OUTLOOK '09: Early-year increases, volatility for Europe styrenics

29 December 2008 13:02  [Source: ICIS news]

By Peter Salisbury

LONDON (ICIS news)--While much of the latter part of this year has seen European styrene prices drop from record highs to near-historical lows against a bleak backdrop of crumbling demand, players within the wider styrenic complex said they were expecting early-year increases and a volatile 2009.

Styrene trading had fallen into the low $500s/tonne FOB (free on board) Rotterdam in mid-December, down 70% from a record $1,830/tonne (€1,299/tonne) FOB (free on board) Rotterdam deal done on 8 July, as downstream demand crumbled, despite wide-ranging production cutbacks.

By the week ended 12 December, European players estimated that styrene and key downstream polystyrene (PS) production was now at 50% of capacity or less on the back of “abysmal” demand and near-inoperable margins.

With a widely recognised scenario of global economic turmoil and a number of European countries officially in recession at the end of 2008, demand across all styrenics and polymer sectors was seen to have weakened significantly within the region, leaving producers fighting to adjust their production accordingly.

Fourth quarter ethylene prices were set at €1,120/tonne FD (free delivered) NWE (northwest Europe), leaving styrene production margins strangled during the final three months of 2008, as falling feedstock prices pushed contract values down to levels where volumes were being sold, in some cases, at less than technical cost.

This pressure was expected to be relieved somewhat in January, when a new, lower, ethylene price would be settled. Spot ethylene values were now in the low-to-mid $500s/tonne CIF (cost, insurance and freight) NWE.

The crash of styrene and upstream benzene values seen in November and early December had meanwhile been routed by the third week of the month, as players came out to buy the former product. 

A number of producers had mooted a late December or early January “bounce” in values, as players who had aggressively destocked into the end of the year were forced to buy, or foresaw higher prices in the new year.

This would remain a common theme in 2009, a number of key styrene players said – consumers buying when the market bottomed, pushing prices up, and then holding out until they dropped again, causing unpredictable and rapidly volatile markets.

PS had suffered a bad year in 2008: volumes were down by an estimated 10% even before final figures were out for the year and in December output was as low as 50% in some cases.

The situation was all the worse because installed European capacity had already been cut back by 13% in 2006, when producers' margins had seen a recovery which lasted little more than a year.

Expectations of any short-term PS recovery were low, and in December Dow announced the permanent closure of its 50,000 tonne/year Terneuzen, Netherlands, unit.

Observers did not expect any material difference in the PS market and conjectured that more capacity would be taken out. Some producers expected a better second half of 2009, but many observers felt that this was based on hope rather than real expectation.

Players in the European expandable polystyrene (EPS) market believed that 2008 would see a return to more normal and stable trading conditions, following a volatile 2007.

This year saw a first quarter surge in EPS demand from 2007. However, the latter part of that demand was more apparent than real, leading to oversupply and plunging prices in the second half of the year as producers sought to adjust to the requirements of an oversupplied market.

Producers and consumers have both attested to the underlying soundness of the market, with consumption of EPS buoyed up by long-term growth in insulation in buildings.

The need for cost and energy savings in the construction industry throughout Europe should drive increased output. Players were now less bullish than they were early in 2008 but it was thought that growth of 3-5% was probable.

The instability of feedstock markets was also cause for concern among European acrylonitrile butadiene styrene (ABS) players.

With the poor state of styrene monomer (SM) and significant price drops predicted for butadiene and acrylonitrile (ACN) first-quarter contracts, customer expectations were extremely bearish. Producers said they would attempt to stem the tide, but said that decreases were inevitable.

Market participants were uncertain when demand might recover as the shadow of recession was keeping consumption low in key sectors, such as the automotive industry.

ABS availability going into 2009 was very high as a result of low demand. However, a producer predicted that, once styrene began to bounce back, there would be a flurry of buying activity as customers would try to take advantages of low prices while possible. Once this occurred the ABS market would be back on track, it said.

Asian material was expected to still be offered in Europe at very low prices in early 2009.

($1 = €0.71)

Linda Naylor and Stuart Moir contributed to this article
For more on styrene, PS and EPS visit ICIS chemical intelligence
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By: Peter Salisbury
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