EPCA ’15: Oct styrene drops ahead of an uncertain Q4 outlook

BERLIN (ICIS)–With the sharp drop seen on the October styrene barge contract earlier this week, players throughout the styrenics chain are braced for lively discussions about the direction of the market in the fourth quarter ahead of the 49th annual European Petrochemical Association (EPCA) meeting in Berlin, Germany.

The European styrene barge settlement was confirmed earlier this week at €990/tonne FOB ARA, a reduction of €210/tonne from the previous month.

A sizeable reduction had been expected for the October contract settlement in light of the drop in spot numbers over the last month. However, one major consumer did not follow the October settlement, claiming that was not an accurate reflection of the current market.

One trader agreed, adding that it had been anticipating a drop of around €250/tonne this month given current spot levels.

Downstream buyers have been holding back on purchases as the spot market dropped, with the expectation that this would translate into another significant decrease on the October barge settlement despite some recent gains for the month. As a result, there should be some inventory building in the coming weeks following reduced consumption over August and September.

There has been some restraint shown by downstream customers this month, the majority of styrenics players in Europe are nonetheless still operating on tight inventories, given the volatility of the wider aromatics chain and global economic uncertainty.

“We are already seeing good orders for October,” said one styrenics industry source last week. “This is not just inventory building but real demand.”

But styrenics consumption is likely to ease off as the year draws to a close, limiting any significant price recovery. Despite the upcoming peak season for expandable polystyrene (EPS), many players in the downstream styrenics chain also do not expect to see a huge rush to fill tanks.

“People aren’t playing the market so much,” said one polystyrene (PS) convertor. “There were some buyers holding back in September of course, but our volumes have been pretty steady month on month this year. Most consumers are already operating on a hand to mouth basis because of upstream pricing and volatility.”

As always, the potential direction of European styrene pricing will also depend on developments in the Asian market over the coming months. Now that Asian and European pricing are essentially flat around the $900/tonne mark, this will curtail the influx of US Gulf material into Europe.

There are also various global turnarounds in Asia and the Middle East into the fourth quarter, and if this supports an upturn on Asian pricing later in the year, US styrene export volumes could be diverted away from Europe.

Whether this will tighten European availability, even with better derivative demand in October, remains unclear. The outlook for the Asian styrene market remains bearish, and sources in the region expect to see manufacturing activity soften in the fourth quarter.

“Given what’s happening in China, nobody can be surprised about that,” said one European styrene trader.

But with the price volatility of recent years still fresh in the mind of European styrene players, a mood of overall uncertainty still lingers ahead of the EPCA.

“Spot activity has been very thin over the last few weeks,” the trader added. “Especially the last few days. I’m not sure it can get any slower than this. Which makes the market hard to read. We could see an upturn in consumption, but it seems like there is still plenty of availability.”

The annual EPCA meeting runs from 3-7 October.