Styrene is the largest volume derivative of benzene, the most basic aromatic chemical. Usually, benzene is reacted with ethylene to form ethylbenzene, which is dehydrogenated into styrene. In addition, styrene is a by-product of making propylene oxide in a process that consumes ethylbenzene and propylene. Styrene is used to make polystyrene, acrylonitrile-butadiene-styrene, polyester resins, synthetic rubber, and a host of other products.

Global demand for styrene declined for the first time in nearly 20 years, according to consulting firm Chemical Market Associates Inc. (CMAI). The 2.6% decline was largely because demand for its highest volume derivative, polystyrene, decreased by 0.1% in 2000 and 2.3% in 2001.

Moreover, the surge in natural gas costs at the end of 2000 drove up prices for ethylene. Stan Land, vice president of styrene for Sterling Chemicals, says this contributed to a 40 to 50% drop in U.S. exports from 2000 levels. "The U.S. has a history of overbuilding to supply the rest of the world," he explains. "Take away demand and exports, and you end up with poor operating rates."

Indeed, operating rates were as low as 78% during the fourth quarter of 2001, according to Andrew G. Singer, styrenics marketing and sales manager for Chevron Phillips Chemical.

CALM Industry projections call for lull in new styrene capacity LOCATION VOLUME (MILLION LB) 2002 Ellba (Shell/BASF) Singapore 1,230 Chevron Phillips U.S. 400 2003 Lyondell/Bayer Netherlands 1,400 2005 BP U.S. 1,500 Petrochemical Industries Co. Kuwait 550 National Petrochemical Co. Iran 1,300 Saudi Basic Industries Corp. Saudi Arabia 1,100 Dow/BASF Brazil 1,000 2006 Shell Chemicals China 1,230 Dow U.S. 1,250 Chevron/PDVSA Venezuela 1,100 SOURCE: Nova Chemicals

Frank Wright, Dow Chemical's commercial manager for benzene, styrene, and cumene, says high energy prices and poor market fundamentals squeezed the profitability out of styrene last year. "The incredible spike in natural gas caught a lot of people off guard," Wright says. "Then derivatives dried up overnight. In the first half of the year, margins were nonexistent."

Though 2001 was a very bad year, says Christopher Pappas, president of styrenics for Nova Chemicals, such woes are nothing new for the styrene industry, which always seems to suffer one setback or another. Pappas says, "Styrenics as a whole has been plagued by poor industry structure, very bad dynamics, poor behavior, and horrible profitability--really throughout the 1990s."

But 2001 was so bad that even those unforeseen glitches and windfalls that would normally signal improved profitability--such as plant closures and temporary supply outages--gave the beleaguered industry no comfort.

Huntsman Corp., for example, closed its 400 million-lb-per-year styrene plant in Odessa, Texas, last April. But few observers noticed changes in the market because, as Wright says, "It was a small plant in a bad market."

An even bigger outage at a Chevron Phillips plant also had minimal impact on the industry. In February 2001, a styrene distillation column at the company's St. James, La., unit experienced a fire so severe that the column suffered structural damage and had to be replaced.

As a result of the accident, a 1.1 billion-lb unit at St. James was off-line for about eight months, leaving only a smaller, 600 million-lb unit running at the site. In all, the incident cost Chevron Phillips about 700 million lb of production last year. But, Singer notes, it could have been worse. "People expected us to have the unit down for 12 to 14 months," he says, adding that no injuries were reported.

Most producers agree that 2001 was the bottom of the styrene business cycle. This year, the only capacity coming onstream in the U.S. is a 400 million-lb expansion at Chevron Phillips' St. James plant, due in the third quarter.

Singer says the expansion won't have a big impact on the market because it is meant to increase the supply of styrene for Chevron Phillips' K-Resin business.

After that plant, the next new U.S. capacity, a 1.1 billion-lb BP Chemicals unit, isn't expected until 2005. Globally, the Shell Chemical/BASF propylene oxide/styrene venture Ellba is opening a plant in Singapore later this year with more than 1.2 billion lb of styrene capacity.

Little new capacity and signs that demand downstream is starting to strengthen both indicate that the worst is behind the styrene industry, Singer says. "It's still somewhat spotty, but clearly we turned the corner," he says. "We have reached the bottom and have started a recovery."

Dow's Wright sees improvement already. "This year has shown steady improvement--production rates have matched demand," he says. Moreover, he notes, there are many planned maintenance outages that will tighten the market in the first half of this year.

In fact, increasing benzene prices, improvement in demand, and supply turnarounds at various producers are already tightening the market and leading to better styrene prices, Singer says. Prices for spot purchases have moved up from 17 cents per lb last year to 23 cents today.

Singer adds that operating rates may climb over 90% this year. "This year could be a positive surprise, but we still might be a year off from a healthy market," he says. "The difference from 2001 will be night and day."

If operating rates do climb that high, then the styrene market may experience a quick recovery. Nova's Pappas explains that there is about 50 billion lb of styrene capacity globally compared with nearly 58 billion lb of derivative capacity. As a result, the styrene market influences the markets for its derivatives more than its derivatives influence styrene. In a market such as propylene, for example, the opposite is true.

"This chain makes a lot of money when styrene monomer globally starts to operate at 91 to 92% of capacity," Pappas says. "And the reason is that's the maximum capability to run these plants effectively and efficiently, and it starts to create a downstream dynamic where there is not enough monomer to serve the overinstalled capacity of derivatives."

In addition, producers point to other factors that may alleviate styrene's chronic profitability problems. Pappas cites the consolidation in the styrene industry that his company has played a major hand in. Nova bought styrenics businesses from Arco in 1996, Huntsman in 1998, and Shell Chemical in 2000.

In addition, companies such as Shell and BASF, as well as Lyondell and Bayer, are building propylene oxide/styrene plants together instead of doing so separately. "Consolidation has created what should be a much stronger industry for the future," Pappas says. "And I don't think that consolidation in this industry is over."

Sterling's Land expects that the development of routes to propylene oxide that produce no by-product styrene will be positive for the styrene industry. Programs like these include a collaborative effort by Sumitomo and Lyondell to develop the technology and build a plant in Japan.

Land says styrene's status as a coproduct has been troublesome because styrene growth is typically slower than that of propylene oxide. As a result, companies building plants to meet propylene oxide demand have created an abundance of styrene capacity.

Whether these developments fundamentally improve the industry remains to be seen. But it is certain that styrene producers would rather not experience another 2001 again, even if it would take another 20 years.

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