The imminent start up of the first of a series of new cost advantaged Middle Eastern styrene units is expected to change the status quo in the styrene market, as per a report by Chemical Market Associates, Inc. (CMAI).
The Middle East's first unit has yet to start up, others are delayed and change in the market has already begun to accelerate with further announced joint ventures and closures. This study looks at how the styrene market will change as new low cost capacity starts up, older high-cost capacity shuts down and the demand profile for styrene evolves.
What changes can be expected as capacity grows in the Middle East?
The export market will see some changes over the forecast period with the commissioning of several feedstock-advantaged units in the Middle East. Including the delayed Iranian project, there is potential for up to 3.2 million metric tons of such capacity by 2012. This equates to almost 45 percent of the estimated total trade in styrene in 2007. Domestic consumption growth in the Middle East will make minimal inroads into this production potential. One could assume that since the Middle East will be the largest international player, it would set the global prices. However, CMAI consultants predict this will not be the case, since the Middle East is far from being the marginal supplier that tends to set the price. Asia will continue to be the driver for styrene demand growth as most derivative expansions and, more importantly, underlying demand growth is taking place within the region -- primarily in China. As evident in CMAI's 2008 World PS/EPS Analysis, EPS demand is taking charge on future demand growth for styrene and PS continues to suffer. Therefore, EPS in China is gaining influence on global styrene pricing and demand.
What effect has consolidation in the polystyrene industry had on styrene? Polystyrene is the largest styrene derivative but demand growth has recently stalled. The polystyrene industry has consolidated in some regions (mainly the developed markets) and needs to consolidate in others (particularly Asia) to the point that the majority of supply is integrated back to styrene. This means that polystyrene's effect on the merchant styrene market, and specifically merchant styrene pricing, has diminished considerably. The marginal tons in the styrene spot market are not fought over by non-integrated polystyrene producers as they once were.
How will this impact North American styrene producers?
2007 has really been much better than expected for North American styrene producers as exports were much higher than expected. The strength in crude oil relative to natural gas made North American styrene once again competitive. How long with this last? Issues such as these are addressed in this analysis. Nonetheless, this didn't stop the merger and acquisition activity in 2007. This activity is rapidly transforming the North American styrene market. What happened this year alone is truly remarkable. The Ineos Nova joint venture officially started as a stand alone company and the Dow/Chevron Phillips joint venture is waiting in the wings. Acquisitions formed SABIC Innovative Plastics and LyondellBasell Industries is expected to be finalized in the fourth quarter. BASF Styrenics is for sale and the Nova-Sterling agreement, if approved, is expected to result in the shutdown of Sterling's styrene unit in Texas City. The supply/demand balances in the 2008 World Styrene Analysis include all of these supply-side changes. In this rapidly changing environment the frequently updated online data available as part of the study is an indispensable tool to keep abreast of such announcements and assess their impact.