Price and market trends: Europe styrene direction unclear for September

30 August 2013 09:40  [Source: ICB]

Spot prices surge amid Asia market bullishness. Downstream demand, however, appears to be weak

Europe styrene prices have surged in the week ending 25 August, with one prompt delivery deal done at $1,870/tonne. But the outlook for the market for September is mixed, with ongoing bullish sentiment in Asia likely to play a key role in domestic price direction while downstream demand appears weak.


 Surge: Europe styrene prices sped ahead in August

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European spot activity was thin during the first half of August owing to the summer holiday period, although prices did see some upward movement initially amid renewed buying interest and an upturn in feedstock benzene.

European spot values opened the week starting August 12 with offers for August at $1,735/tonne and no firm corresponding bids. August deals were done as high as $1,760/tonne on a FOB (free on board) basis but spot values subsequently edged back down as the week progressed, with a deal done on Friday 16 August at $1,730/tonne for August delivery.

The European spot market had previously moved as high as $1,810/tonne FOB Rotterdam in July, as production outages and a bullish Asian styrene sector pushed prices upward.

However, offtake from key derivative sectors remains fundamentally weak amid wider macroeconomic uncertainty. European polystyrene (PS) prices have edged up in tandem with the monomer increase, but many consumers feel that the price hikes are having a detrimental impact on market recovery and demand.

"There have been no real improvements in the market," said one downstream source in mid-August. "We saw styrene prices supported by benzene gains a little, but it is the global supply issue and the Asian influence that will be key next month."

While one source in the European distribution market is expecting styrene costs to come down in September, there remains a question mark surrounding availability and how the Asian market will unfold in the coming weeks.

"There are already lower FCA (free carrier) numbers for the second half of August, although availability is still balanced," the source said. "If the Asian styrene price stays around $1,800/tonne, however, this will limit the downside in Europe."

But there is also expectation among traders that September will see more bullishness on spot pricing, at least for the first half of the month, as Asia pulls US exports away from Europe. "September could be tight again in Europe," one trader said. "With industry back up and operating, the market may see a price increase as in the first half of August."

Coupled with the potential for increased derivative offtake following the August holiday period, with players returning to the market en masse, this could translate into more tightness for Europe and continued bullishness on pricing. "Asia is pulling US material," said another trader. "There are no US imports coming into Europe for the first half of September. The second half of the month will depend on how prices in Asia will look."

Indeed, as the end of August approached, European spot numbers saw a sudden upward spike, with some illiquidity for prompt material helping push price ideas higher for both August and September.

Offers for August material have been steady at around the $1,740/tonne (€1,305/tonne) level the week ended 23 August, with deals done at $1,740/tonne and $1,730/tonne amid some tightness for prompt cargo.

Derivative market sentiment remains weak, however, with buyers largely unwilling to step into the market, particularly now that the bull run in Asia appears to be easing off.

This helped pull the bid level down to $1,710/tonne by the end of 20 August. However, the market opened on 21 August with bids moving up to $1,730-1,740/tonne and no firm offers, a sharp reversal of the previous day's trading.

"After yesterday, that is quite a turnaround," said one trader. "It is very weird."

The bull run continued towards the end of the week, with a September deal done at $1,820/tonne. This saw bids for both months reach $1,840/tonne.

Another trader said: "I've never seen such a price rally before." The trader pegged September offers as high as $1,880/tonne.

A third trader said: "People have to have the product on September 1, and today is the last day they can buy because of the nomination period."

An industry source added: "Product has been shipped out to the Med and there are a lack of imports. Add the fact that one southern European producer will go out in September, and the month is shaping up to be very interesting."

By: Truong Mellor
+44 208 652 3214

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