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European Styrenics at a Crossroads: High Cost, Low Demand, and Environmental Change
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- Link title: Read the interview on OPIS, Link URL: https://www.opisnet.com/blog/european-styrenics-at-a-crossroads-high-cost-low-demand-and-environmental-change/#:~:text=and%20Environmental%20Change-,European%20Styrenics%20at%20a%20Crossroads%3A%20High%20Cost,Low%20Demand%2C%20and%20Environmental%20Change&text=The%20European%20styrenics%20industry%20has,well%20as%20tightening%20environmental%20regulations.
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Klaus Ries (BASF SE) and Chair of the Styrenics Sector Group in Plastics Europe, recently sat down with OPIS to discuss the current state of the European styrenics industry. With nearly 30 years of experience at BASF and a strong background in plastics, Klaus Ries shares his thoughts on how the industry is dealing with high production costs, lower demand, and strict environmental rules.
In this interview, he talks about the difficulties caused by global events and the new opportunities that could help the industry grow, especially with the Energy Performance of Buildings Directive. His insights are important for anyone interested in the future of the styrenics sector, as they highlight the need for the industry to adapt and innovate in a changing world.
Read the full interview down below.
The European styrenics industry has navigated turbulent waters for several years now, with high production costs, stiff international competition, sluggish demand, as well as tightening environmental regulations.
Klaus Ries, with nearly 30 years of experience at chemicals major BASF and extensive involvement in plastics, is the current chair of the Styrenics Sector Group in Plastics Europe (representing styrene monomer and all styrenic-polymer producers). He also serves as president of the Association for European Manufacturers of Expanded Polystyrene (EUMEPS).
In an interview with OPIS editor Fahima Mathé, Ries provides insights into the challenges shaping the styrenics industry’s present and future, discussing strategies for sustainability and growth.
OPIS: Can you give us some insight into the condition of the styrenics industry in Europe that has been hit hard in the current economic downturn?
Ries: The energy price hike in Europe following the Russian attack on Ukraine hit the energy-intensive styrene monomer production quite hard. Before the war, production costs in Europe were already above those of other styrene-producing regions, mainly the U.S. and the Middle East. But with the drastic increase in energy costs, it has been cheaper to import styrene than to buy it produced in the European Union for quite a while now.
OPIS: But haven’t energy costs decreased and now fallen back to levels seen before the war in Ukraine?
Ries: This is correct; however, compared to other regions, the energy costs in Europe are still significantly higher – for example, natural gas is four to five times higher than in the U.S. Consequently, especially imports of monomers increased substantially.
Before I go into details, I would like to highlight that all data provided in this interview are my own estimates based on CMA data, some non-confidential numbers from associations, and public import statistics – so no guarantees.
In 2018, the EU was still a net exporter of styrene monomer of roughly 30,000 metric tons (mt). But by 2023 the EU had become a net importer of 400,000 mt, corresponding to approximately 10% of installed production capacity. When you also consider the drastic increases in imports of styrenic-polymers into Europe, the trade deficit adds up to a staggering 770,000 mt of styrene monomer (polymer volumes converted into monomers based on their composition)! It means that more than the annual capacity of a modern world-scale styrene monomer plant (600,000 mt) has been replaced by imports in quite a short time. That is quite dramatic.
It is noteworthy that Russia and Iran are also playing a role here. It seems that these countries use Turkey and the Middle East to sell significantly higher styrenics volumes than before 2019. It is not unreasonable to assume that to a significant degree these volumes find their way into the EU. Specifications, product approvals and certificates do not seem to hinder this business in any way. This should be a wake-up call for the EU and its member states.
OPIS: I assume the demand side did not help either?
Ries: You are right. Until 2019, styrene monomer demand was around 5 million mt/year in Europe – matching regional installed production capacity. The subsequent economic crisis that hit Europe following the Covid-19 outbreak decreased demand to just 4 million mt, according to data from the industry and Chemical Market Analytics (CMA) by OPIS.
