OUTLOOK '12: Europe styrenics players optimistic about new year

27 December 2011 12:30  [Source: ICIS news]

By Truong Mellor

Europe styrenics players optimistic about new yearLONDON (ICIS)--While the European styrenics market still faces some obstacles, a swathe of new derivative capacities starting up in 2012 and a robust expandable polystyrene (EPS) sector are keeping players optimistic about the new year.

“There is a lot of concern about the volatility of the wider economy of course,” said one trader back in October. “But at times it’s as if people can’t see the forest for the trees. We are going to see a much tighter European market next year.”

Speaking at November's European Aromatics & Derivatives Conference at Amsterdam in the Netherlands, Martin Pugh – president Europe, the Middle East and Africa at Frankfurt-headquartered producer Styrolution – said styrene is undergoing a significant shift, with demand growth likely to overtake capacity additions in the next three years.

This, he said, will lead to operating rates gradually returning to around 90%, from the 80% level seen since the end of 2008 as a result of the economic downturn.

Speaking at the European Petrochemical Luncheon (EPL) in Brussels, Belgium, earlier this month, a source from one major styrene net producer said that the start-up of new downstream facilities in Egypt, Saudi Arabia and Turkey next year will mean that an additional 10% of demand for the monomer would be created, calling it a “good sign”.

However, the producer remains “conservative” about the outlook for European styrenics as a whole, citing concerns about the Chinese economy and its potential impact on the global landscape.

And the start-up of these new polystyrene (PS) and EPS ventures in 2012 will in all likelihood prove to be a double-edged sword for the European market. Certainly, the increased output of PS from the export-driven Middle East will make next year challenging for domestic suppliers.

The emergence of a single European barge contract number seen ahead of the December settlement is also likely to be a key topic in 2012, with many players unsure of how the various parties will manage to reach a consensus each month.

“I suspect it will push the overall number each month up by 2–3% when compared to the monthly average we’ve seen throughout 2011,” said one trader.

Many players are also carefully watching Styrolution and how its role in the market will unfold in the new year.

With 17 production plants in 10 countries, Styrolution is now the global leader in the production of styrene monomer (SM), PS and styrene-based copolymers, and number two in acrylonitrile-butadiene-styrene (ABS), chief executive Roberto Gualdoni said on the sidelines of the 45th European Petrochemical Association (EPCA) earlier this year.

The state of derivative markets fluctuates from sector to sector, with PS players somewhat concerned about 2012 because of the cheap imports expected to hit Europe from the Middle East.

The PS market, which has struggled with oversupply despite a 25% capacity reduction over the past five to six years, is forecast to grow by only 3%, while other derivative markets such as EPS and ABS may expect to see growth rates of up to 5–6% from now until 2014.

Among downstream sources, there looks set to be a cautious start to 2012, with ABS players concerned over the state of eurozone economies and the viability of the euro as a stable currency.

Buyers have been destocking and purchasing the minimum necessary throughout the fourth quarter of 2011, as the risk of recession and debt contagion filter through Europe, and several sources worry that this pessimism may continue into next year.

“The euro doesn’t make anybody comfortable. Hopefully people will come back in a better mood after Christmas,” said one ABS producer.

Demand is expected to increase to some extent in January and February as end-users that have run down inventories towards the end of 2011 will need to replenish their stocks, but whether any solid recovery will take place is in doubt.

So far the order level for January is looking OK. There will be decent demand but there is still capacity to fill, one manufacturer said. “Everybody is being very cautious.”

Others are a little more bullish, warning that with everybody running on such low stocks, it will only take a slight blip in availability or increase in demand to push the market upwards.

“The pipeline is empty. It doesn’t take much to kick-start price increases,” said a producer.

Several buyers and sellers are confident that feedstocks styrene and acrylonitrile (ACN) will stabilise or see some recovery in the new year, which will help push ABS values back up after seeing €205–240/tonne decreases since September.

However, much will also depend on the flow of cheap imports from Asia, which had a big part to play in European ABS price reductions in the fourth quarter of 2011.

Weak demand in Asia saw standard grade injection moulding ABS from the region sold for as little as €1,650/tonne FD (free delivered) NWE (northwest Europe) in December, as much as €100/tonne ($130/tonne) below domestic numbers.

European sellers hope the Asian market will recover when the Lunar New Year celebrations end in February, leading to fewer cheap imports coming in.

“We can only hope prices go up. It’s about time prices went up in Asia as it is having a big impact,” a trader said.

EPS players, meanwhile, are “realistically optimistic” about 2012, with one key European producer expecting stable growth levels next year despite the wider economic woes.

($1 = €0.77)

For more on styrene, PS, EPS, ABS and ACN, visit ICIS chemical intelligence

By: Truong Mellor
+44 208 652 3214

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