Europe styrene still bearish ahead of October

Focus article by Truong Mellor

LONDON (ICIS)–Sentiment in the European styrene market remains bearish overall ahead of October, sources said on Tuesday, amid weak derivative demand and healthy regional availability.

Spot pricing saw some upward movement last week, in tandem with higher benzene numbers and talk of a production issue in the Middle East. October deals were talked as high as $1,528/tonne FOB (free on board) on Monday 22 September, but by the end of the day the market had receded slightly, with an unconfirmed deal heard at $1,510/tonne.

Bids and offers for October material were at $1,490-1,520/tonne FOB this morning.

“The market has been very thin lately,” said one trader. “As a result, you see some volatility on pricing when there is some activity.”

With no significant upturn expected from downstream markets in Europe, there is an expectation that players will run down inventories between now and the end of the year rather than build any additional stock.

However, some sources speculated that many in the market have already been adopting this approach, which could see some more buying interest emerging in October.

“Price-wise, October styrene will depend a lot on where feedstock prices are,” the trader added.

The September benzene contract was agreed at $1,369/tonne FOB NWE (northwest Europe), and spot prices fell as low as $1,250/tonne over the course of the month amid some length in Asia before showing signs of recovery last week amid a sense that the bottom of the global market has been reached.

However, the market still appears to be prone to price swings this week. After moving as high as $1,315-1,345/tonne on Monday 22 September, bids and offers for October were at $12,80-1,300/tonne this morning.

With some benzene-related shutdowns in the US styrene market, this will also limit the volume of styrene imports into the ARA region, although the impact of this will most likely not be felt in Europe until the end of October or early November.

Import volumes into the EU have gradually come down each month from May to July this year, according to data from Eurostat, and this trend is expected to continue in August, with an estimated 45,000-50,000 tonnes of styrene thought to have been shipped into the region.

With soaring ethylene spot numbers in the US in September, one European styrene producer also noted that this could restrict styrene output and any subsequent imports out of the region into Europe.

The producer said: “There is a lot of pressure on US styrene right now, even with the integrated economics. There is a big spot market for ethylene.”

But with no real upturn in demand seen from European derivative markets following the traditional August slowdown, sources agree that regional supply has been ample.

Additionally, the explosion at Shell’s joint venture styrene monomer (SM)/propylene oxide (PO) unit (MSPO-2) plant in Moerdijk, the Netherlands in June this year has seen other PO/SM units ramp up production in order to cover the shortfall in PO.

Despite a small upturn in the Asian market last week alongside gains seen for benzene, sentiment remains bearish as a whole. Inventories in China remain high, and downstream styrenics resins demand continues to struggle.

The upturn in Asia proved to be short-lived, with Chinese and Korean numbers moving lower this week in line with falling energy futures and limited buying interest.

Looking ahead to next year, European players expect to see more liquidity in the spot market, as players move away from the structural contracts that have been prevalent throughout 2014.

“It is more likely to be tight in 2015, especially if downstream demand comes back,” said one downstream producer.

With fewer structural imports arriving into Europe on a fixed basis, an upturn in the Asian market next year would also pull US cargo away from the ARA region, potentially creating more domestic price spikes and volatility.