The increased energy cost in parallel to the low demand put so much pressure on the European producers that around 1 million ton of the European capacity was permanently taken out. As mentioned above, in addition to that, almost 20% (around 770,000 mt) of European styrene demand in 2023 was met by monomer and polymer plants outside the EU. Which means producers operated their units at around 70% capacity, resulting in just a little over 3 million mt of styrene production in Europe.
I hope I am not being overly dramatic here, but the situation is dire for European styrene players who are grappling with falling demand, high production costs and competition with international producers that have a feedstock cost advantage.
OPIS: How do you foresee the development of supply and demand, say over the next decade, for styrenics in Europe?
Ries: The outlook is mixed, with both challenges and opportunities, a lot of shadow and some light, amid current political trends and the media’s negative focus on plastic. The resulting legislation, such as the recently approved Packaging & Packaging Waste Regulation (PPWR), does not favour plastic materials as such or in comparison with other materials, especially paper-based packaging formats. This has been often set up without proper Life Cycle Analysis or Impact Assessments.
This approach will not allow demand to fully return, especially since some polystyrene applications are directly affected by these developments. A mandatory quota for recycled content, as defined in the PPWR, will also not help fill existing capacities in the longer term.
Further, it is unclear yet what the result of the UN-treaty negotiations on plastics pollution will be. Restrictions on additives, polymers or production caps (regulatory limits or restrictions imposed on the total amount of plastics or specific types of plastics produced) are occupying a lot of the negotiations, leaving little time to address the most pressing matter, which is to effectively prevent plastic from ending up in the environment.
It is well known that plastic pollution has root causes in poor drinking water supply (making plastic bottles a must), a lack of proper waste collection and sorting infrastructure, and a lack of recycling or modern waste incineration facilities, with energy recovery.
A ban on plastic will not help the environment and possibly lead to regrettable substitutions and other related problems such as an acceleration of deforestation due to an uninformed shift to paper-based packaging, a known driver of climate change, or lower hygiene standards, especially in developing countries. With several initiatives such as the Alliance to End Plastic Waste, investment in recycling technologies and capacities, the industry demonstrates its strong willingness to engage in this area.
I do not understand why politicians hesitate to listen to the industry’s solutions and discuss how to implement them best.
OPIS: That’s quite a bleak outlook. What are the positive trends? You mentioned there is some light as well?
Ries: Of course, there is. I am thinking firstly of the Energy Performance of Buildings Directive (EPBD). 36% of the EU’s energy-related greenhouse gas (GHG) emissions come from buildings. This large amount is mainly attributable to the EU’s ancient, energy-inefficient building stock.
Therefore, renovating these buildings and constructing all new buildings according to high energy efficiency standards will be critical to address this vast potential to avoid GHG emissions. The EPBD sets an architecture for member states to define their strategy to reach climate neutrality of building stock by 2050. For example, with the entry into force of law, the member states have until 2026 to develop national building renovation plans, which need to comply with clearly defined reduction targets for primary energy use (residential sector) or need to include measures that even induce mandatory renovation of the worst performing buildings (non-residential sector). That is good news for styrene demand.
Advancements in the building sector provide a unique opportunity in the fight against global warming. Proven technologies and materials already exist and can be immediately applied on a large-scale all over Europe. Especially, the styrenics-polymer expanded polystyrene (EPS) provides excellent insulation performance and is a perfect and cost-efficient solution for this challenge. This material is safe for installers, residents, and the environment alike, and is easy to install in all European countries. Its lifetime matches that of the building itself, making it a sustainable and long-term solution.
But to come back to your earlier question to supply and demand development. Altogether I would say, yes, demand will recover with increasing consumption amid – as just described – huge growth potential in the building sector. However, other factors will prevent the demand from returning to previous levels. Perhaps half a million tons of demand will come back, while the other half million is mere dust in the wind. But the question remains: From which plants will this demand be met and from which region?
OPIS: Will we see further consolidation of European styrenics production capacity? And if so, what is the consequence for supply security?
