ICIS has recently launched the latest version of the China Styrene Annual Study, an in-depth report of the year’s developments and hot topics with supply/demand outlook for 2015.
China styrene continues to present challenging conditions: mounting feedstock prices and production cost, squeezed margins, surging imports, operational cutbacks and weak supply and demand. How is this affecting the downstream markets of styrene?
To give you a glimpse of the type of valuable information provided in the annual study, we have made the downstream demand analysis of the annual study available for you to view.
Downstream demand analysis
ICIS China predicts that domestic downstream demand will merely increase by 1.1% in 2014. Downstream expandable polystyrene (EPS), polystyrene (PS) and acrylonitrile-butadiene-styrene (ABS) industries are the major consumers of styrene monomer (SM) in China. Of those, consumption from the EPS sector accounts for 34.8% of the total consumption, ranking first (though there is a small decrease compared with 36% in 2013), followed by PS and ABS/AS, which account for 24.6% and 18.9% respectively. Consumption from the unsaturated polyester resins (UPR) and styrene butadiene rubber (SBR) sectors represents less than 10% of the total.
Domestic downstream demand in 2014 is expected to total 8.68m tonnes, up by 96,600 tonnes or 1.1% year on year. That is much lower than the growth rate in the previous year, according to ICIS China, with dramatic demand growth of 7.3% seen from the ABS sector. The slow-down in demand growth is due to the Chinese government’s insistence on controlling the real estate market but assuring steady economic growth rate.
The domestic EPS market was somewhat depressed in 2014. Domestic capacity expanded from 6.42m tonnes to 6.77m tonnes on a year-on-year basis to reflect start-ups at New Sanming Chemical (Rizhao), Rizhao Zhongbo and other factories. Meanwhile, some producers implemented operational cutbacks or shutdowns because of weakening demand from the real estate market amid a bearish economic situation. The domestic output is expected to rise by 1% to 3.29m tonnes in 2014, according to ICIS China. Import and export volumes are expected to reach 71,000 tonnes and 270,000 tonnes respectively. Apparent consumption in 2014 is likely to increase by 2% year on year to 3.09m tonnes.
EPS prices were hugely impacted by its feedstock SM values in 2014, and the price spread between the two products was narrowing in the face of overcapacity in the EPS industry, squeezing the margins for producers. Downstream converters did not stock up as usual around the Chinese Lunar New Year holiday (31 January-6 February). This, combined with softer SM values, dragged down EPS prices to CNY11,600-11,700/tonne during February-early March. The prices rebounded in mid-March, with end-users starting to make purchases. However, buying activity slowed down in late March, and downstream converters mostly consumed their existing feedstock inventories, meaning few fresh orders in the market.
The prices soared to CNY12,800-12,900/tonne in April on the back of firmer SM values and better demand, but then lowered from May to August as a result of high inventories at domestic ports and operational cutbacks at downstream plants because workers were returning home for the wheat harvest. The domestic EPS market lacked transactions in early September in the face of faltering demand, but then improved on account of soaring SM values, given decreasing port inventories and few import arrivals, as well as recovered downstream demand, with producers enjoying more margins.
The domestic ABS market was hit in 2014. CNOOC & LG Petrochemicals started up its first-phase 150,000 tonne/year ABS unit in March, which brought total capacity to 3.788m tonnes from 3.638m tonnes in 2013. Capacity expansion resulted in fiercer competition. In addition, downstream demand growth was not as good as expected because of weak macroeconomic conditions. As a result, reducing costs and improving margins became the priority of producers, who paid more attention to feedstock SM, acrylonitrile and butadiene prices. ABS prices were generally stable this year and the price gap between the high and low ends narrowed. Traders suffered from thin margins, or even losses, as a result.
According to ICIS China, domestic apparent demand is expected to reach 3.929m tonnes in 2014, up by 3.8% year on year. Domestic output is expected to total 2.268m tonnes, up by 5.5% year on year. The import volume is expected to total 1.698m tonnes, up by 1.7% year on year, while the export volume is expected to total 37,000 tonnes, up by 2.8% year on year.
ABS prices in east China largely remained stable at CNY14,000-15,000/tonne from the beginning of 2014, with the gap between the high and low ends narrowing. The prices are affected by values for acrylonitrile, butadiene and SM, and are unlikely to be directly influenced by the momentum of only one feedstock. In addition, a majority of producers controlled their operating rates according to the sales volumes. Although operating rates of some producers were not as high as expected – and Liaoning Huajin, Shinho Petrochemical, Lanzhou Petrochemical and Shanghai Huayi even shut their units for several months – Zhenjiang Chimei, LG Yongxing and Formosa Chemicals & Fibre Co (FCFC) (Ningbo) ran their units at around 75-85%, accounting for 66% of total output. Therefore, supply for major grades exceeded demand, failing to boost the ABS prices.
Producers’ margins were worse on a year-on-year basis, though those in the first half of 2014 were not bad. In April and May, lower feedstock SM, acrylonitrile (ACN) and butadiene (BD) values decreased the costs. Moreover, downstream buyers made purchases actively in the peak season, which resulted in high price levels. Therefore, producers’ margins were mostly at above CNY800/tonne or even as high as CNY1,100/tonne. However the ABS prices fell in the off-season from late July to early August, while costs increased because feedstock ACNand BD values rose significantly amid tight supply. Therefore, the margin was squeezed or was even close to the costs. In September, ABS prices fluctuated at CNY13,900-14,600/tonne because of limited support from costs and hand-to-mouth purchasing from downstream buyers.
The domestic PS market was upbeat in 2014. Huizhou Renxin and Ningbo Total started up their 200,000 tonne/year PS units respectively in 2014, increasing the total supply to the market. Producers cut their prices to decrease inventories. However, demand was limited because of poor sales in the downstream household appliances, sheet and toy industries. According to ICIS China, domestic output is expected to total 2.25m tonnes in 2014, up by 3% year on year. Imports and exports are expected to reach 832,000 and 48,000 tonnes respectively. Imports will decrease gradually while exports will increase slightly in line with an improvement in domestic output. Apparent demand is expected to reach 3.034m tonnes in 2014, which is largely flat with that in 2013.
PS price movements were highly in line with feedstock SM values in 2014 and the price gap between the two products narrowed. In the first quarter, PS producers’ margins were high at CNY700-800/tonne though the prices decreased to CNY11,700-12,400/tonne in line with softer feedstock SM values. From April to May, demand was not strong in the traditional peak season and the prices moved downwards to CNY11,800-12,000/tonne in line with feedstock SM values. It was worth noting that the average operating rate in the domestic PS sector remained at above 70%, but end-user demand did not rise significantly. Traders adopted a cautious attitude and held low inventories in hand. This meant mounting inventory pressure for producers, and made them face losses for a long time.
The ICIS China Styrene Annual Study is an in-depth report of the year’s developments and hot topics with a supply/demand outlook for 2015. It provides credible data and analysis to support your annual sales and strategy planning by giving you all of the following: