Styrene takes off…

29 March 2004 00:01  [Source: ACN]

… but tension between snug supplies and a weak downstream sector means that price direction is difficult to predict, writes Monica Bianchi ofTecnon OrbiChem

THE supply side of the styrene market has attracted much attention over the past few months. After all, it was supply, not demand, that has been behind the steady rise in Asian prices. Despite their volatility, which is a regular feature in the trader-driven styrene markets, prices in Q1 mostly remained over US$800/tonne cfr China. The highest level was at end-January, when product was sold at around US$930/tonne cfr China.

The first half of 2004 was always expected to be a period of tight supplies for styrene. Large turnarounds got under way in the US during quarter one, with BP Chemicals, Chevron Phillips Chemical, Dow Chemical and Sterling Chemicals out during January and February, and Lyondell Chemical and Cosmar due to take their maintenance in March. A round of maintenance shutdowns is now planned for Q2 in Asia.

Added to the expectations of tight markets, which helped support styrene pricing even before the start of the US turnaround season, benzene feedstock prices remained very firm throughout late 2003, and continue to perform strongly this year.

Crude-oil prices were a very important variable for benzene in 2003. After the official conclusion of the Iraq conflict, numbers remained firm and highly volatile, pushing benzene prices up in North America, Europe and Asia.

In early March this year, crude hit a one-year high at just over US$37/bbl on the back of reports of political unrest in Venezuela. And in mid-March prices surged to a 13-year high of US$38.18/bbl after the US reported a decline in its stocks.

The volatility in the crude and benzene arenas prompted styrene producers to start raising their own prices to safeguard margins, with the issue of high feedstock prices overriding existing concerns about downstream demand.

The styrene market in the US was tight over Q1 with very limited availability for export. This left Asia in a tight and vulnerable position, as the US has become one of its leading suppliers.

In 2003, China’s imports of styrene rose to 2.6m tonne, against 1.8m tonne in 2002. According to customs statistics, the US supplied over 300 000 tonne to China last year. This is against just over 30 000 tonne in 2002. The US ranked third among China’s styrene suppliers in volume terms after Japan and South Korea.

Styrene prices in Asia hit US$920/tonne fob Korea at the start of February on reports of production difficulties in the region and of a major benzene spot price hike in the US. But prices dropped by around US$100/tonne in the second week of the month to US$820-850/tonne fob Korea. This drop had more to do with the inability of downstream markets to absorb the hikes than with an easing in feedstock prices.

Polystyrene (PS) players were the hardest hit when prices for general-purpose PS dropped to US$920-930/tonne cfr China/SEA in February from a high of around US$1000/tonne cfr China/SEA in the preceding month. In Southeast Asia, many converters were reportedly working at 70% or lower because of the high prices that were being asked for the polymer.

In China, the expandable PS (EPS) sector was also hit by severe weather conditions that dented retail sales. Unsaturated polyester-resin markets were also reported to be depressed in east China, where demand for styrene was halved in February this year.

In spite of the lower levels of downstream activity, styrene producers maintain it is difficult for them to drop prices below a certain level because of high benzene and ethylene costs. Benzene has been firm since the beginning of 2004.

In the US, it has recently been trading either side of US$2/gal fob US Gulf Coast, while in Asia it has been over US$500/tonne fob Korea in the first quarter. As for ethylene, the monomer hit near-historic highs at US$760-800/tonne cfr Asia in late February.

In addition to pressure from expensive feedstocks, styrene supplies remain tight as the ongoing turnaround season in the US means deep-sea shipments are likely to start arriving in Asia only in April when Asian turnarounds are due to start.

Market players are as yet uncertain of price direction given the tension between snug supplies and a weakening downstream sector. And in the background there are feedstock prices that are not showing any sign of declining. At this stage, even rumours of unscheduled interruptions to output or difficulties in restarting US plants after maintenance may cause styrene prices to take off again.

In the longer term, China will remain a key driver for the global styrene market, as its downstream capacity increases. China, however, has not only increased its imports of styrene but also of PS, EPS and acrylonitrile butadiene styrene (ABS) as there has been a clear shift to relocate industry in China, based on its more favourable labour costs. China’s exports of finished products are also rising fast.

The country is building up its strength in styrene production with projects involving joint ventures or alliances with western partners. If these projects go ahead and come onstream on time, China’s capacity will increase to around 2.5m tonne/year by 2006, but its consumption will reach 4.5m tonne in the same year. Therefore exports are expected to continue to increase until 2006, before the startup of the new projects.

But China is also building polymer capacity. In 2003, the country imported 1.5m tonne of PS. This is slightly lower than the 2002 figure of 1.6m tonne. ABS imports rose from 1.6m tonne in 2002 to around 1.8m tonne in 2003. Most of this material originated from Taiwan and South Korea. China’s imports are likely to remain healthy, but they may decline gradually over the next five years as they are replaced by domestically produced material.

The influence China has had on global styrene markets and pricing has been very significant over the past few years. China’s somewhat erratic purchasing patterns have dominated market talk and price movements, as the country developed into a significant importer of styrene to feed its new polymer capacity and finished products industry.

A key question here is the ability of China to organise its volatile purchasing patterns. This concern may diminish as China becomes more involved in the international economy. The sometimes extreme volatility in purchasing attitudes may be tempered by the growing integration of its players with the global industry through long-term supply contracts.

Globally, Tecnon OrbiChem is forecasting styrene demand to grow at an average rate of 3.5%/year between 2004 and 2009. The market has now hit 23m tonne. And if it continues to grow at this rate, supply is expected to remain tight. New capacity would need to be added in order to keep up with demand growth. If the market were to grow faster, at let us say 4.0-4.5%/year, the styrene industry could potentially run out of capacity by 2008.

There are projects due to come onstream in China, the Middle East (Iran and Saudi Arabia). Among the new projects in China, BASF’s joint-venture plant in Nanjing is due to start next year.

Major projects in the Middle East include the 500 000 tonne/year Sadaf project in Al-Jubail, Saudi Arabia, that is due to start in 2006 or later. Another project in the Middle East is a 700 000 tonne/year plant by Saudi Chevron Phillips due for startup in 2007.

Besides these, some debottleneckings will also take place in the US for Cosmar and Nova Chemicals between 2005 and 2006.

But if these projects are delayed, supply could get tighter much sooner than expected.

Tecnon OrbiChem publishes a monthly newsletter and maintains a supply/demand database for styrene and its derivatives.E-mail: monica@orbichem.com

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