Soft Europe PS demand may rebound to hit styrene

14 March 2008 18:42  [Source: ICIS news]

LONDON (ICIS news)--The impact of high European styrene prices on downstream polystyrene (PS), which was already facing weak demand, may boomerang back to hit the styrene market itself, participants in both markets said on Friday.

"If someone major backs out of styrene demand for PS, then that could be 50,000 tonnes less demand a year," said one trader on Friday.

"If that happens, then styrene values are going to take a [plunge]," the trader said.

March styrene contracts were up €47-50/tonne ($73-78/tonne), settling once at €1,088/tonne FD NWE and twice at €1,122/tonne FD (free delivered) NWE.

"Demand has not been as good as we expected this month and we won’t be able to cover the styrene increase," said one European PS producer.

The styrene contracts were pushed up by a €50/tonne hike in upstream benzene values and a rise in spot styrene values, which had gained more than $100/tonne since February.

Downstream, PS volumes were poor in non-food sectors, while food packaging volumes were sustained, according to market participants.

PS producers were finding it increasingly difficult to recover styrene costs in all applications.

"Profitability is collapsing. This is the third month in a row that we have lost margin," said another PS producer, noting that production was running at reduced rates in Europe.

"We have to find a way of disassociating PS prices from styrene," the same producer said.

This would prove difficult in the short-term as the market had now become accustomed to the link between the monomer and the polymer, a situation that had been initially promoted by certain sectors of the PS community.

"They started it, and now it’s not working in their favour, they don’t like it," said one large PS buyer still in the throes of March PS negotiations.

There was a concern in the styrene market that producers that usually used their output internally could revert to selling the monomer on the open market, creating extra surplus in supply.

Imports to Europe, especially due to strong demand for expandable polystyrene (EPS), were another concern, especially given the current weakness of the US dollar against the euro.

"It’s a really big threat to EPS producers," said another trader.

"Last year at around this time, Asian EPS imports destroyed the European market. Demand was incredible, but players in China, Taiwan in particular, made use of the arbitrage window as prices went up," he added.

Spot styrene was trading at $1,500-1,515/tonne FOB (free on board) Rotterdam at the close of business in Europe on Friday, with deals noted at $1,500-1,520/tonne FOB Rotterdam, down $10/tonne on the previous week’s weekly range.

($1 = €0.64)

Additional reporting by Linda Naylor

For more on styrene visit ICIS chemical intelligence

 

By: Peter Salisbury
+44 20 8652 3214

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