Europe styrene struggles with production costs, weak demand

By Truong Mellor

LONDON (ICIS)–Despite the December benzene contract settling lower than many had earlier predicted, the European styrene market continues to struggle with production costs amid seasonally weak demand and a bearish outlook, sources said on Wednesday.

The December benzene contract was confirmed at €1,084/tonne, up €52/tonne from the previous month. The settlement was made at a US dollar concept of $1,408/tonne FOB (free on board) NWE (northwest Europe) and converted to the euro price at the agreed exchange rate of €1:$1.2989.

Spot values in the days leading up to the settlement soared on firming numbers in both Asia and the US. It was the latter market in particular, where prices reached over $5.00/gal on a FOB basis, that was of interest to European players, with traders looking to fix vessels for export in order to capitalise on the open arbitrage window.

December benzene spot parcels traded as high as $1,430/tonne towards the end of November, and many in the market were expecting the contract number to reflect this.

Ahead of the settlement, one trader said it had expected a number closer to $1,420/tonne in line with spot developments, but felt that it should be lower as the high cost of benzene is making it difficult for downstream players to remain competitive.

“It’s not just aromatics,” the trader said. “It’s the same for plastics and the polymers. Look at the high price of propylene and butadiene.”

The European benzene spot market has continued to steadily rise since the beginning of the month, driven by ongoing bullishness in other regions, with deals for December already done as high as $1,470/tonne.

So the settlement at $1,408/tonne perhaps demonstrates some recognition that downstream players have been squeezed by soaring benzene costs and softer than average demand this year, as key end use markets struggle amid the wider macroeconomic uncertainty.

However, for players in the European styrene market – the largest benzene derivative sector, accounting for more than 50% of offtake – the cost of benzene still represents a challenge.

The European styrene barge contract for December was confirmed at €1,428/tonne earlier this week on a free on board (FOB) Amsterdam, Rotterdam, Antwerp (ARA) basis, representing a €15/tonne increase from the previous month despite the €52/tonne rise in benzene costs, with seasonally weak demand and ample prompt supply tempering any upward movement.

“December is a difficult month for producers,” said one styrene trader. “From about the 18th onwards they cannot really sell directly to consumers.”

Styrene spot values have ebbed and flowed with benzene numbers this week, and December deals have been done as high as $1,650/tonne FOB Rotterdam. However, at a $90/tonne spread over benzene, this is well below any break-even costs for producers.

“It is very low versus spot benzene numbers,” said one source. “There’ll be more suffering ahead.”

Even with reduced production output in the fourth quarter and the declaration of force majeure on styrene by Shell Chemicals last month, the domestic market has remained well supplied.

Several players have already fixed vessels for export to Asia, as prices for December there have been as high as $1,665/tonne FOB Korea on availability restrictions. As much as 20,000 tonnes has been shipped from the ARA region to Asia, with further storage capacity being sought.

However, sources largely agree that the influx of material from both the US and Asia is expected to pull prices down towards the second half of January.

“I don’t really see the arb [arbitrage window] open,” said one European trader. “But we are the lowest market, and if one has too much [material] it makes sense.”

($1 = €0.76)