FocusEurope styrene producers suffer as margins are squeezed

19 June 2009 12:19  [Source: ICIS news]

By Madelon Ten Cate

LONDON (ICIS news)--European styrene producers have been left with negative margins due to rising upstream costs, a lack of export opportunities and weak buying interest, sources said on Friday.

“If you look at where current July spot numbers are and combine that with the weak [US] dollar, our production costs are currently higher than our return on styrene,” one European producer said.

On 18 June, spot July styrene deals were done at $935-940/tonne (€673-677/tonne) FOB (free on board) Rotterdam, while some sources reported trades done at even lower levels.

On the same day, July benzene traded twice at $805/tonne CIF (cost, insurance and freight) ARA (Amsterdam, Rotterdam, Antwerp), narrowing the spread between benzene and styrene to an unhealthy $130-135/tonne.

Market sources said that a spread of around $200-250/tonne is profitable.

“You get the idea that producers would start buying spot styrene instead of producing it,” one trader said, while another trader added that “producers will try to reduce their losses”.

A seller in Europe said that European production was running at approximately 80-85%, indicating there was some room to cut back operating rates.

However, contractual obligations and a contango in to July meant that any decisions would not be taken light-heartedly.

“[The] European perspective is that benzene is tight,” the producer said. “Nowadays, prices are mainly based on speculation, and I don’t see any values come off in July”.

Another producer said that its “operating rates were already adjusted to market reality” and that it did “not see any reason to change now”.

Sources said the arbitrage to other regions was shut, although ongoing price increases in Asia – caused by tight supply and stable-to-strong local demand – left some European players hopeful that export opportunities would soon arise.

On Friday, global chemical market intelligence service ICIS pricing assessed Asian styrene at $1,045-1,055/tonne FOB Korea, creating a differential of more than $100/tonne between European and Asian prices.

A trader said that this amount could, in theory, be enough to ship material, although vessel availability was proving difficult.

A European buyer, nevertheless, said that it saw some downsides to higher Asian values.

“If Asian levels continue to rise, then it is possible that all US material will go to Asia and nothing will come to Europe anymore. At the same time, European material can then go to Asia, leaving the European market tight and prices high.”

It appears that July will not prove any easier for European styrene producers, with the upstream ethylene contract expected to rise by €40-90/tonne and benzene already traded more than €50/tonne above the June contract price.

Earlier in the week, some downstream polystyrene players said that an increase of €20-30/tonne for July styrene contracts was likely, however, it was doubtful they could achieve this.

“We have had our margins squeezed in June already, there is no option for us then to fully pass on any increases we might see in July,” a producer said.

($1 = €0.72)

For more on benzene and styrene, visit ICIS chemical intelligence
Read Paul Hodges’ Chemicals and the Economy Blog
To discuss issues facing the chemical industry visit ICIS connect

By: Madelon Ten Cate
+44 20 8652 3214

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.

Printer Friendly