Ries: I would be very astonished if we did not see further announcements of capacity consolidation in the next 12 to 18 months.
It is clear if further styrene monomer capacity is taken out, Europe would have to rely even more on imports of styrene. While there is more than enough capacity outside Europe to cover even more of the region’s 4 million mt/year demand, bottlenecks in infrastructure such as tanks, logistics or hurricanes will make this a permanent challenge. Also, the price volatility will increase if ships are delayed, or other disturbances occur.
OPIS: In such a challenging market and regulatory environment, how will the transition progress towards CO2-neutral production and the replacement of fossil fuels with renewable feedstocks?
Ries: The sustainability transition is a major challenge for the energy-intensive chemical and plastic industry. Reducing CO2 emissions with the ultimate goal of CO2 neutrality requires new technologies and a lot of green energy. At the same time, the plastics industry must invest further in circularity. All this requires enormous capital expenditure. Investors dislike uncertainties: unclear, inconsistent, and changing regulations will make investments more difficult, if not impossible.
Let me give you an example: The chemical industry has argued that without chemical recycling in combination with a mass balance approach, that defines the rules for attributing the proportion of sustainable raw materials to the end product, it will most likely not be possible to achieve the circularity ambitions of the EU.
After years of discussion on implementing the Single Use Plastic Directive (SUPD), it appears that chemical recycling in combination with mass balance attribution will find acceptance in the rules regarding the calculation of recycled plastic content.
Since a recent motion for a resolution objecting to implementing this act in the EU parliament failed, it is rather likely that implementing the act will be adopted by the member states by the end of this year – albeit with some restrictions strongly hampering the economics of chemically recycled products.
Still, implementing this act will serve merely as a blueprint for future regulation or implementing acts. Our industry must hope that the rules will also be similarly adopted for PPWR. Here, the corresponding implementing act, which affects many more packaging applications in comparison to the SUPD, is not expected before 2026!
Even worse, for other industries or non-packaging plastics applications, investors will have clarity even later, because the main legislation was not completed under the current EU Commission, such as the end-of-life vehicle directive. How can one expect investors to invest hundreds of millions of euros in technologies with unclear acceptance? The same holds true for some other aspects of the SUPD as well as the PPWR.
When it comes to reduction of CO2 emissions the situation is similarly complex. Bio-based feedstocks will play a major role next to recycled feedstock in reducing our industry’s emissions to zero. However, besides regulatory uncertainty, there is also the problem of limited availability of renewable feedstocks, such as bio-naphtha, which has several implications.
Firstly, these feedstocks are more costly today and will, due to their projected scarcity and rising demand, remain much more costly than their fossil-based counterparts during the transition.
Secondly, limited availability means that steam crackers in the EU will need to run on certain mixtures of recycled, bio-based, fossil-based and possibly even CO2-based feedstocks (CCU) in the long-run. There will be no scenario in which there is enough feedstock to run crackers on a single sustainable feedstock (to offer products with proven recycled or bio-based content that would not require the mass balance approach).
Yet, regulators, NGOs and even some important brand owners think of the mass balance approach as a short-term tool only needed at the beginning of the transformation. They are lobbying heavily to restrict mass balance rules or propose time limits for their viability in legislation and standardization.
What is so frustrating about this is that neither this hard reality of feedstock limitations nor the economic dimension of this problem seems to be relevant for these parties. Make no mistake: even with mass balance attribution allowed with no imposed restrictions, sustainable feedstock costs alone will already heavily drive inflation during the first years of the transformation and require a substantial willingness to
pay by the end consumers.
The rising social unrest following the high inflation rates of the past two years in European society should be a warning signal to politicians that it is of utmost importance that this transition occurs in the most economical fashion possible. But sadly, feedstock as an integral and unique part of the chemical industry’s transformation is often overlooked by regulators.
Additional costs that will make production even more costly in a green world are the development and implementation of emission-free process technologies, many of which will not yet be available before 2030. Meanwhile, increased risk of carbon and investment leakage due to rising CO2 costs, renewable electricity costs, energy system changes and investments in low-carbon process technologies with high capital and operating expenditure costs will require a stronger focus on industrial competitiveness.
