FocusChina EPS to fall further on bearish demand, supply glut

22 November 2011 09:25  [Source: ICIS news]

By Rita Wu

SINGAPORE (ICIS)--Domestic expandable polystyrene (EPS) prices in China may continue falling because of weakening demand, with the downward pressure compounded by strong supply and declining feedstock values, industry sources said on Tuesday.

Spot prices for general grade EPS were at  yuan (CNY) 11,200-11,300/tonne ($1,761-1,777/tonne) on Tuesday, down by almost CNY 2,000/tonne, or 15%, from the beginning of August, according to Chemease, an ICIS service in China.

Over the same period, prices of feedstock styrene monomer (SM) declined a steeper 18% to CNY9,800/tonne on Tuesday, Chemease data showed.

EPS is used mainly for packaging in the eastern and southern regions of China, and principally as outer wall insulation material in the northern parts.

Demand for EPS has significantly weakened at the onset of the winter season in the fourth quarter, when construction activities slow down in the northern regions.

EPS producers complained of difficulty selling products.

“We find [it] more and more difficult to sell,” said an EPS producer.

“It seems that the winter for China’s EPS is coming,” said another producer.

In the packaging sector, demand for EPS has also been lacklustre since the start of the year, and even got worse in the second half, as production of downstream home appliances have slowed down.

Manufacturers of home appliances, such as refrigerators and washing machines in southern China have reduced production to below 50% because of high inventory, said a major manucturer.

Demand for China’s EPS overseas has also softened, industry sources said.

“We have no interest to buy or sell goods, especially in such a soft market,” a trader said.

China, with a total EPS capacity of 4.90m tonnes, is currently in oversupply of the material given that domestic demand was just at around 2.80m tonnes as of end-2010, according to Chemease. Producers usually run their plants at an average rate of around 60% every year.

Falling demand has been prompting EPS makers to either cut production or shut down plants to prevent inventories from building up too much, industry sources said.

“We cannot get any support from the upstream styrene monomer (SM) market also, because the SM is [also] on its way down,” said an industry source.

A downturn in China’s real estate sector because of the government’s monetary tightening measures is also weighing down on the outlook for China’s EPS market.

($1 = CNY6.36)

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By: Rita Wu

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