Storms and costlier energy cut supplies, boost prices

Gordon Graff -- Purchasing, 12/8/2005

Purchasers of acrylonitrile-butadiene-styrene (ABS) plastic resins are likely to find supplies somewhat constricted for the next few months as a result of hurricane-related chemical plant outages along the Gulf Coast. Producers have raised ABS contract prices several times in the past year in response to galloping costs of oil and gas. Meanwhile, ABS continues to be challenged by lower priced plastics, a trend ABS suppliers are countering by developing new high-performance grades of the material.

"The whole raw materials supply chain for ABS has been significantly disrupted" by hurricanes Katrina and Rita, says Charlie Crew, vice president and general manager for ABS and ASA (acrylic-styrene-acrylonitrile) product lines at GE Plastics in Pittsfield, Mass. Consequently, supplies of ABS are "very tight."

According to an October 6, 2005 joint statement by the American Chemistry Council and Dow Chemical to the Senate Energy and Natural Resources Committee, the hurricanes in the Gulf region knocked out 55% of acrylonitrile capacity and 85% of styrene capacity in North America. (Acryonitrile and styrene are two of the three monomers used to manufacture ABS.) As the shuttered plants come back onstream in the months ahead, however, there could be volatility in ABS supplies, notes Crew, so that future supply trends for the resin are hard to predict.

Aside from the bottlenecks in key raw materials, there is plenty of manufacturing capacity for ABS. Operating rates in North America are in the 65-70% range and are not expected to exceed 70% for the "foreseeable future," says Karen Shepard-Jackson, North America product director for engineering plastics at Dow Chemical in Midland, Mich.

Global capacity of ABS in 2004 was 7.4 million metric tons, reports SRI Consulting. Ten producers of the resin accounted for 74% of world capacity.

According to Chemical Market Associates Inc. (CMAI), ABS demand for the first three quarters of 2005 is down approximately 7% in volume compared to the same period in 2004. This slowdown is part of a cyclical pattern in the ABS business and not necessarily a harbinger of a long-term decline, says Kevin Dunay, marketing and sales manager for Lanxess Corp. in Pittsburgh. He projects future ABS growth on the order of 1-2% in the North American region.

Worldwide, however, demand for ABS is expanding about 7-8% annually, estimates Shephard-Jackson. Global consumption of ABS in 2004 was 5.5 million metric tons, notes SRI Consulting, with Asia accounting for 70% of the demand.

ABS faces competition from other polymers—polypropylene, high-impact polystyrene, and ABS/polycarbonate alloys, for example—because of their favorable price/performance properties. Challenges to ABS from ABS/polycarbonate are mostly in high-end applications such as business-machine housing, he adds.

Another headache for ABS producers in North America and Western Europe is the continuing exodus of some ABS markets to Asia, where local suppliers of the resin are handling the demand.

But major ABS manufacturers in North America say the competition from other resins and the offshore movement of some markets have been going on for a long time and insist that there are still many growth opportunities for the product on their home turf.

Most major suppliers of ABS have increased their contract prices several times during the past year. The hikes have typically been in the 5-10¢/lb range. The higher tags are necessary, say the producers, because of increasing raw materials and energy costs, and tight raw materials supplies.

Producers say pricing depends largely on how soon the raw materials shortage eases and whether or not oil and natural gas rates moderate.