Asia SM stagnates on low demand, increased supply

21 April 2008 07:05  [Source: ICIS news]

SINGAPORE (ICIS news)--Spot prices in the Asian styrene monomer (SM) market have remained directionless for over a month on high inventories, low demand and an expected rise in production, market participants said on Monday.

SM spot prices in the key Chinese market were stagnating at $1,410-1,450/tonne CFR (cost and freight) since late February, according to global chemical market intelligence service ICIS pricing.

Rising crude prices failed to boost SM prices while flagging end-user demand in the downstream styrenic resins sector since the end of the Lunar New Year holidays did not pull down prices either.

“The lack of definitive price direction had curtailed spot deals as traders had become cautious,” said a trader in Shanghai.

End-users similarly kept to contract volumes and avoided the spot market.

“Basically, most end-users have sufficient SM stocks and with uncertain demand for resins like polystyrene (PS), expandable polystyrene (EPS) and ABS [acrylonitrile-butadiene-styrene], end-users like us will not venture to buy spot material,” said a Taiwanese EPS manufacturer.

However, some signs of an end to the deadlock were said to be emerging as the inventories along the eastern Chinese shore tanks had started to decline in recent weeks.

Estimates by traders pegged the volume in the low 80,000 tonnes, down from around 130,000 tonnes in the first half of March.

Chinese end-users and distributors had picked up parcels over the past weeks given that domestic Chinese parcels quoted in yuan, and dollar-denominated bonded tank material, have been trading at a sharp discount to CFR China cargoes.  

“The inventories in the shore tanks had been steadily declining and a portion of the material currently sitting there had been purchased and will be delivered to customers soon,” said a trader in eastern China.

“Limited arbitrage from the US to China over the past months had also helped tighten supply in Asia, which could lead to potentially higher prices when Chinese shore tank materials get digested,” said a broker in the SM market.

Another trader in South Korea added to the bullish outlook saying that buoyant crude prices had boosted benzene numbers, which would have a spill-over effect on SM values.

Other less optimistic players included several end-users who believed that demand for SM would remain poor even after the Chinese Labour Day holidays.

They anticipated a significant pick up of styrenic resins demand only from July with the months of May and June expected to remain sluggish.

“Given the recession fears in the US, orders for finished products flowing to China had been limited. Coupled with the government’s tight credit policy and labour shortages in the southern regions, the manufacturing sector would likely remain slow and hence result in a slower consumption for resins,” said a resins trader in Hong Kong.

Operating rates at styrenic resins factories in China had been reduced due to mounting inventories, producers with plants in China said.

Others in the bearish camp talked about an increase in SM supply from May as Japanese facilities like Asahi Kasei, Idemitsu Kosan, Nippon SM would have completed their turnarounds and subsequently ramp up productions.

Taiwan’s TSMC had also ended its maintenance in mid-March while Indonesia’s SMI would complete planned improvements at its unit by May.

Additional output from Shangliang Lishide’s 200,000 tonnes/year No 2 unit would be available to the market in May while South Korea-based Lotte Daesan’s newly expanded capacity of 150,000 tonnes/year in the second half of April would likely be available to customers during the same time, said a South Korean trader. 

“Given these additional supplies towards the middle of the year, demand from the styrenic resins sector would have to be robust to prevent the SM market from slumping,’ said an end-user in China.

For more on these chemicals visit ICIS chemical intelligence

By: Clive Ong
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