Europe styrene market faces Sept CP reduction

Truong Mellor

27-Aug-2015

Focus Article by Truong Mellor

LONDON (ICIS)–Plummeting global feedstock prices as well as the continued slump seen in Asian markets are both weighing on the outlook for the September Europe styrene barge contract expected next week, sources said on Thursday.

The September ethylene contract settled at €945/tonne FD NWE, a reduction of €90/tonne, and current spot benzene levels indicate a potential drop of more than €250/tonne – these factors are countering some earlier expectations in the styrene market that ongoing supply restrictions for prompt delivery would support pricing into next month.

“Spot styrene is still relatively strong,” said one trader earlier this week. “But there is a massive backwardation.”

Price ideas for September remained firm as the week opened, with offers initially as high as $1,280/tonne FOB. Prompt August deals were later done at $1,245/tonne.

The market was heavily backwardated, however, with offers for the second half of the month as low as $1,230/tonne. The arrival of US cargo by mid-September is expected to ease the recent tightness in the market.

However, by midweek there was a considerable drop in pricing, albeit in a very thin market. Offers for September were heard at $1,200/tonne while buying indications were in the low $1,100s/tonne. October cargo was further backwardated at $950-1,050/tonne, and offers were seen Thursday morning at $1,030/tonne.

Spot benzene for September was trading around $540-550/tonne CIF ARA midweek but edged up Thursday morning with a deal done at $580/tonne. Nevertheless, players in the market are expecting a huge drop for the upcoming monthly settlement.

“Looking at feedstock and the current exchange rate, I would anticipate a drop of €250/tonne on raw materials,” said one styrenics producer.

However, sources did not expect to see the feedstock reductions wholly passed through to styrene given the current spot levels.

“I don’t think producers will give up all the margin from cheaper feedstocks,” said one styrene trader, who nonetheless believed that the September barge settlement would see a triple-digit reduction.

Despite the price drop on the horizon for September, there is still a cloud of uncertainty about European price direction for the rest of 2015. While the Asian market has slumped amid wider macroeconomic bearishness, supply issues both domestic and global will impact styrene prices and availability.

There are several European units facing turnarounds and output problems into September, and a raft of scheduled shutdowns in the Asian market between now and the end of the year.

“If we see some industry players playing in September, this could boost spot numbers into October,” said one styrene consumer. “At this point, it is guesswork.”

Looking further ahead, there is more uncertainty surrounding the European styrene market with the expected restart of the Ellba unit in Moerdijk, the Netherlands, towards the end of 2015.

“Once this unit is back up and running, we could see the spread between benzene and styrene really come down,” the styrene consumer added.

However, there is also talk that 2016 will see significant production turnarounds in Asia. One source mentioned that the Japanese market in particular would see a host of shutdowns, which has the potential to pull crucial US Gulf export volumes away from Europe.




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