Players in the European styrene market are expecting the market to see an upturn in both demand and pricing by April, sources said on 10 March, with the combination of seasonally stronger offtake from the construction sector and supply limitations both in Europe and Asia supporting an upturn.
While there has been a recent glimmer of downstream demand recovery seen already this month, spot levels remain structurally low and activity thin overall.
After dipping below $1,600/tonne on a FOB (free on board) basis, European styrene spot levels did see some recovery the week ended 7 March, although trading was limited in a thin market.
“It crept up but there were no trades really,” said one source. “Most of it was on the back of benzene gains.”
Deals for March were done at $1,535/tonne and $1,550/tonne early in the week, before current month pricing pushed higher. March was valued at $1,570-1,590/tonne towards the end of the week, although no deals were reported.
Sources all noted that the distribution sector was far more active the week ended 7 March, with the truck market supported by the comparatively high March barge contract settlement in relation to spot numbers.
“Truck business has a bit more life than FOB,” said one trader. “Bulk does feel stronger, however, but I’m not sure if there is more demand.”
One distribution player said that it had already booked what it usually sells over the course of a month in the first week of March, but other players felt that this could in fact be a bad sign, as it was indicative of players simply restocking when the market was at a low rather than any sustained recovery in demand. April has held a steady contango over March, and saw several spot barge deals done above $1,600/tonne over the course of the week ended 7 March.
The positive forward sentiment in Europe has been driven by expectations of better seasonal demand from the construction sector, as better weather supports more activity.
Any reduction in PO/SM (propylene oxide/styrene monomer) production as glycol and de-icer demand tapers off with the milder weather will help limit European styrene availability, especially if this happens in tandem with an uplift in demand for polystyrene (PS) and expandable polystyrene (EPS) for construction purposes.
Nevertheless, several players noted that PO/SM output among European suppliers has been healthy until now, with pockets of healthy polyurethane (PU) demand in the insulation sector supporting run rates.
“The first quarter has been slow for us,” said one EPS producer. “The sector has been in turnaround mode, so there has been limited output. Traders have been keeping out of the market recently – they are aware of the fundamentals. However, April will see the supply/demand start to shift.”
Improved demand expected from the construction sector as better weather supports more activity
One styrene trader agreed: “April will be the turning point.”
Another key factor in this will be the fortunes of the Asian market in the coming weeks. Sentiment in the region has started to improve, with CFR China prices tipping back over the $1,600/tonne mark.
Some recent short covering by traders in the region and talk of production issues in the Middle East have helped stop the recent price decline, although downstream markets remain under pressure.
The turnaround season across Asia from February into May will get into full swing later this month, which will help rebalance the region following a weak first quarter of 2014.
Additionally, one ARA supplier will be going down for maintenance towards the end of April while another eastern European unit will be down that month. Combined with any seasonal upturn in demand, this could quickly tighten the market and push numbers up.
Imports from the US could counteract any supply restrictions, however, with Asia and the US currently valued close to parity and cheaper freight rate from the US into Europe compared to Asia.