OUTLOOK ‘14: Europe styrenics to be driven by supply not demand

By Truong Mellor

LONDON (ICIS)–Despite struggling downstream demand, global supply issues and structural challenges will keep upward pressure on European styrene numbers next year, with several players predicting more sharp volatility and record high spot pricing.

The challenge of predicting a direction for European styrene going forward is certainly made apparent by the market’s behaviour in 2013. This time last year, European plant closures, downstream start-ups and structural tightness on benzene saw players increasingly bullish for the upcoming year.

While a spate of planned turnarounds in Europe from March to May was expected to tighten regional availability and push prices up, slower-than-expected demand limiting consumption, with a lengthy winter delaying construction activity, saw the market stall into the second quarter as benzene pushed upward.

With downstream players stockpiling material since the start of 2013, and US imports steadily arriving in Europe, this actually led to excess availability during the shutdown period. This has left many in the market uncertain of how to gauge its direction using traditional indicators such as derivative demand.

From May 2013 onward, styrene grew bullish as availability tightened, but this was not supported by downstream demand. A combination of production outages across all regions – most notably in China – saw US material diverted to Asia, while weak propylene oxide (PO) demand led to reduced PO/SM (styrene monomer) output.

It is the spectre of PO/SM production in Europe that many believe will factor heavily in the market next year. With over 40% of regional nameplate capacity for styrene derived from these units, the supply dynamic will depend on the health of PO.

And for many, the prognosis is bearish indeed. PO/SM units are one of the least economical methods of producing PO, and one major styrene player noted the “tsunami” of Middle East capacities in 2014 and beyond, with a suggestion that European PO/SM units would face challenges and potential closures due to poor economics.

The expected impact on styrene is continued price volatility and more record-high spikes to eclipse even those of 2013. One trader was confident that the $2,000/tonne barrier would be breached on spot pricing in 2014.

Meanwhile, derivative sentiment for the upcoming year is lacklustre by comparison. The European polystyrene (PS) and expandable polystyrene (EPS) markets have had a turbulent 2013, and buyers are operating more on a hand-to-mouth basis, keeping inventory levels low.

An EPS producer said: “On demand, we are cautiously optimistic. I think we have seen the worst in 2013, there should be a rebound consumption [in 2014], though it’s not likely to be spectacular. After 1-2 years of falling consumption, it should grow in 2014. We would bank on maybe 4-5%. It will be partly related to a recovery of general economy.”

Despite this, most PS sources are taking a cautious approach and estimating that the European market will grow by around 1% for 2014. One PS producer, however, was less sanguine: “In our assumptions, 2014 demand will be lower than 2013.”

Growth in the European ABS (acrylonitrile-butadiene-styrene) market in 2014 is not expected to be more than 1-2% above 2013 levels, if at all, according to market participants. The overall economic situation in Europe remains subdued, with the automotive sector in particular expected to be slow into 2014.

Globally, however, styrene derivative growth is expected to steadily gain traction across all the key sectors in 2014 and the coming years while SM capacities fail to keep pace. One European consumer said that the tipping point will come by early 2015, when derivative nameplate capacity will overtake SM production.

“The growth of derivatives will be continuous while global SM is stagnant, and even faces more closures and rationalisation,” said another major player. “Operating rates for styrene have to improve.”

For many in the styrene market, the problem is that on top of an unstable global economy and bearish downstream demand, there is a growing number of non-integrated SM producers, particularly in Asia, which is the market that will drive global pricing.

Producers that aren’t equipped with feedstock simply shut down when they would otherwise be running at a financial loss, and with Chinese non-integrated plants either struggling with benzene costs or short on ethylene, this will keep Asian pricing high and continue to cycle of global volatility that has plagued the market throughout 2013.

Matt Tudball and Iain Packham contributed to this article.