18 June 2008 16:50 [Source: ICIS news]
By Peter Salisbury
LONDON (ICIS news)--Potential third-quarter hikes in upstream ethylene are causing concern over the profitability of the European styrenics chain, players said on Wednesday, with poor margins from top to bottom and depressed demand on sky high prices.?xml:namespace>
June ethylene bi-monthly contracts were settled up €75/tonne ($117/tonne) at €1,105/tonne FD (free delivered) NWE (northwest ?xml:namespace>
Styrene producers were likely to try to pass down at least some of this increase, players said. A source at one major producer said that a €100/tonne increase in ethylene, mooted by some producers, would equate to a minimum hike of €30/tonne on styrene.
Since the settlement of second-quarter ethylene contracts, up €15/tonne, monthly styrene had already increased by an average €110/tonne, with June finalised at €1,145-1,190/tonne FD NWE.
Players in the styrene and polystyrene (PS) markets had said at the time of the settlement that their already strained margins were now under extreme pressure. One producer had said that, given a €97/tonne increase in feedstock benzene and record high energy costs they were “not even able to cover production costs”.
Downstream, weak demand for PS in
PS was a “dying product”, said one buyer. Another suggested there would be some more capacity cutbacks in the European PS industry in spite of 13% being cut back from the end of 2005 to the end of 2006. PS capacity was thought to currently be running at 80% in the region.
Many producers, buyers and traders in the styrene market said that, although no official announcements had been made, the vast majority of producers in
“The worry is that, if prices stay this high, we will kill end-user demand,” said one buyer. “And then there is nowhere for the product to go, regardless of cost.”
A source at a major European trader, meanwhile, said that not passing the costs on was equally dangerous.
“If we cannot pass them on to the consumer, we are in trouble,” he added.
“I am still of the opinion consumers must get used to the higher prices,” the trader said. “It should still be possible to pass on costs for two or three months. After that, though, I don’t know.”
Uncertainty over the future was a key talking point in the market, with the sustainability of current price levels, let alone higher costs an issue across the board.
Spot benzene and styrene have been largely driven by energy complex values during the past few months, with both markets seen as largely balanced in terms of supply and demand fundamentals.
Analyst predictions of crude oil trading at up to $200/bbl made the market situation even more precarious, players said.
“How sustainable is high pricing?” said one producer. “It is not easy to say but there is only so much the downstream can take.”
The situation in the PS market did not help, the player added, although expandable polystyrene (EPS) had shown some support recently, with demand in
Another producer said that the market was still profitable, meanwhile, and that it was too soon to perform final rites.
“From today’s point of view, people can stay producing on a sustainable basis and still make money,” said a source at one major producer.
The source conceded, however, that this was not likely in the long term.
“It is still too early to say if the market is destroyed,” he added.
($1 = €0.64)
For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.
Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.
|ICIS news FREE TRIAL|
|Get access to breaking chemical news as it happens.|
|ICIS Global Petrochemical Index (IPEX)|
|ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index|