrical appliance sector, due to its mechanical properties, high gloss and processability.
Although ABS consumption is forecast to grow at slower rates over 2009-2018 after the recent economic downturn, it will be one of the key drivers for styrene market growth during the recovery of the economy, with long term sustainable growth supported by the electrical appliance and automotive sectors. Asia Pacific, particularly China will remain the largest consuming region with an increasing proportion of the global consumption. Central Europe is expected to grow to balance the slowdown in the Western Europe.
Regional ABS Consumption
Styrene Butadiene Rubber (SBR) Demand
The tyre industry consumes 75 percent of the SBR produced globally followed by the mechanical rubber goods/automotive parts applications (19 percent of the market). Footwear accounts for only around six percent of the SBR market. The main use of SBR is in the manufacture of tyre tread, and consumption is forecast to develop in line with the automotive sector.
The production of auto tyres is increasingly competitive and cost sensitive. Consequently, the manufacture of tyres and other rubber goods has tended to migrate to lower labour-cost areas, depressing market growth in developed regions such as Western Europe, the United States and Japan. Exports of finished rubber goods, primarily tyres, from regions such as China to the United States and Europe have increased dramatically over the last five years, leading to the closure of a number of tyre plants in the importing regions. Flourishing automotive sectors in China, India, and Thailand have also increased demand in the Asia Pacific region.
Global SBR Capacity Additions/(Closures)
Report Availability
The report “Petroleum and Petrochemical Economics (PPE) – Styrenics Market Dynamics” is published by Nexant as part of its ChemSystems PPE program. Subscriptions or single copies of the report are available from www.chemsystems.com. For further details please email chemsystems@nexant.com. If you have any comments on the analysis, please contact Stewart Hardy ( shardy@nexant.com).
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