Europe styrene thin and bearish ahead of March

LONDON (ICIS)–European styrene players are anticipating some downward movement for the March barge contract, sources said on Thursday, with lower benzene costs, a weak domestic spot market and lacklustre signals from Asia all weighing down on sentiment for the upcoming month.

While the European market has been in contango for most of the year so far, as anticipation of better demand and a tightening Asian market as the turnaround season in the first quarter or 2014 unfolds, spot activity has become increasingly thin in the run-up to March, with offers slowly easing lower and very little buying interest.

“Stock tanks are full, and we are not seeing many bids in the spot market,” said one aromatics trader. “The market for March has moved well below $1,600/tonne now.”

Ample inventory levels in the Chinese market are keeping Asian sentiment muted ahead of several maintenance turnarounds during the first half of the year, and downstream resin demand remains poor overall amid bearish macroeconomic signals.

There was a growing sense among some players in Europe that the expected tightness stemming from the Asian turnaround season may have been overdone.

“We can be cautiously optimistic, but we also need to be real about things,” said one styrene consumer. “If the benzene contract settles around the mid-$1,300s/tonne, we could be looking at styrene coming down by up to €40/tonne.”

Combined with a €20/tonne decrease on March ethylene, the raw material costs support a sizable reduction on styrene for next month.

However, despite the current bearishness in the European market, there is also a gnawing sense that the bottom has been reached. Should offtake from key markets such as polystyrene (PS) and expandable polystyrene (EPS) pick up towards the end of March in line with traditional seasonal demand patterns, this could support higher pricing.

Additionally, as glycol and de-icer demand eases off with the milder weather, this will lead to weaker propylene oxide (PO) demand, meaning that PO/SM (styrene monomer) units will be trimming output, which, if combined with an uptake in demand, could see the market tighten.

Several players felt that PO/SM output was already limited due to the relatively mild winter across much of Europe.

“There are several factors,” the consumer explained. “Benzene, Asia styrene and the spot market here could all pick up by April. European PO/SM units will be running at 70% maximum by the summer, so we could see a repeat of the volatility of 2013.”