Price and market trends: Asia styrene to stay tight in 2014

03 January 2014 09:34 Source:ICIS Chemical Business

Limited new supply and low inventories are likely to outweigh weak demand in the downstream resins market

The tight supply that has been omnipresent in Asia’s styrene monomer (SM) market since the second half of 2013 looks likely to extend into the first half of 2014 because of plant turnarounds, market players said.

 

 SM is used to create synthetic rubbers like styrene butadiene rubber

Copyright: Rex Features

Spot inventories along the eastern China’s shore tanks dipped to below 40,000 tonnes at two periods in the second half of 2013, according to ICIS data. The first was in late July, when stocks declined to 35,500 tonnes, while the second was from mid-September to mid-October, when inventories hovered at 32,600-37,400 tonnes. On average, weekly inventories had stayed at below 60,000 tonnes since mid-July.

The dearth of deep-sea lots from the US in the third quarter of this year further curbed the inventory levels in China. The poor economic conditions in the US and the eurozone had reduced demand for Asia-made goods, leading to weak performance in the downstream styrenic resins sector, which subsequently weakened demand for SM. There were also some SM plant outages in the US, which reduced the number of exports to Asia. Consequently, SM prices stayed above $1,750/tonne CFR (cost & freight) China from mid-July to early October.

While inventories rose to around 50,000 tonnes in late November and December amid the year-end lull, market players deemed it to be still below the more normal levels of 60,000-70,000 tonnes. As a result, a number of market players expect supply in Asia to remain constrained, given the turnarounds planned for several regional plants from February to April 2014.

LIMITED EXPANSIONS
At the same time, there are limited SM plant expansions or new facilities scheduled to come on stream in Asia in 2014, with most projects starting up in the 2015-2017 timeframe.

On the other hand, several downstream plants have started up in 2013, with several more planned for 2014. Demand for SM could consequently increase, when more downstream units go on line as planned, further exacerbating the tight supply in Asia in 2014.

Although demand from the styrenic resins sector is expected to stay weak in the first quarter on the back of the weak global economic outlook, SM traders and suppliers expect the tight supply to sustain prices.

2014 CONTRACTS
Because of this expected tightness in supply, the contracts for 2014 were negotiated at a premium of around $5/tonne over CFR China prices. Contracts in 2013 were mostly settled at a $2/tonne discount to a $4/tonne premium over CFR China values, depending on the suppliers, buyers as well as volume and terms.

While some suppliers seemed to have fixed some of their 2014 contract volumes at the $5/tonne premium, some buyers said term business is still being negotiated.

“The $5/tonne premium is a proposal and [trade] has not been fixed so far,” said a SM buyer based in northeast Asia.

MARGIN SITUATION
Contracts aside, buyers remained largely focused on the margins they can make for resins next year. Most styrenic resins producers who buy SM are targeting a spread of $100-140/tonne (€74-104/tonne) for polystyrene (PS), $140-200/tonne for high impact polystyrene (HIPS), $150-180/tonne for expandable polystyrene (EPS) and $200-300/tonne for acrylonitrile-butadiene-styrene (ABS).

“Being able to achieve a reasonable spread over SM prices and adequate demand is more important than several dollars of savings in the SM contract [deals],” a northeast Asian resin producer said.

SM is a liquid chemical used to make plastic resins like PS, EPS and ABS as well as synthetic rubbers including styrene-butadiene-rubber (SBR) and styrene-butadiene-latex (SBL).

By Clive Ong