Europe SM producers may cut back production

25 June 2009 19:25  [Source: ICIS news]

MADRID (ICIS news)--European styrene producers are likely to cut back on production in July to balance out the market and boost prices, market sources said on Thursday on the sidelines of the European Petrochemical Luncheon (EPL).

A trader explained that producers had been unable to fully pass on increases in feedstock costs in recent months, which had resulted in negative margins.

"Producers have been losing money for two months; if July stays the same, then they will need to take drastic action," the trader said.

Sources said integrated propylene oxide (PO)/styrene monomer (SM) plants had been running at high rates recently because of strong demand for PO from the automotive industry as well as exports to Asia.

This was echoed by at least one European PO/SM producer who said it was operating at full rates due to high demand from both Europe and Asia, although some other PO producers contested this.

Nevertheless, the styrene market in Europe was long, and sources said that traditional ethylbenzene (EB)/SM producers would have no other option than to reduce their operating rates.

One EB/SM producer said that it was still running at full rates, and that a possible cutback of production in July would also depend on its contract volume commitments for feedstock ethylene.

Ethylene contracts increased by €80/tonne ($111/tonne) for July to €785/tonne FD (free delivered) NWE (northwest Europe), according to global chemical market intelligence service ICIS pricing. Meanwhile, with July benzene trading at more than $130/tonne over the June contract price, the July benzene contract could increase by approximately €90/tonne.

The spread between upstream benzene and styrene was still low at $140/tonne. A healthy spread is well above the $200/tonne level, the producer said.

Benzene for July traded on Thursday at $860/tonne CIF (cost, insurance, freight) ARA (Amsterdam, Rotterdam, Antwerp), while June styrene was sold from trade to industry at $1,000/tonne FOB Rotterdam, sources said. Players pegged July at a similar level.

"Producers have lost a lot of their margins in previous months. We need to pass on as much of the feedstock increase in July as possible, or we would need to look at adjusting our production," said a European styrene producer.

($1 = €0.72)

Truong Mellor contributed to this story

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By: Madelon Ten Cate
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