INSIGHT: High spread of styrene over benzene of concern globally

By Truong Mellor

LONDON (ICIS)–Following the €20/tonne increase in the European styrene barge contract for June earlier this week, the fourth consecutive upward movement for the settlement, several downstream players have expressed concern about the structurally high spread over feedstock benzene.

One styrenics producer said: “We have seen a long, sustained high spread over the feedstock now rather than a spike. Why has it happened? What have we got wrong?”

Over the course of 2014, the spread of styrene over benzene for the monthly contract settlements was €273/tonne. So far this year, that figure has been twice that on average (see chart 1).

The spot numbers so far this year tell a similar story, with the spread between benzene and styrene widening significantly since the first quarter, moving above $800/tonne in late March (see chart 2).

While European benzene prices have stalled following a nascent recovery in April this year, styrene spot levels have remained high on the back of global production turnarounds.

Several planned turnarounds in Asia from March to May saw styrene prices in the region push higher, and these were subsequently followed by some production issues in the Middle East and Europe.

As a result, European prices have had to keep pace with global movements, but as the Asian market begun to recede last month, European numbers stayed relatively buoyant above $1,400/tonne.

June ARA (Amsterdam, Rotterdam, Antwerp) spot numbers this week have started to ease off, with deals done midweek at $1,350/tonne following a trade earlier in the week at $1,400/tonne. However, with European benzene levels still languishing just below the $800/tonne mark, the spread between the two products remains both structurally and historically wide.

For some players, the question of whether this dynamic has been caused by stronger styrene costs or bearish benzene numbers is unclear. Certainly, the spread of benzene over naphtha has shrunk in 2015 compared to previous years (see chart 3), but there are concerns that styrene prices have moved back up to the levels seen in 2014 before the plunge in crude oil pricing.

“Styrene will eventually have to come down,” said one European trader. “It is just a question of when.”

This has been the received wisdom in the European market for several months, however, and with US Gulf styrene numbers still trading around the $1,280-1,290/tonne mark, some downstream players do not see any significant downside to pricing in the near future.

While the US Gulf market has become the global export hub for styrene in recent years due to the cheap ethylene advantage, pricing in the region has steadily firmed since mid-April this year following a turnaround at the LyondellBasell unit in Channelview, Texas.

The Cosmar styrene plant in Carville, Louisiana – a joint venture between SABIC and Total – also began a 21-day turnaround earlier this week, sources in the US confirmed. One of the site’s 550,000 tonnes/year units has been taken offline for scheduled maintenance.

One European source in the downstream expandable polystyrene (EPS) sector added that the pricing dynamic seen in Europe has been replicated in both the US and Asia so far in 2015 (see chart 4), and wondered whether this was an indication of a fundamental global shift in the styrene monomer market.

“The global spread over feedstock benzene is worrying if you look at pricing developments since the beginning of this year,” the source said. “If we see any future demand growth, this is going to be a real problem. Where is the styrene going to come from?”

In the European market, the closure of the joint venture Ellba SM/PO unit since the explosion and fire back in June 2014 has certainly had an impact on the overall balance of the market.

While sluggish demand from derivative markets in 2014 kept styrene prices from soaring due to availability restrictions, the absence of the 550,000 tonnes/year plant has been felt so far in 2015.

However, despite the anticipated restart of a newly constructed plant at the site in early 2016, some styrene players are unsure whether this will provide a comprehensive answer to the supply problem in Europe.

“It will run based on the dynamics of the PO market not styrene,” said one player earlier this week. “What we could see is the reallocation of PO production, with other PO/SM units turning down.”