Buyer worries weigh on Europe SM down €30-40/t

04 September 2008 16:50  [Source: ICIS news]

By Peter Salisbury

LONDON (ICIS news)--September styrene monomer (SM) contracts were settled down €30-40/tonne ($43-58/tonne) in Europe, raising concern among a number of industry players who had expected considerably lower settlements on less demand.

“It is close to an absolute disaster and it doesn’t bear any resemblance to the reality of the situation,” said a source at a major merchant styrene consumer on Thursday. “Downstream demand doesn’t support these levels.”

The source went on to say that the existing public settlements had “ceased to be a mechanism that has any validity”.

September barge styrene contracts had been settled twice at €1,250/tonne FD (free delivered) NWE (northwest Europe) and once at €1,230/tonne FD NWE, down €30/tonne, €36/tonne and €30/tonne respectively from the contract partners’ August settlements.

Market participants also confirmed Wednesday's settlement of the September truck, or FCA (free carrier) customer reference price (CRP) at €1,250/tonne FCA Rotterdam, down €40/tonne.

The settlements had been made in line with movements in upstream benzene - where contracts for September were concluded at €871/tonne FOB (free on board) NWE, down €29/tonne - alongside lower energy and spot values alongside weak derivative demand, players said.

The contentious issue for the consumer, echoed by a number of other buyers and even a styrene producer, was the relation between spot values and the contract settlements.

August had seen benzene and styrene spot prices dip some $200/tonne, staging a brief recovery at the end of the month before collapsing $100/tonne inside a week.

Spot styrene for September loading had traded at $1,690/tonne FOB Rotterdam on Thursday 28 August, an intra-month high. A week later and trades were being conducted at levels as low as $1,585/tonne FOB Rotterdam, some $105/tonne lower.

Over the same period, benzene had fallen from a monthly trading peak of $1,300/tonne CIF (cost, insurance and freight) ARA (Amsterdam, Rotterdam, Antwerp) to be valued at $1,180-1,200/tonne CIF ARA, down $100-120/tonne.

Benzene contracts in Europe are traditionally settled on the basis of a value agreed to be representative of the second to last day of the month’s spot business converted to a euro price at an officially agreed exchange rate.

Benzene and styrene players alike had expressed dismay at the time of the upsurge in spot values, as their forecast contract settlements were cast to the wind.

“It really looked like we were in for a decrease of double what we got,” said one buyer. “There was this period of, what? four, five days, where spot was higher, and we settled on that basis.”

Polystyrene producers in particular were thought to have been badly hit, with weak margins and poor demand exacerbated by a smaller-than-expected decrease. 

One producer was reputed to have dropped prices by as much as €50/tonne in anticipation of a €60-80/tonne styrene decrease.

Other buyers, however, considered the settlement to be fair. 

“It could equally have been a lot higher, given where the spot market was,” said one truck contract settler.

Styrene producers also said that the contract levels to be representative of the market, and shook off consumer concerns.

“Sometimes the way that contracts get settled benefits the buyers more than the sellers and vice-versa,” said a source at one producer. 

“Our margins are still under pressure, no question, and our consumers got a decrease.”

Looking forward, potential decreases in fourth-quarter ethylene contract prices would create a bullish atmosphere among buyers in October, they said.

($1 = €0.69)

For more on benzene, styrene and polystyrene visit ICIS chemical intelligence
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By: Peter Salisbury
+44 20 8652 3214

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