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Polycarbonate and ABS Engineering Resins Markets See Global Tightening
   by Adrian Beale, CMAI
   Trends   Spring  2011
  
POLYCARBONATE

Current Market
The first quarter of 2011 has seen a strong start to the year for polycarbonate markets in North America with ongoing supply restrictions, good demand and high costs prompting further price increase announcements from suppliers in March 2011. Bayer Material Science has restarted its polycarbonate operations at Baytown, Texas but has yet to lift its force majeure declaration. Demand from most sectors remains good, with the automotive sector starting the year strongly and better demand also now evident from the construction sector.

From a supply perspective, at the time of writing Bayer has not yet indicated when its force majeure (FM) may be lifted, although the plant is now running. Otherwise, all domestic producers are running at high rates in order to satisfy demand. There has been no impact yet on imported polycarbonate volumes from Asia due to the devastation in Japan caused by the recent earthquake and tsunami. It is still too early to tell whether there will be any significant impact on world PC markets from the aftermath of this disaster; however, there are already some restrictions on feedstocks in Japan becoming evident.

SABIC Innovative Plastics (SIP) announced an increase in polycarbonate grades and blends of 14 cents per pound, effective February 28, 2011. Styron also announced an increase in polycarbonate and polycarbonate blends prices of 14 cents per pound, effective March 1, 2011.

For general purpose, grades of polycarbonate in February prices were around $1.60 – $1.90 per pound. However, in March there was widespread success in moving prices up following the price increase targets of 14 cents per pound, with increases ranging from 7 to 14 cents per pound. On average, prices have moved up by 10 cents per pound and so the representative price range is now $1.70 – $2.00 per pound for March. The wide price range represents the fact that these general purpose grades of polycarbonate are used across a number of different industry sectors. Small buyers or consumers buying specialty or colored grades are now paying prices in the $2.50 – $3.50 per pound range.

There now have been further price increase announcements made for April with SIP announcing an increase of 22 cents per pound across the board for PC and PC alloys, effective April 4, 2011; Bayer announcing an increase of 25 cents per pound, effective March 31, 2011; and Styron announcing an increase of 22 cents per pound for PC and 19 cents per pound for PC alloys, effective April 1, 2011.

Market Analysis
The cost of producing polycarbonate in March was essentially flat from the month of February. Energy complex values stabilized at relatively high levels and petrochemical derivatives also lost their upward momentum. Benzene contract prices increased marginally from $4.35 per gallon last month to $4.39 per gallon in March, leading to an increase in phenol costs of less than 1 cent per pound (as can be seen from the chart entitled North America Polycarbonate Cash Cost and Market Price - General Purpose Grade on page 31). Acetone prices also were broadly stable compared to last month, in line with steady upstream propylene prices for March. With a slight reduction in energy and hence conversion costs this month, overall costs of polycarbonate production are essentially the same as last month. As can be seen from the chart, market prices for general purpose polycarbonate grades have increased by an average of 10 cents per pound this month, thus leading to an increase of around 10 cents per pound in theoretical producer margins from last month.

Outlook
It is still too early to tell whether there will be any significant impact on world polycarbonate markets from the earthquake and subsequent devastation in Japan. While overshadowed by the human side of this tragedy for Japan and the apparently worsening situation at the damaged nuclear installations, there also are chemical and petrochemical industry implications arising from the earthquake and tsunami off the northeast coast of the country.

Most of the polycarbonate production facilities in Japan (and especially the ones which produce polycarbonate for export to the U.S.), are situated in the southern part of Japan and were not impacted by the earthquake. Normal production is continuing; however, in some cases the raw material BPA is supplied by plants in regions which have been badly damaged. In addition, there are phenol plants in both Kashima and Chiba which also are down. Currently, the Mitsubishi Gas Chemical polycarbonate capacity in Kashima is down and may be down for several months, and the Idemitsu polycarbonate capacity in Chiba is down due to shortages of feedstock. As a result, some Japanese polycarbonate producers have suspended offers of supply until the situation becomes clearer. On balance, Japan is a net exporter of polycarbonate with most exports going to China, so any impact on Japanese polycarbonate production is most likely to contribute to a further tightening in Northeast Asia markets which also may ultimately impact global markets.

On the demand side in Japan, the top Electrical/Electronic and Auto makers – Sony, Toshiba, Toyota and Honda – have already announced a shutdown of their production lines. Japan provides high-end core parts for electronic production in China, South Korea and Taiwan and high-end automotive components for production in North America and Europe. If Japanese plants remain shut down for any period of time, then supply to the above regions will be greatly impacted.

