Europe styrene to tighten as benzene lengthens

By Truong Mellor

LONDON (ICIS)–Following the European styrene barge settlement for February, players are looking ahead in anticipation of further bullishness in the market as availability tightens, sources said on Tuesday.

Despite a €113/tonne drop in the upstream benzene contract this month ($121/tonne in US dollar terms), the February styrene barge contract settled only €40/tonne ($54/tonne) down from the previous month, as spot numbers remain strong and demand is picking up as the year gradually unfolds.

“Demand is looking better,” said one seller involved in the settlement, also citing some margin erosion in January as a reason for the tempered reduction in the face of lower raw material costs.

“An early settlement this month is good,” said one of the consumers. “February is a short month, and March will see better EPS (expandable polystyrene) activity as the weather improves.”

Last week saw a flurry of spot activity for both February and March, with parcels for the current month trading as high as $1,748/tonne.

“Industry bought quite a few barges,” said one styrene trader. “That helps generate some optimism as well.”

The market is already at a slight contango this week, with March trading on Monday 4 February at $1,755/tonne, while the current month was valued at $1,720-1,750/tonne FOB (free on board) Rotterdam.

This morning saw European benzene prices ease off amid lacklustre sentiment in both the US and Asia, and February styrene numbers opened slightly lower at $1,710-1,740/tonne, while March was valued at a $5/tonne contango.

While many players have been preparing since the beginning of the year for the shortage of material once the turnarounds are underway, it remains difficult to be fully covered for the March/April period.

“There are older units in Europe that will be pushed harder,” one source said. “There will likely be delayed vessels, which will lead to short-term spikes in pricing as people look to cover positions.”

In addition to the turnarounds in Europe, there are also planned shutdowns on styrene in both the US and the Middle East. Sources estimate the total capacity potentially withdrawn from the global market over March and April to be as high as 900,000 tonnes – almost 25% of total capacity for the monomer worldwide.

However, some of the upward pressure on styrene pricing may be lessened by benzene, which has struggled to maintain a consistent direction so far this year amid weakening US costs and continued macroeconomic opacity.

Following a 2012 that saw prices soar on restricted pygas (pyrolisis gasoline) supply and a record high January 2013 contract settlement, the European benzene market may see some price erosion as the year progresses, the turnarounds on styrene as well as some upcoming shutdowns on phenol and cyclohexane will keep demand limited.

“Benzene will start pooling,” said one consumer. “It’s a strange situation, having these opposing factors in the aromatics chain.”

($1 = €0.74)