Asia SM prices slide on weak Chinese data, cash crunch

29 January 2014 06:20 Source:ICIS News

By Clive Ong

SM goes into making of PS which is widely used in packagingSINGAPORE (ICIS)--Asia styrene monomer (SM) prices extended losses this week as sentiment turned increasingly bearish, with demand seen unlikely to pick up strongly in the first half of this year, market players said on Wednesday.

Weak factory data out of China last week fuelled speculation that China’s economy could be losing steam and the nascent global economic recovery could be fizzling out.

The initial HSBC Purchasing Managers Index (PMI) for China came in at 49.6 for January, down from 50.5 for December. 

Spot SM prices into China could not hold the $1,700/tonne level in the second half of January as sellers outnumbered buyers. Prices were above $1,700/tonne CFR (cost & freight) China in late December and early January.

“Participants are liquidating their positions and booking profits or reverting to cash,” said a Chinese trader.

The cash crunch in China over the past two months further spur SM players to go into cash as bank lending has tightened. While China has intervened to calm its credit markets, strains in the currency markets of emerging countries recently added to the uncertainty. 

“Credit is tightening and many players decided to exit their trade,” said a SM buyer in Taiwan.

The US Federal Reserve, widely expected to further taper its monthly bond buying program this week, is being closely watched amid volatility in the currency markets of emerging countries.

The Fed has cut its monthly bond buying program to $75 billion a month for January from $85 billion a month last year. They are expected to trim another $10 billion in purchases for February.

“The is heightened uncertainty in the market in recent weeks and Asia will be having the Lunar New Year this weekend, hence most SM players will square and not hold too many positions into the holidays,” said a Korean broker.

The downstream styrenic resins market has also slowed markedly ahead of the holidays. Demand for resins is expected to stay weak, potentially into the second quarter, as orders for finished goods showed limited improvement so far.

The traditional manufacturing for exports season in China usually peaks in the third quarter, prompting expectations of slow buying momentum for resins and SM until the middle of the year. 

Meanwhile several SM plants in Asia have been scheduled for maintenance in from February to April and availability is likely to be constrained. However, demand will continue to play a key role in price direction.

“The uncertainty surrounding global markets and weak performance in the downstream resins sector has prompted SM players to adopt a cautious stance,” said a broker in Singapore.

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

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By Clive Ong