ABS

Current Market
ABS markets in North America have continued to strengthen in March following an already positive start to the year in the months of January and February. Most significantly, there appears to be much less flexibility this month on pricing; some large consumers managed to negotiate a delay in price increases or a lower price increase in general in January and February; however, producers are taking a harder line for March and April and consumers are finding that they have fewer options for avoiding the higher prices.

Demand continues to be good especially from the automotive sector and also from general appliances and electrical/electronic end users. Even the building and construction sector is picking up in preparation for second quarter, which is typically the strongest part of the year. From a supply perspective, all producers are currently running well and there has been no repeat of last year’s force majeure declarations by ABS producers. Nevertheless, strong demand in Asia is currently contributing to a reduction in available volumes from that region.

Even though raw material costs are not increasing as rapidly as they have in previous months, the ongoing firm cost position and the balanced-to-tight market continue to encourage producers to move ABS market prices up. So far, there have been further price increases announced for April, including an increase from INEOS ABS of 5 cents per pound and from Styron, an increase of 7 cents per pound for general purpose grades and 9 cents per pound for high heat grades, all effective April 1. In addition, SIP announced an increase of 13 cents per pound, effective April 4, 2011, for general purpose grades of ABS. Styrolution has announced an increase of 5 cents per pound for general purpose and high heat grades of ABS, effective April 8, 2011.

Much of the ABS sold in North America is done on the basis of formula pricing related to raw material indices. There also are index-based prices, which have some time lag involved. The remainder of the ABS is sold on the basis of freely negotiated prices. ABS prices in North America can be broadly split into prices for general purpose injection molding grades and prices for extrusion grades for sheet and pipe. Historically, extrusion grades have traded at a discount to injection molding grades, but this discount is not fixed and can vary with changes in the market.

Last month, the price range for general purpose injection molding grades of ABS was 130 – 145 cents per pound. Prices have again increased by an average of 5 cents per pound, taking the representative price range to 135 – 150 cents per pound for March. It should be noted that this is an average price range and reflects many differing agreements made between many different parties. In addition, some of this month’s price movement is due to delayed February price increase implementations. This price range is designed to represent delivered prices to converters. Clearly, prices to distributors will be somewhat lower than this.

Market Analysis
As can be seen from the chart entitled “General Purpose ABS Cash Cost and Market Price Forecast”, during the month of March, the total cost of producing ABS increased by around 1 cent per pound compared to February. Acrylonitrile costs were relatively stable again for March, based on stable propylene prices, and only registering a slight fall in price. This was offset by a marginal increase in styrene prices as underlying benzene also moved up marginally for March. The only real movement was from butadiene contract prices, which increased again in March and which look set to continue to increase further in the coming months. However, the impact on the total cost of producing ABS resin from this move in butadiene is only around 1 cent per pound, hence the overall increase in cost. As described previously, the market price range for general purpose grades of ABS increased on average by 5 cents per pound again this month resulting in an increase in theoretical producer margins of around 4 cents per pound for March. Producer margins have been improving since the start of 2011 (as can be seen from the chart at left) and a further improvement also is expected next month as the announced price increases for April are worked through.

Outlook
There is ABS production capacity in Chiba, Japan, which is one of the areas which has been impacted in the aftermath of the earthquake. Japan typically imports around 3,000 tons per month of ABS and exports around 12,000 tons per month of ABS, primarily to China. On balance, therefore, it is likely that this disaster in Japan will lead to more tightening in global ABS markets than the reverse, despite the shutdown in downstream consuming capacity, although of course it is too early to say with any certainty what the market impact will be.

From a U.S. perspective, any tightening of Asian ABS markets in Asia could lead to restrictions in availability of ABS for export to the U.S., which will keep markets here finely balanced and increase the probability of success for the numerous announced price increases which currently exist in the market. Imports from Asia are already under some pressure due to strong demand from China. As a result, little relief is expected from the current record high ABS prices for the remainder of the year, as shown by the price charts.

Adrian Beale is director – global engineering resins for CMAI (Chemical Market Associates Inc.). From its inception in 1979, CMAI’s goal has been to add value to its clients’ operations by providing accurate, timely market and business advisory services for the worldwide chemical, plastics, fibers and chlor-alkali industries. At every level, CMAI focuses on understanding how its services can best support its clients by anticipating needs and developing innovative solutions. For more information, contact Beale at 281.752.3230 or email abeale@cmaiglobal.com.