FocusEurope PS buyers eye Asia for arb

24 July 2008 14:58 [Source: ICIS news]

By Linda Naylor

LONDON (ICIS news)--European polystyrene (PS) buyers are on the lookout for arbitrage opportunities as Asian prices slip due to weaker crude oil, market sources said on Thursday.

Brent crude was trading at just below $126/bbl (€81/bbl) on Thursday, down from the record high just short of $145/bbl in early July.

This easing had already affected Asian styrene spot prices, and subsequently PS prices, while European spot styrene and PS remained at record highs.

“I have offers of PS from Asia at prices similar to styrene prices in Europe,” said one potential buyer. “Demand is collapsing. What is happening in Europe goes against the global trend.”

“September will have a sea of PS from Asia at this rate,” he added.

General purpose polystyrene (GPPS) spot prices in Asia were in the low-$1,700s/tonne CFR, while European GPPS levels were in the mid-€1,300s/tonne FD (free delivered) NWE (northwest Europe) on a gross basis.

Net prices were assessed to be at €1,300/tonne FD NWE at many accounts.

Styrene spot prices were at $1,820-1,840/tonne FOB (free on board) Rotterdam, and $1,590-1,610/tonne FOB Korea.

While at today’s prices, the temptation for European buyers to bring over PS was not great, any further erosion in Asia, coupled with more price hikes in Europe in August, the situation could change rapidly.

European PS producers have made it clear to the market that they would be aiming to raise prices in August, with Dow announcing a €130/tonne hike for next month’s PS business.

Other PS producers were also planning to increase prices in August, after successfully covering the styrene contract price increase in July, by hiking PS prices by €50-60/tonne.

Most producers said that they would wait for styrene to be settled for August before presenting plans to the PS market.

“Styrene is so volatile at the moment that our upstream colleagues give us a new expectation for August every day,” said one major European PS producer.

PS buyers would not automatically accept increases for their August PS.

“There won’t be much drive for prices to go up if the energy component stays where it is,” said another PS buyer.

“Our whole chain is dying, I don’t see why we should give them better margins while our own are reducing,” he added.

PS demand was down on 2007, with some players estimating a fall of as much as 6% from last year. The situation was particularly painful for European PS producers who had cut 13% of installed capacity, mainly in 2006, to accommodate dwindling demand.

Discussions, as usual, were expected to be protracted.

PS producers in Europe include BASF, Total Petrochemicals, Dow Chemical, Polimeri Europa and INEOS NOVA.

($1 = €0.64)

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By: Linda Naylor
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