INSIGHT: Asia styrene at a temporary crossroads
29 November 2010 17:06 [Source: ICIS news]
By Clive Ong
?xml:namespace>SINGAPORE (ICIS)--Recent volatility in styrene monomer (SM) prices in Asia may be an indication of what is to come for one of the most widely used petrochemicals. Yet a number of players believe that the broader trend is likely to be upwards next year.
Global economic uncertainty overshadows the market.
Mature economies led by the United States are pumping in money to stimulate consumption alongside belt-tightening measures to rein in bludgeoning deficits, while emerging economies are trying to contain inflation amid rising domestic consumerism. Both trends seem to compete against each other.
Styrene monomer, a liquid chemical used to manufacture a wide range of plastic resins and synthetic rubbers that go into making a large number of consumer goods, is on a bumpy ride.
A previously bullish outlook and price upswing since August in Asia came to an abrupt halt in November, when monetary tightening in China sparked a sell-off in global commodities.
Simultaneously, the resurfacing of sovereign debt problems in Ireland has fuelled talk that demand in Europe for China-made products could wane.
Unsurprisingly, some SM players in Asia are uncertain which way the trend will go.
Projected demand for styrene next year remains a hotly debated topic among players in Asia, and there seems to be no consensus on how strong demand might be.
Even though the US is trying to avert a deflationary spiral, with the government aiming to jump-start the economy with massive doses of easy credit, consumer demand appears to be little improved and in some instances has stalled.
In Europe, Greece’s debt woes had hardly been mitigated by the bail-out from the International Monetary Fund (IMF) before similar troubles started to crop up in Ireland. The debt contagion could still spread.
In Asia, governments in China, South Korea, Hong Kong, Australia, Singapore and several other countries are battling with rising inflation. Central bank rates have been pushed higher in China, South Korea, Taiwan and Australia, to help rein in surging costs and a rapid run-up in asset prices.
Yet for some styrene players, Asian demand could remain strong, with higher prices in 2011 despite a slowdown in demand for China-made end products.
For them, the shortfall in styrene demand from the US and the eurozone economies will be mitigated by urbanisation in China and other Asian countries.
In China alone, around 2m tonnes of downstream styrenic resins capacity is expected to come onstream in 2011, versus only 400,000 tonnes of SM. This wide gap is expected to boost SM demand and prices.
“SM supply would likely remain tight in 2011 due to the large increase in styrenics capacity in China,” said a Chinese trader.
Similarly, Japan may also face tight supply as “Mitsubishi Chemical is exiting the SM business in March-April next year”, a Japanese trader said.
To add to the tight supply situation in 2011, prices for SM and other commodities could get a boost from massive worldwide liquidity.
Quantitative easing by the Federal Reserve and the resultant historically low bank rate in the US are likely to prompt a continual flight from the dollar to other asset classes and higher oil and petrochemical prices.
“Liquidity-driven price increases would likely apply to SM just like other commodities,” said another trader in China. “The further appreciation of the yuan will also increase speculation in chemicals like SM and will likely drive prices higher.”
Some traders appear to be buying in the dips in anticipation of firmer prices in the first quarter next year, a producer in eastern China said.
The Chinese government is widely expected to adopt a more flexible currency approach, allowing the yuan to appreciate further. This in turn will lead to increased interest in imported SM parcels, which are denominated in dollars.
“A stronger yuan and weaker dollar would result in higher numerical value for imported cargoes, therefore traders are likely to keep buying as prices are expected to move along an upward gradient,” said a trader in Hong Kong.
For more on polyethylene visit ICIS chemical intelligenceBy: Clive Ong+65 6780 4359
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