Price and market trends: Asia SM prices slide on weak Chinese data, cash crunch

07 February 2014 10:14 Source:ICIS Chemical Business

Turmoil in international currency markets adds to the more negative sentiment hitting Asia SM markets

Asia styrene monomer (SM) prices extended losses as sentiment turned increasingly bearish, with demand seen unlikely to pick up strongly in the first half of this year, market players said on 29 January.

Weak factory data out of China the previous 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 spurred 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.

HEIGHTENED UNCERTAINTY
The US Federal Reserve, which further tapered its monthly bond buying program during January, is being closely watched amid volatility in the currency markets of emerging countries.

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

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

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 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.

By Clive Ong