30 July 2012 12:26 [Source: ICIS news]
By Truong Mellor
LONDON (ICIS)--After weeks of bearishness owing to poor derivative demand combined with soaring benzene costs that have all but eroded margins, European styrene values have started to gain ground ahead of the August contract settlement expected later this week, sources said on Monday, as a lack of imports as well as reduced production keep supply limited.
While the styrene market has been characterised by good volumes but poor margins since the bull run on benzene began earlier in the year, the supply dynamic appears to be shifting ahead of August.
“August is usually quiet, but with no stock available we could see some interesting price developments,” said one European producer. “This could really test the market.”
European styrene prices have languished since early June, effectively level pegging with benzene and at some points below it, as weak downstream demand and margin erosion curtailed any appetite amongst traders and buyers.
However, the spot market saw some upward movement last week on emerging supply constraints for prompt cargo. August styrene prices continued their upward course this morning, with bids for material at $1,450/tonne (€1,175/tonne), a margin of $150/tonne with benzene emerging after weeks of relative parity between the two products.
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Additionally, several styrene units in the
The ongoing bullishness for benzene, which looks set to continue into August, has also kept domestic production at a minimum, with many suppliers electing to purchase spot material in order to cover themselves.
With sizable gains expected for both the ethylene and benzene contracts in August, styrene players are already braced for a significant increase for next month.
“I expect styrene will recoup the losses it saw for July,” said one trader, referring to the €115/tonne reduction in the barge contract earlier this month.
Nevertheless, there remains some anxiety about a sharp drop in pricing on the horizon, something that could be facilitated by a crash in benzene values as the summer slowdown approaches.
One source in the downstream polystyrene market echoed this uneasy sentiment, adding that it was seeing customers looking to fill their immediate needs but still anxious about building inventory.
While benzene values did start to ease off last week as crude saw some dips in pricing, August prices are still approximately $100/tonne above the July contract settlement of $1,183/tonne.
Several players said the conditions which have driven the market since earlier in 2012 remain prevalent. With a premium of $20-40/tonne for the first half of August still being reported this morning, the current tightness is expected to continue into next month.
($1 = €0.81)
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