OUTLOOK '08: More Europe styrenics uncertainty

27 December 2007 16:09 [Source: ICIS news]

By Julia Meehan

LONDON (ICIS news)--European players in the styrenics market remained pessimistic on prices and downstream demand for early next year following an unpredictable 2007.

However, other key industry players said that it was really a matter of "wait and see" for the year ahead.

“You can’t predict what will happen tomorrow,” one major styrene producer said. “The market is going through the doldrums and has a tendency to go in to a long dark tunnel. Are we in the middle of this dark tunnel? I don’t know.”

Record high crude pushed up production and feedstock costs in 2007 at a time when styrene was long in Europe and demand had weakened, particularly for expandable polystyrene (EPS).

Another large producer said that his feeling for the market was “as good as the man on the street who didn’t even know what styrene was”, although he added: “Right now the market is very gloomy.”

One active styrene trader sounded a slightly more upbeat note about the market for 2008.

“We think inventories will be low in the first and second quarters and do not expect to see any imports,” the trader said, adding that December was still “looking heavy” and that there were more and more offers in the market because people want to close the year with empty tanks.

Meanwhile, styrene buyers were not expecting a booming market in January and February. “I expect the market to remain weak in January and February,” a resin producer said.

An EPS manufacturer also expected a weak start to 2008 but felt that “the end of the tunnel would be somewhere during the second half of January” when buyers would start coming back in to the market.

“In general terms the first and second quarter will be tight,” an aromatics producer said.

“ExxonMobil Corp will have a major shutdown for six-to-eight weeks so people will prepare,” he said. People can’t store endless quantities and storage is a problem, the source added.

ExxonMobil's 650,000 tonne/year benzene plant at Botlek in the Netherlands is set for the outage at the end of the first quarter or early second quarter.

Market sources said Lyondell is also set to bring down its 640,000 tonne/year styrene monomer plant at Maasvlakte in the Netherlands at a similar time for maintenance.

The producer felt that the US would play a major role as it was election year. “Let’s not forget this - people don’t want to show a bad economy. The government will not shake things up during election time.”

A number of styrene consumers pointed to the new capacity coming on stream in Saudi Arabia as potential keeping for keeping the European market under pressure.

It was questionable as to whether spot prices in Asia would hold at a premium over the US and Europe.

“The situation could change rapidly if Asia collapses,” a trader said. Another added that Asia was already awash with imported material.

The unpredictability of the styrene market in 2007 was a major source of concern for European acrylonitrile-butadiene-styrene (ABS) producers.

In spite of successive decreases in the styrene barge contract price in the second half of the year, ABS sellers were targeting €100/tonne ($144/tonne) hikes for January 2008, based on fears that high crude prices could raise their feedstock costs.

Sellers were encouraged by the strength of the ABS market in 2007, with one source commenting that offtake had increased by 10% in the first 10 months of the year.

The producer had every confidence that the ABS market would continue to develop into 2008, although it acknowledged that Asian imports had absorbed much of the increased demand.

Buyers shared their suppliers’ concerns about the likelihood of rising feedstock prices in the first quarter of next year, but emphasised that they had no difficulty obtaining sufficient volumes of ABS.

Meanwhile, the polystyrene (PS) market in Europe underwent significant changes in 2007 and producers were planning to take further advantage of the more balanced market going into 2008.

The closure of close to 13% of European PS capacity which began at the end of 2005 had a major impact which was expected to continue into 2008.

PS has become inextricably linked to styrene trends in the past couple of years, and producers would like to turn this situation around in 2008. They feel the supply-demand balance should determine market prices, rather than the upstream situation, which has increased in volatility over the past five years.

Buyers admit that supply was more restricted than in the past, and that they may have to accept new conditions in this formerly poor market, which was dominated by buyers.

PS growth in 2007 was good, above GDP, and producers saw no reason for this to stop in 2008.

“Sectors which have dwindled in PS volume have now stabilised,” said one major producer, citing in particular the telectronics and CD box sectors.

“The packaging sector has been strong this year and there is little room left for substitution to polypropylene (PP).”

The strength of the PP market was also supporting use of PS in Europe, and this was a situation which was not expected to change in the medium term.

On the whole, most PS players expected a robust market for 2008, with packaging and expanded PS (XPS) in particular maintaining good volumes and steady growth.

($1 = €0.69)

Samuel Weatherlake, Linda Naylor and Peter Gerrard contributed to this article

By: Julia Meehan
+44 20 8652 3214

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