FIRM POLYSTYRENE PRICES EXPECTED FOR NEAR FUTURE

FIRM POLYSTYRENE PRICES EXPECTED FOR NEAR FUTURE

Look for polystyrene prices to remain firm over the next year or two, sources say.

The reason for the firmness is straightforward: Capacity utilization rates remain high, feedstock prices are low, and demand is growing, albeit modestly. Additional production, either in the form of new domestic capacity or imports, isn't forecast, sources say. Little change in this scenario is predicted, sources said.American polystyrene plants are working at about 90 percent capacity and have been for the past year or so, said the Society for Plastics Industry, a trade group. For the eight months ended Aug. 30, American plants turned out 3.652 million pounds of polystyrene, up from 3.55 million pounds during the comparable 1992 period, a 2.9 percent increase.

The result is that polystyrene margins are "comfortable from a producers standpoint," said one producer. Producers are reluctant to raise prices for fear of encouraging exports by low-cost integrated offshore producers that have significant excess capacity. Also, higher producers could lead to increased substitution by cheaper polypropylene.

Polystyrene, used largely in packaging, sells for about 40 cents a pound in crystal form. Premium high-impact material, the raw material for high-end cold drink cups and food trays, costs about 44 cents a pound, a higher price due to added cost of the 3 percent to 10 percent rubber content, sources say.

"Polystyrene has done pretty good this year," said Mark W. House, an industry analyst with DeWitt & Co. Inc. of Houston, a consulting company. He expects the next significant round of prices increases in about two years, when excess European and Asian capacity is absorbed.

Polystyrene prices traditionally rise about 2 to 4 cents in the first and third quarters, reflecting the increased seasonal demand from producers of plastic flatware, used during the summer, and children's Christmas toys. For these seasonal price increases to stick, a significant economic upturn is required, said Dan Norton, Chevron Chemical Co.'s manager, distribution sales, styrenic polymers. "I don't see that at this point. Unless raw materials prices will support it, I doubt there will be a significant price increase in the (near) future", he said.

That's not likely given that the price of styrene, the primary raw material, is expected to remain in the dumps until 1996, Wayne LeSage, Arco Chemical Co.'s styrene business manager said recently. Also the price of benzene, polystyrene's other primary raw material, has fallen this year.

Paul K. Raman, an industry analyst with S.G. Warburg & Co. Inc. of New York, has a more optimistic view. He predicts that polystyrene prices will increase several cents during each of the next two years, net of the seasonal price gains, because of the paucity of significant incremental capacity scheduled for introduction to meet modest demand growth, projected at 3 percent to 4 percent annually. He said, moreover, that any price increases ''are all profit improvement," meaning they go right to producers' bottom lines.

"Unlike virtually every other volume plastic resin, there are no announced polystyrene expansions yet to start up in the United States," Mr. House said.

Producers shied away from polystyrene investments several years ago after McDonald's Corp. elected to discontinue using the plastic container for its hamburgers.

Now, however, producers are tweaking existing operations to squeeze out additional production. Huntsman Chemical Corp., Salt Lake City, for example, announced this week that by retrofitting two existing plants, it will increase company production capacity by about 244 million pounds. Huntsman is the country's largest polystyrene producer.