Europe styrene faces weak fundamentals for December

Focus article by Truong Mellor

LONDON (ICIS)–Players in the European styrene market are expecting a sizeable downward correction for the December barge contract, sources said on Tuesday, with sluggish demand, inventory destocking and weak feedstock and energy values keeping sentiment bearish.

Any reduction for the December settlement will also be compounded by the rollover seen in November, which was in line with spot numbers at the time but nonetheless caught some in the market by surprise, especially in light of the significant decreases seen for the November benzene and ethylene contracts – down €110/tonne and €90/tonne respectively.

Some short term tightness owing to production outages in Europe was initially keeping November spot levels in Europe buoyed, but demand and the overall outlook going into the end of 2014 were overwhelmingly bearish.

Even with November deals initially being done above $1,600/tonne, the market was sharply backwardated by more than $100/tonne, with December sentiment weakened by the expected year-end inventory destocking and the resumption of production at Shell’s Moerdijk site before the end of the year.

With benzene spot prices falling below $1,000/tonne this month, the first time this has been seen in Europe since late 2011, sources noted that this also gave the styrene market more room to come down.

As benzene numbers started to bottom out and inch back up to hold steady around the $1,000/tonne market last week, there was further price erosion for styrene, the sum total of which has been a steep drop since the start of the month (see graph).

“Even with the production units coming down, we have seen not very much demand and steady imports arriving into Europe,” said one downstream source.

Elsewhere, sources pointed to the turnaround season in early 2013, which saw several European units come offline and a bullish sentiment take hold among market players ahead of this. However, the decrease in production output was offset by weak derivative demand and the arrival of imports, leading to a glut in supply, contrary to expectations.

“Everybody watches the supply, but nobody is paying attention to the consumption side of the business,” said one distribution market source.

US styrene production was said to be resuming following some outages throughout the fourth quarter this year, which is thought to be helping global benzene pricing and sentiment, but was only likely to add to the ample availability seen in Europe. Current pricing in the US meant that imports could arrive into the ARA region at around the $1,300/tonne level.

Offers for both November and December spot material were heard earlier today at $1,320/tonne FOB Rotterdam, with no firm corresponding bids. The spot market in Europe has been categorised throughout this month by offers and no keen buying interest.

With December spot benzene numbers at $960-980/tonne today – close to $200/tonne lower than the November contract figure of $1,178/tonne FOB NWE – some further reduction is inevitable, even if the market shows signs of a late month rallying before the end of the week.

There is also an expectation that ethylene will see a reduction on the December contract settlement, despite some tightness for the front end of the market stemming from Moerdijk-related supply issues.

“I am struggling to remember when the styrene market has ever been this weak before,” said one downstream producer.