A couple of headlines stand out today but the BASF capital markets day is probably not one of them. This is now becoming the norm; to provide an investor update tailored at focusing on clean energy and sustainability goals, and BASF’s expectations are not much different from others – there is a bold claim about 2050 and some harder targets by 2030. So far we have yet to see one of these presentations where the math is believable, and the investment targets in dollar terms all seem too low to meet a net-zero goal. To be fair, it is hard to know what will happen in 5 years, let alone from 2030 to 2050, and we would doubt that anyone has a good estimate today. BASF and others will likely end up spending multiples of what they currently project, but this may not be a bad thing – much of the spending will be backed by incentives (or encouraged by penalties) and all of the spending will be good for jobs and economic growth.
Otherwise today we would focus on the Lummus ethylbenzene license as we expect that the styrene market is rushing headlong into a very solid brick wall and that short-term market strength, which is driving significant investment in China, will reverse, creating a significant oversupply. Styrene polymers (polystyrene and expandable polystyrene) are environmentally unfriendly as they sit in the hard to recycle bucket. While the styrene producers are working diligently on specific recycling initiatives, styrene can be replaced in most applications by other polymers that are easier when thinking about closing the loop, and removing styrene polymers from the recycling mix would make recycling easier. Styrene latex and styrene rubber demand are likely to remain strong, but if the polymer markets head into decline – which they have done a couple of times in the past, then the current wave of investments will likely drive oversupply and very poor margins for years. This will be a positive for the buyers of styrene latexes and rubbers and independents buying styrene. This may not be a 2021 event, but the oversupply could be very evident in 2022. While Chinese durable goods manufacturers will use expandable polystyrene (EPS) for packaging if the price is right, we would expect to see a ban on EPS from importing countries because of the recycling issues and because it breaks easily, forming small particles that end up in the wrong places, such as rivers and the ocean.
Shell Styrene Facility in The Netherlands