There is more uncertainty for investors lurking within recent developments in chemicals regulation that will raise bureaucratic burdens and ultimately also costs. In summary, the regulatory uncertainties and lack of economic realities make me personally rather skeptical about the long-term industrial competitiveness in the EU and ultimately the likelihood of success of this transformation – unless the next EU
The commission can improve the prioritization of regulatory initiatives and is willing to revitalize Europe’s industrial landscape.
OPIS: Which chemical legislation do you refer to and what is your concern?
Ries: With the Chemicals Strategy for Sustainability published under the Green Deal four years ago, we have witnessed a paradigm change towards a fundamentally different assessment of chemical risk and a new classification of chemical hazards. The impact will be massive: The European Chemical Industry Council, Cefic, has calculated that one-fifth of the industry’s portfolio will need to change, and customer industries will suffer from ripple effects.
Banning chemicals outright, for example without proper exposure and risk assessment –even if they are only used in small quantities as intermediate products in production, or for research – will limit innovation. This would be fatal at a time when innovations are needed for numerous tasks from energy transformation to carbon management and the circular economy.
As consumers, we want to protect ourselves and our families. At the same time, we are seeking certain functions in products. They should be durable or easy to use, help us to save energy or protect us. In the chemical industry, we are used to looking at both sides of the coin: which substances will help us to develop these functions and how we can ensure that the user is safe.
OPIS: How is styrene, and more particularly, EPS, BASF’s most important styrenics polymer, prepared for the challenges you describe?
Ries: Styrene, is probably the most extensively studied monomer and polystyrene, has been used safely in consumer goods for over 70 years. The BASF invention of expandable polystyrene has been around for just as long and the products made from our raw materials are irreplaceable in several transport applications where the cooling chain is important, such as medical products or organs, but also less spectacular but equally important fish boxes. The transport of heavy household goods is also relying on the excellent protective performance of EPS.
Further, I am convinced that EPS boards are one of the most important tools for emission reduction of the building stock because its cost-performance ratio is simply unbeatable and irreplaceable. EPS-solutions are fully recyclable and recycled at scale, available with alternative feedstocks or as CO2-reduced products. The success of such solutions in the market is yet limited due to their higher costs.
OPIS: European Union citizens have elected new Members of the European Parliament in early June. What are your specific expectations for the new Members and the Commission regarding the promotion of industrial development and competitiveness in Europe over the next five years?
Ries: In the past five years, the EU has pursued a highly ambitious agenda on climate and sustainability overall. However, it has only given very limited consideration to the urgency of the industry’s transformation. An enabling framework for industry to succeed in the transformation is still missing in most areas, despite the many challenges we’ve been facing. This has clearly led to a further decline in our competitiveness on a global level.
It is crucial for the incoming legislators to focus on an Industrial Deal to complement the Green Deal. The EU’s industrial base must be strengthened. From a plastics perspective, we need urgently to return to a rational discussion on what is the best material for certain applications and move away from the emotional thinking that all plastics are bad. Risk assessment must remain a major pillar of the policies that concern the chemical and plastic industries. Zero risk does not exist in this world. Risk has to be properly assessed and managed.
I hope for fewer and smarter regulations, less bureaucracy and more coherence, more market mechanisms and, finally, more incentives to encourage the uptake of low-carbon and circular products. We need realistic ambitions that keep the industry on its toes but do not kill innovation or chase entire industries away from the EU – with zero environmental benefits. We need openness towards technological innovation instead of a technophobic attitude.
The EU needs to be competitive with other regions in terms of energy costs, infrastructure quality, lean and fast administrative processes, and a highly skilled workforce.
Does this sound like a challenge? Of course, it is – a challenge equally big and significant as the target of combating climate change because one without the other will not succeed.
This interview was originally published on OPIS on July 22, 2024, by Fahima Mathé.