03 January 2014 09:31 [Source: ICB]
The Asian styrenic resin market appears set to enter an uncertain period in the first half of 2014, because of weak demand and rising feedstock costs in 2013, market participants said.
Producers of polystyrene (PS), expandable polystyrene (EPS) and acrylonitrile-butadiene-styrene (ABS) resins had to grapple with soaring feedstock styrene monomer (SM) prices in the second half of 2013.
Some buyers have switched to cheaper alternatives such as polypropylene
Consequently, sellers lost a portion of their market share for styrenic resins in 2013 during the times of record high prices.
Many producers cheered the decline in SM prices in October and November, as it allowed them to price their resins at lower levels to remain competitive. However, SM prices appeared to have bottomed out and began trending higher in December.
Talk of continued tight SM supply extending into the first half of next year fuelled anxiety among resins makers as they would have to face high resin prices and reduced demand once again.
END-USE DEMAND WEAK
Traders also lamented the weaker-than-expected demand for resins in 2013. While elevated prices caused demand to decline, the weak global economic performance in the second half of 2013 led to a general decline for Asia’s exports of finished goods, which included resins.
“The Chinese export sector was weaker than expected this year, which impacted the consumption of resins,” a trader in Hong Kong said.
While economic data from the US, the eurozone and China appeared to have improved in the fourth quarter of this year, the pick-up was deemed insufficient to produce significantly stronger demand for Asia-made goods.
“We feel nothing much has improved on the ground,” a southeast Asian trader said, adding that the conditions in a few sectors had worsened.
In particular, the appliance-manufacturing, consumer electronics and automotive sectors in Asia have taken the brunt of the slowdown in consumption from the US and the eurozone. As a result, demand for certain styrenic resins such as ABS and high impact polystyrene (HIPS) weakened sharply, prompting a number of producers to reduce their plant operating rates in the fourth quarter amid the seasonal lull.
End-users were also struggling with high resin prices in the second half of the year. While some applications can be produced using cheaper alternatives, a major portion of finished goods had to be made from styrenic resins. This crimped the end-users’ profits as record resin prices were out of the range of their initial expectations. Many production contracts were previously concluded based on lower resin prices. Meanwhile, the flow of orders for finished goods to Chinese factories was also lower than expected, causing a number of small and medium-sized moulders to exit the market.
Larger moulders, which were facing fewer orders and lower profits from high plastic prices this year, are concerned that prices would rise on the back of firmer SM costs over the next few months and squeeze their margins. This is because moulders buy resins like PS and ABS to make end-products. Higher resin prices would mean lesser profit for them, because the end-product pricing is fixed beforehand using a pre-fixed PS or ABS price.
“We thought [the] prices of ABS and PS could taper off further in December, but they seem to be rising again,” said a major end-user in China.
ABS is used in the production of toys, appliances, consumer electronics as well as in the automotive and construction sectors.
PS is used in packaging, toys, appliances and other consumer items. EPS is made into styrofoam for packaging purposes as well as insulation panels in the construction and infrastructure sectors.
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