Special Issue: Europe styrene - from volatility to stability?

24 August 2017 19:31 Source:ICIS Chemical Business

The European styrene market faced some rather dramatic price movements during the first quarter of 2017, with a strong upward trend that actually started in November 2016. From that month until March 2017, the European monthly contract price (MCP) increased by €665/tonne with the main factors being developed on the supply side as well as raw material price movements.

Although Europe had not faced any significant production issues compared to recent years, the US market was forced to deal with a number of planned and unplanned outages that took out an important amount of export material that would have normally arrived in Europe.

Cultura/REX/Shutterstock

Cultura/REX/Shutterstock

As EU players struggled to secure supplies, spot prices climbed to unforeseen levels

Consequently, as European market players struggled to secure supplies, spot prices climbed to unforeseen levels. The volatility and the price level of styrene caused some serious headaches in the downstream styrenics markets and primarily in the European expandable polystyrene (EPS) industry where producers as well as converters were forced to cut down production rates or even stop production completely.

EPS demand fell to very low levels as customers were unable to pay for all these consecutive price increases; some only bought on a “need-to” basis whereas others would only buy when the right price appeared.

The situation was no better in the European polystyrene (PS) market where players faced competition from other materials such as polypropylene (PP) or polyethylene terephthalate (PET) that were more affordable and reliable. The record high PS price forced a number of players to swap some volumes to PP in order to save on costs, although the procedure was not that easy in terms of swapping technologies.

STYRENE PRICES CRASH IN Q2

The above styrene price pattern brought back memories of 2015, with market players remembering that values had then moved in a very similar way. Back then, prices had increased for several months and then recorded significant losses in a very short time period. This was exactly what happened during April and May 2017, when the European styrene MCP dropped €520/tonne, as soon as the supply situation in the US started to show clear signs of improvement.

The lower feedstock price brought a strong shift in customers’ purchasing behaviour, mainly in the downstream styrenics markets, as they eagerly started buying material and replenishing stocks that had been at very low levels for quite some time.

However, the styrene rollercoaster also changed the behaviour of some EPS customers who found it safer to buy material on a weekly spot basis and limit, as much as they could – the impact of feedstock volatility. In the European PS market, volumes moved up again from May onwards, having dropped around 20% in April year on year in some cases.

FROM VOLATILITY TO STABILITY?

After the sudden and severe price fluctuations during most of the first half of the year, styrene players are now more optimistic and confident that the market has entered a period of stability which started in June.

“We could witness smoother market circumstances after a very difficult first quarter,” a styrene buyer said. “European output is relatively steady and most plants were running well during the second quarter, which was the market’s strong period,” a producer said.

It said that customers might be complaining about high prices but the styrene market will probably not change much over the next 10 years and could stay balanced to slightly long. This producer said that current margins do not allow for large investments and every potential issue in the European market could immediately turn into a shortage of product.

Another player mentioned that in two to three years’ time there might be some sort of change in the European styrene landscape. The source said: “One of the problems is that some plants are really old and they keep ageing. Would it be a solution for some of them to close down?” This source added that consumption goes down slightly every year, therefore, plants are not running flat out.

EU styrene

Commenting on the short-term outlook for the market, a buyer said: “Apart from some production issues talked about during the last couple of months, all other units are running smoothly and production is stable. “This is the market’s strong season for demand that started in May; the US imports that have started arriving from mid-June will bring some length that will make the market look more balanced to long,” it added.

With regards to US imports, a producer said these quantities are rather reasonable and not higher than recent years. “From the expected US volumes, only a portion will materialise – some players were expecting to see more arriving in Europe.” This producer added: “From last year, there has been no real fundamental change in the styrene market and we expect a similar pattern for the second half of the year.” Other players agree that the market is now looking more relaxed although it is still very difficult to interpret and understand some of its key fundamentals. “We always have to look at styrene globally. Recently, the European market has become more sensitive towards the Asian market and any price developments in the benzene market, although there was a disconnect from benzene in the first quarter,” one of them pointed out.

Another source said that the Asian market is now coming back up after some plants had been in turnaround. “There is a pick-up in Chinese demand, but European styrene demand is also expected to be healthy until October, especially for the construction industry. Volumes will then start dropping as soon as the winter season will start kicking in,” it said.

EU styrene

Even if it seems that the European styrene market is getting closer to a more stable outlook, downstream players remain concerned after the abrupt fluctuations seen in the first quarter.

“Some PS companies have started exploring new ways and other products that could replace it. These innovations mainly relate to polyethylene terephthalate that is cleaner, recyclable and offers the sort of stability that is lacking in the PS industry,” a buyer said. This source pointed out that PS demand merely depends on any styrene price movements: “If styrene would turn volatile again, then PS demand would start dropping significantly and the market will find itself in a downward spiral that will be difficult to sustain.”

Another PS player said: “When the styrene MCP is at €1,000-1,200/tonne, everyone thinks it is a comfortable level. However, when it spikes and goes as high as €1,650/tonne, then downstream markets start having trouble.”

UNPLANNED OUTAGE

However, despite any optimism that the market could have entered a period of stability in June, the unplanned PO/SM 2 outage at the Ellba facility at Moerdijk in the Netherlands at the end of the month spread again concerns for the market’s supply.

The subsequent declared force majeure (FM) drove spot values significantly higher but the spike was only short-lived. Prices were under upward pressure in the first days of July but the market got softer quite quickly, although there was definite tightness in the front.

On 20 July, a Shell spokesperson confirmed that the PO/SM 2 unit was back online and that the FM was lifted, while, even before that date, it was obvious in the numbers that the market was getting more relaxed.

Vasiliki Parapouli Vasiliki Parapouli, is a markets editor at ICIS covering aromatics, as well as the polystyrene (PS) and expandable polystyrene (EPS) markets for Europe. ICIS price reports provide reliable price assessments and analysis, including price histories and commentaries on market drivers, which can be used as a benchmark in contract price settlements.

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By Vasiliki Parapouli