Europe styrene in sharp contango ahead of March turnarounds

By Truong Mellor

LONDON (ICIS)–The European styrene market has moved into a sharp contango ahead of March, players said on Monday, with several planned turnarounds predicted to curtail domestic availability.

However, softening global benzene prices have left some unclear on how styrene pricing will shape up in the coming months.

After a record-high monthly settlement in January at $1,529/tonne (€1,153/tonne in euro terms at the agreed exchange rate of €1:$1.3266), European benzene numbers have gradually eased off in line with lower US pricing, aggressive selling and pockets of improved availability.

As the benzene market for February and March fell back below $1,400/tonne (€1,050/tonne at Monday’s exchange rate below) CIF (cost, insurance and freight) ARA (Amsterdam-Rotterdam-Antwerp) last week, several downstream players were keen to see what effect this would have on styrene pricing once the turnarounds were underway in March.

“The styrene outages are expected, but not experienced,” said one major consumer, who nonetheless conceded that European numbers have proven resilient to the lower benzene prices since January.

“Supply is definitely more influential than energy [costs] in dictating aromatics numbers right now,” the consumer added, also noting that with naphtha moving back above $1,000/tonne CIF NWE (northwest Europe), this was closing up the lower end of the benzene market.

However, February styrene prices have seen a hint of downward pressure this month, with some length in the prompt market keeping prices at the lower end of the range. Deals were largely done around the $1,710/tonne FOB Rotterdam level last week, and there was talk of a deal done as low as $1,700/tonne although this was not confirmed.

“There was maybe an extra 6,000-7,000 tonnes of length last week,” one styrene trader said. “This led to some lower February numbers being traded.”

One expandable polystyrene (EPS) producer said that demand was still building up for 2013, with buying activity seasonally low during the first two months of the year until March and the start of the construction season.

Additionally, a US vessel was due to arrive in the ARA region over the weekend, which meant that several styrene traders were clearing out current stock last week to make room for new inventory.

“Logistics and storage are also a problem right now,” said one trader from the distribution market, citing the ongoing issues at Odfjell in Rotterdam, the Netherlands, as limiting available storage space.

March pricing, on the other hand, has remained bullish, with a steady contango holding throughout last week. In contrast to the lacklustre appetite and pricing for February parcels, deals for March delivery were done as high as $1,760/tonne while April was talked even higher.

Despite the positive outlook on European styrene, there is speculation that restricted availability may not necessarily translate into soaring prices.

The turnarounds both in Europe and abroad over March and April are expected to take nearly 25% of global styrene output offline, and with phenol and cyclohexane shutdowns planned for later in the year, the expectation amongst some is that benzene will start to lengthen as 2013 unfolds.

While there have been some counterarguments to this – namely, that benzene output in the US and Asia will also be reduced due to cracker outages over this period – most styrene players believe that this will not be enough to offset the impact of the styrene turnarounds.

A bullish US market helped support Europe in 2012, and there is some sense that European traders will look to fix vessels for export from the ARA region across the Atlantic if benzene starts to pool and the numbers drop significantly.

However, sources in the US have already expressed concern about the styrene shutdowns and the potential impact on global benzene balances. Prices tumbled by as much as $0.15/gal during the week before posting a slight recovery on Friday 15 February.

“The market here is already well supplied,” said a broker in the US market.

European aromatics players have been braced for the turnarounds on styrene for several months now. Many downstream sources have said that they were stockpiling material as far back as December. While the start of the turnaround period has been planned for, it is the tail end of the second quarter that may see the greatest volatility.

“It is premature to build too much stock,” explained one European consumer. “We expect the real crunch will come down to the vagaries of true management; who comes back online in time, whether vessels get delayed and so on.”

($1 = €0.75)