OUTLOOK ’12: Asian styrene market to remain uncertain in 2012

27 December 2011 09:15  [Source: ICIS news]

By Clive Ong

SINGAPORE (ICIS)--The uncertainty seen in the Asian styrene monomer (SM) market in the later half of 2011 is likely to continue into at least the first half of 2012, according to traders, producers and buyers. 

Market players said the Asian exports of finished goods will continue to remain under pressure from the ongoing debt crisis in the eurozone and weak economic conditions in the US.

As a result, the demand for SM is likely be sub-par as downstream styrenic resin consumption remains soft. 

The demand for SM in the first half of 2012 may continue to be weak as the usual export destinations for Asian products are being dampened by the global economic slowdown, according to a styrenic resin producer in Taiwan.

Styrenic resin demand is unlikely to rebound in the near term, with producers and traders preparing for a weak first quarter. “The demand for acrylonitrile-butadiene-styrene (ABS) and polystyrene (PS) show no signs of improvement,” a trader in Hong Kong said.

“The earliest possible recovery will likely be in February, after the Lunar New Year holiday in late January,” the trader added.

With the operating rates of styrenic facilities in China at 40-70% capacity, the consumption of SM is expected to stay weak in the near term.

Other players said there may be a potential oversupply of SM inventory at the shore tanks in east China. The available stock for the spot market was estimated at around 90,000 tonnes in late December this year, compared to 72,500 tonnes in December 2010.

As a result, the market is likely be oversupplied by February. The inventory levels in February this year were high at around 160,000 tonnes, which subsequently halted the increase in SM prices.

The prices were at around $1,450/tonne (€1,117/tonne) CFR (cost & freight) China in mid-February, but declined to below $1,350/tonne CFR China in early April this year, according to data from ICIS.

“We are ending the year with a higher level of inventory in east China this year, which is worrisome as the chance of oversupply will be higher by the time the market reopens after the Lunar New Year,” a trader in Singapore said. 

In summary, participants with a bearish sentiment over the market continue to focus on the deflationary bias that is prevailing in the economies in Europe and the US.

High unemployment, faltering housing prices and volatile equities markets need continuous liquidity by governments as private sector investors exit the market.  Consequently, Asian exports of finished goods will likely be adversely affected again in 2012.

However, SM traders with a bullish view of the market said they predict a rebound in demand and consequently, higher prices in February next year. With low inventories of styrenic resins among most end-users, the buying momentum may pick up when the broader economy strengthens, which will spur the demand for SM.

“Currently, resin consumption is weak because of the uncertainty over the economies in the eurozone and the US,” a second trader in Hong Kong said.

“Buyers have low stock, but are postponing their purchases as orders for finished goods are limited,” the Hong Kong trader added.

However, the demand for styrenic resins and SM is likely to improve as well once the eurozone debt crisis eases with the implementation of some temporary measures by the EU.

The sentiment of some traders in China and South Korea on the SM market in February is bullish as SM buyers may emerge if resin demand picks up, a South Korean SM trader said.

Others who are optimistic about the prices said there will be a few scheduled plant turnarounds, most notably in Japan in March-May next year, which may tighten regional availability and sustain the prices to an extent. 

“The total SM output in Japan next year could be around 10% lower than this year because of the heavy turnaround schedule for 2012,” a Japanese producer said.

With inflation temporarily relieving in the fourth quarter of this year, Asian countries, including China and India, have started to ease their monetary policies and reverse the tight credit measures that was started in the second half of 2010.

SM players are generally expecting further easing in 2012 as Asian governments hope to boost domestic demand.

However, the economies in the eurozone and the US may still be soft and the consumption of Asia-made products from the two regions will continue to remain below expectations. 

The opportunities for the US-China arbitrage were mostly not taken up in the fourth quarter of this year.

The lack of a definitive price direction, market uncertainty and volatility recently weakened opportunistic trade. 

“It is the year end and most traders are unwilling to take huge risks, especially arbitrage trades,” a second trader in Singapore said. 

“I am not buying US cargoes even though there are some offers [because] the shipping time is too long. I can fulfil spot requirements with import cargoes or domestic parcels,” a resin producer in China said. 

If arbitrage opportunities cannot to be not taken up next year because of market instability, the availability in Asia will likely remain comfortable and provide some support to the SM prices. 

For more on ABS, polystyrene and styrene, visit ICIS chemical intelligence
Please visit the complete ICIS plants and projects database
For more pricing intelligence, visit ICIS pricing
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Clive Ong
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