OUTLOOK '13: Europe styrenics to face more volatility in 2013

24 December 2012 14:00 Source:ICIS News

By Truong Mellor

LONDON (ICIS)--European styrenics market players have struggled with the twin pressure of bullish upstream and energy costs and uncertain demand amid weak macroeconomic conditions this year, and this looks set to continue into 2013.

“We saw styrene prices actually fall below benzene at one point,” said a styrene trader. “That is the story people will take away from this year.”

The structural tightness of benzene will keep upward pressure on styrene, while ramped up derivative production in other regions, including the potential long-delayed start-up of a 200,000 tonne/year polystyrene (PS) plant in Alexandria, Egypt, will pull up to 30,000 tonnes out of Europe each month.

“Styrene will be a different ball game next year,” one trader said. “It will be harder to get product.”

Another trader agreed with this. “Where will the material come from?” the trader said, speaking on the sidelines of the European Petrochemical Luncheon (EPL) earlier this month.

“The US will ship volume to Asia, so this will support higher numbers in Europe. There will be some dips no doubt, but the market will move up as a whole, and this will be supported by benzene also.”

While the closure of Switzerland-headquartered producer INEOS's polystyrene (PS) units in Marl, Germany, could help redress the balance by easing some domestic demand, many in the market are sceptical of this as a solution to the current problem, as PS output has already been running at reduced rates for some time amid weakening demand.

Additionally,  the reduced styrene monomer (SM) capacity is counterbalanced by the INEOS PS plant closure. It was estimated that the units have been operating at 75% of capacity, meaning that the volume of SM actually being taken out of the market by 2013 would be much lower.

One trader estimated it would be closer to 150,000 tonnes/year. "One or two imports from the US each month would cover the shortfall," it said.

This, however, could create its own set of problems for the European market, as delayed imports in 2012 owing to Hurricane Isaac already led to sharp price volatility.

“The market will have to rely more on imports from the US Gulf next year,” one source added. “Then you have delays or possible hurricanes, and everything gets thrown out of whack.”

The challenge for styrene is that continued high pricing in an economic downturn, when any recovery is precarious at best, means that end users will switch to alternative products, said one EPS producer.

“High prices mean that the end-use markets like automotive and construction will lead buyers to look at alternative like polyurethanes [PU] and mineral fibres.”

As a result of the curtailed capacity in 2012, European producers are confident that the structural supply balance will remain more favourable for them in the medium term than it has been in the past three to four years. Nevertheless, new capacity slated to come online in Saudi Arabia and Egypt in early 2013 may pose a threat to European suppliers, in that some material from the new plants could be destined to cross the Mediterranean.

The outlook for consumption and prices over 12 months is hazy, given the volatility seen during 2012 and the array of factors that could influence the price evolution of the market. These factors, at the end of the year, included high feedstock costs - reflecting scarcity of benzene supplies -, tighter supply and higher operating rates among European producers, potential availability for the forthcoming facilities in Saudi Arabia and Egypt, and the relatively gloomy prospect for European economies, especially in key markets in the south of the continent, such as Italy.

Against a background of broadly slowing economies in Europe, most expandable polystyrene (EPS) players are not optimistic about the prospects for the year ahead. With insulation now accounting for around three-quarters of total EPS consumption in the European market, a depressed outlook for the construction industry is clearly a discouraging factor.

Southern Europe and the Benelux region, especially the Netherlands, are viewed as the most vulnerable of the traditionally important geographic markets. However, a migration of processing activity towards eastern Europe continues to be seen, and the strongly buoyant Turkish market is becoming increasingly significant.

Acrylonitrile-butadiene-styrene (ABS) and styrene acrylonitrile (SAN) players are being extremely cautious about predictions for 2013 business, with few willing to speculate market patterns beyond January. Most market participants expect prices to rise in the first part of 2013, as in 2011 and 2012, but will not give an indication of by how much.

Lack of demand from end-use markets such as the automotive and appliances sectors has led buyers of both products to purchase product on a hand-to-mouth basis. This has resulted in low inventories across the board, and a lack of product in the supply chain.

This lack of stock could lead to a scramble for product if demand picks up in 2013, as producers who have reduced production rates in the fourth quarter on the back of low demand work to bring production rates back up to meet increased demand levels. Price levels will inevitably follow.

However, with the European economy showing little sign of strengthening, it is not clear where a demand spike may come from. “Any [price] hike will be small because of low demand. Demand will keep low until 2015,” an ABS buyer said.

“At some point you have to believe you're going to sell volumes and start stocking up, so we could see January and February restocking demand,” a second buyer added.

Asian-produced ABS could play a part in demand levels in 2013. Currently, demand for ABS in Asia is in a seasonal lull, and injection grade product is available for purchase in Europe at €1,750/tonne ($2,303/tonne) FD (free delivered) NWE (northwest Europe).

The presence of such cheap product has put pressure on producers to keep prices low in the fourth quarter, but if this source of cheap materials disappears, European suppliers could see orders increasing.

“There are some signs China might take steps to stimulate demand at home because of austerity measures in Europe not [being] favourable to their exports,” a European ABS producer said, adding that it is still too early to tell if this may happen.

Any increase in Asian demand is expected to come after the Lunar New Year at the end of January, when Asian manufacturing levels increase.

($1 = €0.76)

Peter Gerrard and Matt Tudball also contributed to this story

By Truong Mellor