Europe styrene soars as benzene drops to yearly low

22 July 2013 11:39 Source:ICIS News

DollarsLONDON (ICIS)--Continued spot bullishness in the European styrene market is keeping activity subdued, sources said on Monday, with buyers reluctant to step into the market.

Nevertheless, offers have held firm around the $1,800/tonne (€1,368/tonne) level throughout last week despite a lack of firm bids, as prompt domestic tightness and soaring Asian spot numbers kept selling ideas bullish.

Prompt availability has been severely curtailed in Europe, owing to some ongoing production outages as well as reduced propylene oxide (PO) demand, which has kept PO/SM (styrene monomer) output limited.

There was only one recorded July deal done last week at $1,795/tonne on an FOB (free on board) basis, while August traded just once at $1,745/tonne.

Buyers remained hesitant to get involved with the market at these levels, with many waiting to see lower numbers amid struggling derivative demand. Polystyrene (PS) consumers have been resisting any attempts by sellers to move prices up amid squeezed margins and slower than expected demand, arguing that any price increases are likely to worsen their position in competition in their own downstream markets. 

“The market for resin producers is even tougher,” said one source in the distribution sector. “They have fixed prices so, with styrene at around $1,800/tonne, this is killing their business.”

Despite this resistance to the numbers downstream, offers for material have been maintained around $1,795/tonne and $1,800/tonne, and were even showing signs of edging up further by the close of business on Friday 19 July.

“With nominations for August coming in, this will keep the market up,” said one trader. “And with Asia still very firm for August, this could also pull on European material.”

Asian numbers breached the $1,800/tonne level this month, both on a cost & freight (CFR) China and FOB Korea basis, with tight regional supply driving the upturn. While there were some imports that arrived in July, the impact on spot pricing was minimal as most of the material had already been placed.

The continued upward momentum in Asia has helped keep upward pressure on European pricing as August approaches, and the bullishness there is expected to continue for several months on various scheduled turnarounds keeping availability restricted.

Today’s Asian market saw August numbers move as high as $1,860/tonne CFR China, while September deals were done at $1,825/tonne and $1,830/tonne as short covering in the domestic Chinese market and further shutdown news kept prices on an upward path.

While the arbitrage window between Europe and Asia is still closed, the bull run in the Chinese market in particular is keeping a floor on European styrene pricing.

All of this is in stark contrast to the current fortunes of the domestic benzene market, where prices sank to a yearly low last week of $1,210/tonne CIF (cost, insurance & freight) ARA (Amsterdam-Rotterdam-Antwerp) on ample availability. This was due to the arrival of imports this month, combined with lacklustre demand from the phenol chain.

The benzene/styrene spread in Europe reached $565/tonne last week, moving up by $50/tonne from the previous week. This was the highest it has been since November 2011, when delayed imports saw a spread of $570/tonne following a brief spike in the styrene spot market, while benzene was trading at a yearly low on poor macroeconomic sentiment and weak demand.

Previous to that, the last time the spread had moved to such levels was on 5 May 2000, when the spread moved as high as $637.50/tonne. Benzene prices were at $347.50/tonne CIF ARA, while styrene was valued at $985/tonne FOB Rotterdam.

Brent oil prices that week were at $25.10/bbl.

“If there was any liquidity in styrene, now would be the time to sell,” commented one trader.

The spread between benzene and naphtha also narrowed last week, reaching a four-month low as naphtha prices gained ground on firmer Brent numbers and improved demand.

benzene vs styrene

($1 = €0.76)

By Truong Mellor