BASF Closes 80,000-Ton Polystyrene Plant in Germany

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Researched by Industrial Info Resources (Sugar Land, Texas)--BASF SE (OTC:BASFY) (Ludwigshafen, Germany) is shutting down a polystyrene production unit in Ludwigshafen effective June 30 because of decreased demand for the product. The move will reduce the firm's polystyrene-production capacity in Europe by about 13% from 620,000 tons per year to 540,000 tons per year. Operations at the plant ceased in mid-April of this year. The plant will now be dismantled, and the workforce will be transferred to other positions in the company.

BASF's manufacturing facility in Ludwigshafen will now focus on the production of Neopor, a proprietary expandable polystyrene used to manufacture foams, and Styrodur, an extruded polystyrene used to produce green foam panels. The firm's existing customers for polystyrene in Europe will be served by the company's facility at Verbund, Belgium.

The move to reduce polystyrene production capacity is part of the company's strategy to make its styrenics division more attractive for potential buyers. In a bid to shift focus from products that witness cyclical market demand, BASF has been scouting for potential buyers for its styrenics unit for the past two years. The unit had nearly 1,600 employees on its payroll and posted sales of $4.2 billion last year. In view of the worldwide economic slowdown, BASF is also exploring partners interested in a joint venture for the styrenics unit, which is a part of its plastics business division.

Earlier this month, the firm announced plans to shut down its production unit for Styropor, an expandable polystyrene, in Tarragona, Spain, by August this year because of weakening demand in the domestic market. This decision was taken as the facility was operating under an unfavorable and uneconomical cost structure. The move is expected to result in the loss of 85 jobs.

Demand for polystyrene in Europe is on the downswing because of shifts in consumer preferences with respect to end products. For instance, traditional television sets used more polystyrene than modern flat-screen televisions. Polystyrene is also used to manufacture printer casings and compact-disc boxes, but production of these goods is now shifting to Asia, which boasts cheap labor costs. BASF is thus compelled to downsize because of weak regional demand and intense competition from low-cost rivals.

BASF is not the only firm to be affected by the failing demand for polystyrene in the European market. Earlier this month, The Dow Chemical Company (NYSE:DOW) (Midland, Michigan) announced plans to shut down its 65,000-ton-per-year polystyrene manufacturing plant in Bilbao, Spain, by the third quarter of this year because of falling demand and depressed margins for the product in Europe. Earlier this year, there was a surge in the price of styrene monomer, the feedstock for production of polystyrene. This added to the woes of the regional polystyrene industry, which was already reeling from the effects of reduced demand.

Last week, the European Central Bank forecast that demand for styrene products in the European Union would decline by about 4.6% this year. The European chemical industry is reportedly operating at a little more than 70% of its production capacity because of the slump in demand from the automobile, construction and electronics industries that are affected by the global economic slowdown.

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