FocusAsia SM dips from recent high on weak crude futures, demand

24 July 2012 06:18  [Source: ICIS news]

By Clive Ong

Asia SM dips from recent high on weak crude futures, demandSINGAPORE (ICIS)--Asian styrene monomer (SM) prices retreated this week after reaching a high of $1,410/tonne (€1,156/tonne) for the week ended 20 July on the back of weak US crude futures and slow demand, market sources said on Tuesday.

With styrenic plants in China operating mostly at 60-70% capacity, demand for SM is expected to stay relatively weak in the near term.

Spot prices declined by $30/tonne to around $1,380/tonne CFR China this week as a number of traders liquidated their cargoes to lock in profits.

The fall in WTI crude futures to $88/bbl from $92/bbl the week before weighed down SM values in Asia. The sharp contraction in Spain’s economy stoked fears of a possible escalation in the eurozone debt crisis.

Demand for crude is expected to come under downward pressure leading to the decline in energy futures in the week as the US and Chinese economy faces headwinds.

Demand for styrenic resins remains mostly lacklustre despite the start of the third-quarter Chinese manufacturing season for exports.

“Buying momentum has slowed down as end-users have replenished some inventories over the past several weeks,” said a resins dealer in Hong Kong.

“There is a lack of a significant ramp-up at styrenic plants in general, so consumption of SM has not improved sharply,” said a Chinese trader.

SM inventory levels along eastern China’s shore tanks were at around 96,800 tonnes for the week ended 20 July, down from the peak of 151,000 tonnes on 3 February this year. Stocks were drawn down at a slower pace compared with the year before where inventories were down to 68,000 tonnes on 22 July 2011 from the peak of 160,000 tonnes on 11 February 2011.

“Generally, SM demand could be growing at a slower pace this year given the weak economic backdrop globally,” said a broker in China.

Although SM prices have pulled back this week, players generally believe that the uptrend will remain intact. The manufacturing season in China will likely bolster consumption of resins in the third quarter and sustain demand for SM.

Political tensions in the Middle East, coupled with European and US governments’ efforts to prop up their own economies, will likely keep prices of assets, such as crude oil, buoyant and put a floor below petrochemical prices, including that of SM.

“The SM market will likely remain volatile, but there could be upside potential as energy futures could run higher on Middle East tensions,” said a Korean trader.

On the other hand, end-users are mostly hoping for lower SM prices as demand for resins will weaken if prices rise further.

“Lower SM prices would allow us to price our resins lower, which in turn could stimulate demand,” said a Taiwanese SM buyer.

SM is a liquid chemical used to make plastic resins like polystyrene (PS), acrylonitrile-butadiene-styrene (ABS) and expandable polystyrene (EPS) as well as synthetic rubbers like styrene butadiene rubber (SBR) and styrene butadiene latex (SB).   

($1 = €0.82)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

Request a free ICIS sample report for the latest prices and development in the Asian petrochemical markets

By: Clive Ong
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