The economic slowdown in Asia and Europe is having a devastating effect on the styrene-derivative market.
During 1993-97, polystyrene demand grew nearly twice the rate of the world's gross domestic product (GDP). Expandable polystyrene (EPS) demand grew at three times the GDP.
For the 1997-2003 period, however, the polystyrene demand growth is expected to fall to about 1.5 times the GDP, and the demand growth for EPS is expected to fall to about two times the GDP.
Today, the polystyrene and EPS industries are in the midst of a down cycle.
These are the conclusions of the World Polystyrene/ EPS Analysis conducted by Chemical Market Associates Inc. (CMAI), Houston.
Market
In 1997, 38% of polystyrene resin applications were used for packaging. Most packaging use is accounted for by food packaging in mature markets in developed nations.Electronics and appliances made up about 32% of the total polystyrene use in 1997.
Of all end uses, CMAI expects the packaging sector to enjoy the highest growth rate.
In 1997, 36% of all EPS applications was for packaging. Construction and building products accounted for 49% of the use. Strong world economies during 1993-1997 translated into an increase of 11%/year of EPS demand in the construction and building sector during this period.
World demand
Economic problems around the world led to a decline in polystyrene and EPS demand in 1997.In 1997, world polystyrene demand was 9.7 million, which reflects a dismal 0.5% annual growth. For EPS in 1997, world demand increased by only 1.4%, or to 2.5 million tons.
Fig. 1 [87,635 bytes] shows regional contributions to world polystyrene and EPS demand.
Northeast Asia can be blamed for most of the weak demand of these two resins. China, however, was the exception. Its demand is expected to increase by 6%/year for polystyrene and by 5%/year for EPS between 1997 and 2003.
By 2003, CMAI expects the world polystyrene market to surpass 12 million tons, an annual demand growth of about 3.6%. EPS demand is expected to reach 3.1 million tons in 2003.
Profitability
Polystyrene profitability will be compromised by excessive capacity additions in the future. Fig. 2 [47,211 bytes] shows that capacity additions will exceed demand growth until 2001.Over 2.4 million tons are scheduled to come on line during the 1997-2000 period, while demand is expected to increase by only 1.2 million tons. Beginning in 2001, this trend reverses, and demand growth is expected to exceed capacity additions.
Although the Asian currency crisis exacerbated polystyrene unprofitability in 1997 and 1998, CMAI said that the margins would have been squeezed anyway, as a result of overcapacity.
The Asian region suffered most from polystyrene unprofitability. North America had weak profits as demand decreased in 1998.
Of the major regions in 1998, West Europe enjoyed the best conditions as demand was the strongest, and margins were "okay" in the early part of the year. The poor conditions in Asia, however, resulted in increased imports and lower prices, which hurt overall profitability.
EPS capacity additions, on the other hand, will exceed demand only twice in the 7-year period.
In these poor conditions, companies are expected to increasingly turn to rationalization, mergers, and acquisitions to maximize profits and reduce the effect of low margins.
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