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It hasn't been fun being a North American producer of acrylonitrile-butadiene-styrene (ABS) resins. They are losing volumes because cheaper polymers such as polypropylene are being substituted for ABS, and because manufacturing of finished goods such as electronics and small appliances is moving offshore, particularly to China.
But there are some promising signs for producers. The material substitution is abating. And the North American ABS industry is retaining markets such as weatherable sheet for recreational vehicles, in which styrenic polymers have an edge because of their unique combination of good aesthetics and strong physical properties.
So far, 2005 has been a slow year for ABS. According to the American Plastics Council, ABS sales and captive use through June in the U.S., Canada, and Mexico declined by 6.8% versus the year-ago period. Full-year demand in 2004, however, increased by 3.5% to 1.37 billion lb.
David Gingras, vice president of sales and marketing for Lanxess' styrenics business in North America, says the trend seen through June is likely to continue for the full year. "By the end of the year, we still expect to be down," he says.
But Gingras notes optimistically that such a decline won't be a major setback, given the positive volume growth seen in 2004.
The longer term trend, according to Austin Peppin, president of Chesterfield, Mo.-based polymers consultancy Peppin & Associates, is that the mature North American and European ABS markets have only been inching upward at 1-2% annually. This, Peppin says, is in sharp contrast to the global ABS market, which currently is about 13.5 billion lb and growing at a brisk 7-8% rate. The driver is 10% annual growth in China, where, already, 48% of all ABS is processed.
Gingras explains that in the 1990s, production of electronics, vacuum cleaners, and small appliances like blenders that have ABS housings was shifting to Mexico from Canada and the U.S. Today, the location of choice to manufacture such products is China. "The applications are moving from our region over to China," he says, "and the finished product is coming this way."
Peppin notes that China doesn't have an edge in all products that use ABS. Some ABS applications--mostly for goods too bulky to transport inexpensively over the Pacific--will continue to be viable in North America. "We will be left with a core business that probably will not move offshore," he says.
ABS pipe is one such application. But even though production volumes are likely to remain strong, pipe isn't a particularly attractive market for North American ABS producers, Gingras points out. It is a commodity market where prices have to remain low to compete with polyvinyl chloride pipe. The pipe area cannot sustain an ABS supplier with any substantial margins, he says.
Also likely to remain onshore is business with makers of bigger appliances like refrigerators. Peppin says Chinese manufacturers "shine" in small appliances such as hair dryers but have trouble competing with North America and Mexico in large appliances because of shipping costs.
A market where producers still see strong North American growth is ABS sheet with a weather-resistant acrylonitrile-styrene-acrylonitrile (ASA) layer. The material is used in recreational vehicles and outdoor equipment, where it is taking volumes away from unsaturated polyester-based fiberglass composites. "That is probably the one bright spot in the whole business," Peppin says.
LANXESS' GINGRAS says his company is already a strong player in ASA/ABS, which is growing at an 8% annual clip. Lanxess is accelerating its efforts with new product introductions as part of a strategy to emphasize higher value markets over commodities such as pipe. "Anything that has a higher margin than general-purpose ABS is what we're focused on," he says. "We're about optimizing margins, not our volumes."
Charles E. (Charlie) Crew, vice president and general manager of the Cycolac and Geloy resins business at General Electric Plastics, says his business recently released 15 new ASA/ABS weatherable products. "This business can double year over year in the high end of the portfolio," he says.
Such pockets of growth aside, over the past decade, competing polymers such as polypropylene, polystyrene, and even polycarbonate (PC)/ABS alloys have taken volumes away from ABS. According to Gingras, the trend dates back to the early 1990s. "We have lost huge chunks of business in ABS to interpolymer competition over those years," he says.
Peppin says ABS is vulnerable to competition from resins like polypropylene, which usually sells at half or two-thirds the price. "The problem for ABS is that not a lot of applications have been developed in recent years," he says. "If you look at polypropylene, you have new applications all the time that help drive growth."
GE's Crew acknowledges that polypropylene makers have done a good job of improving the performance properties of their polymer to make it viable against ABS in markets such as automotive and appliances. "Given some of the original performance limitations of polypropylene, they have gotten better," he says.
However, Crew also notes that ABS has unique properties that make it competitive. "When you use ABS, usually you are looking for good aesthetics and a good balance of physical properties," he says, noting that this trend has become increasingly important in engineering plastics as manufacturers look to aesthetics to differentiate their products.
Karen Shepard-Jackson, Dow Chemical's product director for engineering plastics in North America, agrees. "Polypropylene and polystyrene continue to be viable for some ABS applications but are unlikely to unseat the product in applications that have specific performance requirements," she says.
Indeed, industry observers say the loss of sales to cheaper plastics isn't the factor it used to be. "From our company's perspective, that has pretty much stopped," Gingras says. "We haven't lost any major chunks to polystyrene or polypropylene now for at least a couple of years."
ABS has also suffered from the competition from PC/ABS alloys, which started replacing ABS electronics housings in the 1990s because the PC could be used as a carrier for nonbrominated flame retardants. Observers say this growth has already played out, and even reversed somewhat. "We are seeing it the other way now--we are eating the low end of the PC/ABS market," Gingras says.
GIVEN THE mature outlook for ABS, it will be a long time before North America and Europe need new capacity. GE's Crew estimates that operating rates are 65-70% in North America. "I think everyone has plenty of pots and kettles," he says. GE closed production in the Netherlands in 2003 and consolidated at other locations.
Lanxess has found that styrenics, including ABS, is one of its largest loss-making operations. It is restructuring the business by eliminating 300 jobs and closing production in Dormagen, Germany. In the U.S., it is investing $1.3 million to improve productivity in Addyston, Ohio.
Gingras has lived through such restructuring before with his business' previous owners, Bayer and Monsanto. He watched Bayer close its Muscatine, Iowa, ABS plant in the late 1990s and Monsanto shutter operations in Mexico in the early 1990s. "This is nothing new for us in the styrenics business," he notes.
Dow expanded capacity for ABS at its facility in Terneuzen, the Netherlands, in 2003. Shepard-Jackson says there is no need for further expansions at this time.
Asian producers, however, have been undertaking massive expansions in recent years. Taiwan's Chi Mei and South Korea's LG Chem have become the two largest ABS producers globally on the strength of regional business alone.
Chi Mei, now the largest ABS producer, is said to be considering a 40% expansion of its site in Zhenjiang, China, that will bring capacity there to 770 million lb. LG is expanding capacity at its joint venture in Ningbo, China, by nearly 50% to 1.1 billion lb by the second half of 2006. The plant opened in 1998 with a mere 125 million lb of capacity.
Nothing close to this kind of growth can be expected in North America, which alone would hardly be able to use all the ABS produced at the expanded LG plant. But domestic producers are confident that they can make do with what they have.
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