Feedstock costs, demand strength send prices higher
Gordon Graff -- Purchasing, 8/17/2004 2:00:00 AM
Prices of acrylonitrile-butadiene-styrene (ABS) plastics have been going up in stepwise increments this year in response to escalating raw materials costs. But ABS producers still complain of anemic margins and say further hikes in tags for the resin are likely. Demand for ABS remains strong, especially in the construction and transportation sectors. However, growth of the resin in the Asia-Pacific region far outpaces expansion elsewhere.
SUPPLY: Imbalance shrinks
There is currently overcapacity in the ABS market in North America, but supplies of the resin have "tightened considerably" since the third and fourth quarters of last year, says Jay Richey, vice president and general manager for styrenics in the NAFTA region at Lanxess, the newly created Bayer division that will be spun off as a separate company at the beginning of 2005. This tightening, he adds, reflects unexpected outages and limited availability of raw materials, rather than mothballing or closures of plants by ABS producers. A spokesman for Dow Chemical, another key ABS producer, agrees that "there appears to be an oversupply situation" for ABS in North America.
The current ABS operating rates in North America is around 75%, according to Dow. But Richey estimates that ABS operating rates in the region have risen by 10% to 15% in the past year.
The largest producers of ABS are BASF, Dow, Bayer/Lanxess, GE Plastics, Polidux and Polimeri Europa. The resin is made with about 50% styrene and varying amounts of butadiene and acrylonitrile. The main ABS production processes are emulsion, suspension and continuous mass polymerizations. Some ABS plants have swing capacity that allows them to make polystyrene as well. Most ABS is made for the merchant market.
DEMAND: Booming in Asia
The ABS business is quite healthy, producers report. Dow says that its overall ABS demand in the second quarter of this year was "outstanding" and third quarter demand "continues to be strong." Richey cites construction (profile extrusions, siding, home spas) and nonautomotive transportation (RVs, trucks and buses) as two particularly robust ABS outlets.
Worldwide, ABS is growing at 4%-5%/year, says Richey. But in North America and Western Europe, he estimates annual growth only in the 1%-2% range, while in the Asia-Pacific region, he pegs the yearly increase at 5%-8%. He expects these growth trends to continue at the current levels "for the next several years."
About five million tons of ABS are consumed worldwide, according to a 2003 estimate by SRI Consulting. Transportation, piping, electrical and electronic, and medical products account for the largest segments of ABS usage. The resin also finds many niche applications in toys, home and garden products, and bath and shower fixtures. ABS is frequently blended with other polymers, such as polycarbonates, to improve the balance of heat and impact properties. About 62% of ABS consumption is in Asia, 17% in North America and 17% in Western Europe, the SRI figures show.
Producers say ABS has gradually evolved from a specialty plastic into a commodity, where margins are low and growth rates modest. To cope with the trend, BASF announced in June that it would pare its former portfolio of some 1,500 ABS products down to less than 10 products that will be manufactured "cost effectively in three highly efficient plants" in Europe, Asia and North America. But Richey says Lanxess intends to develop new specialty extrusion applications for its ABS, particularly in construction and transportation, though it will remain committed to the commodity end of the business.
PRICING: No letup in hikes
This year has witnessed a steady drumbeat of price increases by ABS producers (see chart). The pattern is continuing. Dow, for instance, has announced two back-to-back 10¢/lb increases for ABS, effective August 1 and 15.
Despite the higher tags, producers of ABS say the business continues to be under strain. "Our margins are severely squeezed by the rapid increase in raw materials prices," says Richey. The price of benzene, a feedstock for ABS and other styrenics, rose to $3.08/gal in July "and is anticipated to increase further." (Benzene sold at $1.85/gal as recently as January.) Prices for other ABS monomers are mushrooming. Butadiene prices, for example, roughly doubled in the 18 to 24 months ending in March, 2004, observed Brett Simpson, global products director for copolymers at Dow, earlier this year.
In addition to the increased feedstock costs, "a very strong demand so far this year, in alignment with the recovering economy" is also forcing ABS prices upward, notes the Dow source. The stepped-up ABS tags have allowed Lanxess to recover some of the extra costs it has had to shell out for raw materials, says Richey. But margins in ABS continue to erode, he says, because feedstock rates have been rising steadily this year. As a rule, says Richey, prices for ABS have moved up or down in tandem with raw materials costs.
As for the future, "we can't predict exactly what will happen with ABS prices," says the Dow spokesman. "But signs do indicate that with increasing demand and high materials costs, prices may continue to rise."
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