Europe styrene still bearish amid low September demand

Focus article by Truong Mellor

LONDON (ICIS)–Sentiment in the European styrene market remains bearish so far this month, players said on Wednesday, amid weak downstream demand, lower benzene prices and a sluggish Asian styrenics sector.

“September and October are normally good months, but that is not the case this year,” one trader said. “We are seeing some downstream shutdowns this month. Styrene producers are all running lower to compensate and still there is no impact.”

Moreover, with Shell’s joint venture styrene monomer (SM)/propylene oxide (PO) plant (MSPO-2) down since early June following an explosion at the site, and the temporary suspension of aromatics production at Versalis’ site in Mantova starting earlier in 2014, the continued bearishness despite these supply limitations is a sign of poor health indeed.

The problem is one of demand, which remains very weak following the traditionally slow month of August. Combined with the steady arrival of US imports throughout 2014, this has kept the European styrene market well supplied.

“We saw a good start to the year in terms of construction demand,” said one downstream producer. “But by June this had already slowed down considerably. The normal peak season in early summer was very quiet.”

May and June saw imports of styrene into the EU reach 71,000 tonnes and 64,000 tonnes respectively, according to Eurostat figures, more than double the amount seen during the same period last year.

Despite a lull in activity in August, several estimates put the total amount of imports arriving into Europe over the course of the month at around 50,000 tonnes.

“People jumped on the bandwagon,” one trader explained. “Given the production issues like Moerdijk and expectations of better September demand, many people thought the market would really pick up.”

However, prices have moved lower so far this month, with spot levels hovering between $1,500-1,540/tonne FOB (see graph at foot of story) and trading activity limited overall. There has been talk of deals done this week at the upper end of this range, but these were so far unconfirmed.

Despite this, some players still feel that the European styrene market could face some upward pressure in the coming weeks. With producers all trimming output rates and less imports due to arrive from the US because of production shutdowns, this could help redress the recent oversupply in the market.

Westlake Chemical has closed its styrene unit in Lake Charles, Louisiana late last month due to poor economics, with ethylene prices rising while styrene values stagnate. The Lake Charles plant has a styrene capacity of 259,000 tonnes/year.

Styrolution will also be taking down its Bayport, Texas unit at the end of September, and it is not expected to be brought back online until early November. The plant has a styrene capacity of 770,000 tonne/year, according to ICIS data.

Combined with numerous styrene shutdowns in Asia from now until the end of October, which could pull US exports away from Europe, there is the potential for some tightening in global availability.

This would be hugely dependent upon some derivative recovery both in Europe and Asia, however, and many players in Europe do not see an upside to the market between now and the end of the year.

“The September order intake has been very weak,” said one styrene consumer. “The weaker euro following news from the ECB about interest rates did not help sentiment either. On paper, the styrene market could tighten, but the demand has to be there.”

Moreover, sentiment and outlook in the Asian styrenics sector appears to be moving from bad to worse this month, which will keep Europe as a preferred destination for any US export volumes.

One trader estimated that September import volumes would total 25,000-30,000 tonnes – considerably less than in previous months – but given the state of derivative markets, still ample material to supply any nascent demand.

“It will be a quiet September on our side,” said one downstream expandable polystyrene (EPS) producer. “Tanks are full and there are still a lot of import volumes.”