Styrene producers in North America, beset with dramatically higher costs for their petroleum-derived feedstocks, continue to hike their prices. While rising oil will probably continue to drive up styrene tags for months to come, relief is likely in the next few years as new integrated styrene facilities, now under construction, come onstream in the Middle East and start churning out a flood of new styrene.

Since the start of 2008, styrene prices have increased by more than 16% (see chart). Most responsible for costlier styrene has been the run-up in tags for its two precursors, benzene and ethylene, notes Wilf Kimball, an analyst with The Plaza Group, a Houston-based petrochemical distributor. In the past, he adds, benzene pricing was often independent of crude oil. But in the past few months, benzene has been pegged at roughly 1.3 times the price of crude. Therefore, styrene prices have been more or less in sync with advances in oil.

Another factor that is impacting styrene tags, albeit indirectly, is the soaring cost of gasoline. As Kimball explains it, more expensive gasoline has driven up the price of toluene, the octane-boosting gasoline additive. This development, he says, has made it uneconomical to make benzene from toluene, as is often done in refineries. As a result, benzene supplies have tightened, adding to upward price pressures on both benzene and its derivative styrene.

Costlier styrene is the prime rationale for the recent spate of announced price increases by makers of polystyrene and other styrenic products. For styrene producers these are not good times. The industry has been “dogged by subdued demand growth in recent years,” says Mark Fisler, an analyst with Chemical Market Associates Inc. (CMAI) in Houston. The styrene sector, he adds, “has reached a degree of maturity and structural overcapacity that has already forced painful consolidation.” As Fisler sees it, styrene has been “in a prolonged down cycle, while most other petrochemicals have been enjoying top-of-the-cycle earnings.”

Demand for styrene is closely linked to its two largest downstream derivatives, polystyrene and ABS (acrylonitrile butadiene styrene). Together, these plastic resins account for 76% of the global styrene market, according to an estimate by London-based ChemSystems. The slowdown in the U.S. housing market has already dragged down demand not only for polystyrene, but also for ABS, analysts say. ABS is also heavily represented in the auto industry. The February, 2008 bankruptcy filing by Plastech Engineered Products, a major producer of parts for the auto industry, illustrates the economic distress of the auto industry. Unless that situation is resolved quickly, it “is likely to reduce demand for ABS,” CMAI forecasts. Plastech's woes have already caused a temporary shutdown of Chrysler's assembly plants.

The soft demand for styrene has led to an erosion of capacity. According to Nova Chemicals of Moon Township, Pa., total North American styrene capacity declined from 16.1 billion lbs. in 2005 to 14.4 billion lbs. in 2007. Meanwhile, the number of producers in the region shrank from 10 to 7. The cutbacks included Sterling Chemical, which closed its Texas City, Texas styrene plant at the end of 2007 after announcing that it was exiting the styrene business. Before then, Sterling had transferred production rights at the plant to Nova Chemical (now the Ineos Nova joint venture). The capacity of the shuttered plant was 7.8 billion lbs., or 11% of North American styrene capacity. The closing of the Sterling unit relieved some slackness in styrene supply, says Nova, boosting operating rates for the chemical from 88% to 91% globally, and from 82% to 93% in North America.

Even with the recent cutbacks, there is still “capacity fat” in the styrene sector, Fisler asserts, adding that further cutbacks of capacity by traditional suppliers are likely. Meanwhile, new styrene plants are on the drawing board to cater to future demand for the monomer, particularly from the burgeoning Asian market. These units, however, will be sited primarily in the energy-rich Middle East, where giant benzene-producing complexes are now being built that will give styrene producers in the region a competitive edge. In fact, Fisler estimates that between 2008 and 2012, new plants in the Middle East will add anywhere from 1.85 to 3.05 million metric tons of styrene to the market.

More than half of the new Middle Eastern styrene will be for export, says ChemSystems in a new study of styrenics markets. This new stream of relatively cheap styrene, the firm notes, will cause exports of styrene from North America and Europe to gradually dry up. It will also force North American producers to keep styrene prices for their local customers from rising above rates in other regions. If they don't, says ChemSystems, they will face a “rapid influx” of lower priced imports.

For the present, however, pricing dynamics of styrene should continue to resemble those of its derivative product polystyrene, notes CMAI analyst Peter Feng. Which means that “every time benzene goes up, so does styrene, and by roughly the same proportion.”