OUTLOOK ‘18: Asia EPS prices to closely track feedstock movements

SINGAPORE (ICIS)–Asia’s expandable polystyrene (EPS) prices are expected to closely track upstream prices this year considering there are little changes in the horizon for broad demand and supply fundamentals in the region.

2017 was a boom year for Asian expandable polystyrene (EPS), as prices catapulted nearly 10% within the year.

But EPS makers say it is no time for celebration, as margins were squeezed by stiff feedstock costs, which have climbed nearly 50% since early 2016.

Based on ICIS data, Asian EPS packaging grade resins settled at $1,470/tonne CFR (cost-and-freight) China by end 2017, 9.7% higher than the $1,340/tonne CFR China level at the beginning of the year.

This is also a whopping 33% improvement from the beginning of 2016, when prices for the same grade hovered mostly only below $1,100 CFR China.

EPS’ strengths in 2017 are underpinned primarily by parallel gains in feedstock styrene monomer (SM).

ICIS data showed that SM closed at $1,285/tonne CFR China on 23 December, which is 7.5% higher than the same time last year.

Otherwise, industry players said that Asian demand and supply were broadly stable in the year, with China still positioned as the key outlet in the region, absorbing up to 10% of Asian output.

EPS resins are used for packaging, and in manufacturing of toys, consumer electronics, and a variety of consumer items.

The flame-retardant (FR) grade, which is typically valued at about $50/tonne above packaging resins, is used in applications like insulation panels for construction.

There are minimal changes expected in 2018, an Asian EPS maker says, with “no new applications coming up in the horizon”, and “no new plants in sight”.

As such, most industry players are of the view that EPS prices in 2018 would still be mostly shaped by upstream cost shifts. “All eyes are trained on SM”, a China-based trader said.

If SM continues to stay firm in the coming year, EPS prices could follow suit.

But what EPS makers found disturbing was the talk that SM prices could remain volatile, given uncertainty arising from potential anti-dumping duties (ADD) to be slapped on SM exporters to China.

Such upstream volatility, which would invariably transfer to EPS given how closely its prices track SM, could in the longer term “squeeze” regional demand for EPS, a producer says.

An EPS buyer said it had been “challenging”, from business costing perspectives, to keep up with the turbulent EPS pricing trends this year.

If this pattern recurs or even persists within 2018, industry players fear more EPS users would start looking harder for alternative replacement products that are more stably priced.

This also meant potentially a fundamental dent in overall EPS demand.

Interestingly, some EPS producers already noted that it has become more difficult to “sell into China”, with Chinese end-users increasingly more sensitive to wide pricing swings of US dollar-denominated import cargoes.

It does not help too that Chinese EPS plants have kept up healthy operating rates, which dampen its appetite for EPS imports.

Outlook article by Ai Teng Lim