26 October 2012 08:45 [Source: ICB]
Asia spot prices for styrene monomer (SM) October parcels have soared above $1,800/tonne amid chronic tight supply, with the uptrend likely to last this month and the next, traders said.
With parcels for the second half of October extremely limited, the price premium commanded over November lots widened significantly the week ended 19 October.
Talks for October parcels were heard in the low $1,700s/tonne (€1,309/tonne) CFR (cost & freight) China on 15 October versus discussion for November lots heard in the high $1,500s/tonne CFR China.
However, prices of October cargoes extended their lead and rose to above $1,800/tonne CFR China on 16 October while November cargoes were at around $1,600/tonne CFR China, according to market sources.
The spread between October and November parcels were at $60-70/tonne backwardation for the week ended 12 October as compared to the $200/tonne backwardation the week ended 19 October, according to ICIS data.
"There is a dislocation in the market currently and a number of traders with short positions are trying to cover for October," said a South Korean trader.
A number of traders have shorted the October market in September as the Chinese manufacturing season for exports was lacklustre this year.
The poor economic conditions in the US and the eurozone have curbed demand for Asian goods, leading the demand for resins and styrene to weaken, too.
Although demand was waning, the supply side of the market was deteriorating at a faster rate in the third quarter as a number of Chinese refineries were shut for maintenance in August and September, leading to the increase in prices.
LOWER SM OUTPUT
The reduction in feedstock benzene supply resulted in lower SM output in the domestic market.
At the same time, because of the weak demand for SM in Asia, a number of traders shipped SM parcels to Europe in September, where prices were more attractive at that time. This further reduced the availability of SM parcels in Asia.
By October, a number of traders were holding short positions while the supply crunch in the market worsened with spot cargoes becoming increasingly limited. This prompted aggressive short covering which led to further price increases.
SM spot prices rose to $1,607/tonne CFR China on 12 October, up from $1,545/tonne CFR China about a month ago, although the market has entered a typically low demand season from October.
"There are quite a number of traders in short positions trying to cover and hence, prices for prompt parcels are keeping buoyant," said another Korean trader.
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