EPCA ’14: Europe styrene outlook bearish despite sudden upturn

Focus article by Truong Mellor

VIENNA (ICIS)–While spot numbers saw a sharp spike in the days leading up to the 48^th annual European Petrochemical Association (EPCA) meeting, the overall sentiment in the European styrene market for Q4 remains sluggish amid limited derivative demand, ample availability and persistently weak pricing in the Asian styrenics sector.

After languishing in the low $1,500s/tonne FOB (free on board) for several weeks, European spot numbers quickly shot up towards the end of this week following news of a production issue at Shell’s Moerdijk site in the Netherlands.

Shell’s cracker at the site has been shut down following a steam leak incident on 2 October and force majeure may have been declared, market sources said on Friday 3 October.

The impact was quickly felt in the styrene market, with deals done early on Thursday 2 October at $1,515/tonne before players were galvanised amid some short covering and concerns about prompt supply.

October traded later in the day at $1,525/tonne and the market continued to move up, with deals done early on Friday 3 October at $1,545-1,575/tonne. By the afternoon, October had traded twice at $1,600/tonne, and November was also firmer with a deal done at $1,530/tonne.

However, there was uncertainty about how long the current upturn would last. Key derivative markets such as polystyrene (PS) and expandable polystyrene (EPS) are still slow after the traditional August lull in demand, and there is no real sense of a recovery before 2015.

A mild winter conditions earlier in 2014 saw a strong start to the year for styrene in Europe, but this has flattened downstream demand over the course of the year, with many 2014 projects pushed forward to capitalise on the favourable weather.

US imports are also scheduled to arrive in October, and while some benzene-related shutdowns will limit volumes between now and the end of the year, ample availability has been a defining feature of the styrene landscape in 2014, adding further downward pressure on pricing.

Imports of styrene into the EU (source: Eurostat)

The volatility seen for pricing and availability in Europe towards the end of 2013 saw many opt for structural monthly imports this year to buttress the impact of unforeseen supply restrictions. However, the subsequent slump in the styrene market in 2014 has seen the steady arrival of these volumes add to the general malaise felt among styrene players.

Another key factor likely to emerge in discussions among styrene players at EPCA is the continued bullishness of feedstock benzene, which has supported the monthly styrene barge settlement and created a growing disconnect between spot and contract pricing.

The gap between the two has held reasonably steady throughout 2014 at 15-16%. By comparison, the spot/contract differential in 2013 was markedly lower at 11.6%.

There is a sense that styrene players could move away from contract volumes towards the spot market given the widening spread between the two, although some sources doubted this.

“Producers will give more discounts on contract volumes, and customers will remain with them, angry but scared of something like availability shortages,” said one trader. “I’m not sure if distributors can offer them a good alternative.”

The annual EPCA meeting runs from 4-8 October.