Price hike won't stick
By Staff -- Purchasing, 1/14/1999
North American producers of polystyrene (PS) resins are looking to ring in the new year with a price increase, but weak export demand and a worldwide supply glut will continue to undermine polystyrene tags.Suppliers want to affix a price increase of 4¢/lb for January deliveries, but domestic buyers don't appear ready to pay any more than 32¢/lb for polystyrene resins. There is also no indication that export sales will pick up enough to tighten domestic supply. Twice this year, producers have announced list-price hikes, only to see transaction tags remain basically flat. Contracts for general-purpose-grade PS were flat at an average of 35¢/lb during all of 1998, and spot tags rose only 1¢/lb to an average of 32¢/lb with the third quarter. The export-stifling Asian economic crisis is helping keep supply loose and prices down.
Buyers say PS prices should remain fairly level for 1999. General-purpose-grade polystyrene will see spot prices remain at 32¢/lb through the end of '99. Contracts, which were running higher than spot prices last year, should actually slip down to spot levels--dropping from an average of 35¢/lb in the fourth quarter of '98, to 32¢/lb in the first quarter of this year, according to Purchasing's monthly chemical transaction price survey. Prices should stay at that level for the whole of 1999.
High-impact-grade polystyrene, which typically sells for several ¢/lb more than general-purpose grade, stayed level with spot tags at a quarterly average of 36¢/lb last year. Contract prices averaged 37¢/lb in first-quarter '98, rising to 38¢/lb for the rest of the year. Buyers predict spot tags to decline to 35¢/lb by the second quarter of '99, and remain close to that figure. Buyers are somewhat less encouraged by high-impact-grade contracts, which they see rising slightly to 39¢/lb by the spring.
Asia is keeping prices low
PS is having pricing problems because despite some growth for polystyrene in 1998--sales gained 1% over 1997 according to the Society of the Plastics Industry--the world economic situation has muted projected demand. According to forecast analyst William Young at Donaldson, Lufkin and Jenrette, general-purpose grades sold well, but high-impact-grade sales have disappointed.
Producers had predicted polystyrene sales to rise 3.5% in 1998, due to increasing demand from electronic markets. While PS resin sales to furniture, construction, and rigid-packaging markets saw double-digit growth in 1998, electrical/electronics sales fell more than 8%, and sales to resellers and compounders fell more than 3%. Growth for rigid packaging is coming from food packaging, beverage cups, and retail packaging or containers. The drop in demand from the electrical/electronics industries might be traced to slowdowns in production of television and computer monitor housings.
Buyer's market will continue
Polystyrene producers such as Chevron, Dow Chemical, Nova Chemicals, basf, Huntsman, and Fina all contend the price increase they're pushing is needed to restore operating margins. Pricing has been down since 1996 because of overcapacity and a weak global polystyrene market. But there is no sign that the buyer's market will end.
According to Paul Ita of The Freedonia Group, excess capacity in Asia along with planned capacity expansions in China will continue to fuel a worldwide oversupply. "This will continue to hammer prices," he says. Polystyrene will have the slowest growth through 2000 of any of major thermoplastic resin, according to James Virosco at Chem Systems. The reason is simple--the economy in Asia and South America continues to stagnate.
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