OUTLOOK ’13: Europe styrenics to face more volatility in 2013
Truong Mellor
24-Dec-2012
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
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