OUTLOOK ’18: Europe EPS, PS market concerned over Q1 styrene supply

LONDON (ICIS)–Feedstock supply is at the centre of attention for players in the European polystyrene (PS) and expandable polystyrene (EPS) markets, as the widely-discussed schedule of planned maintenance shutdowns in upstream styrene will begin in February.

From next month until April, four to five European units will undergo a turnaround, while the same will happen with another two or three in the US and one in Saudi Arabia toward the end of the quarter.

After a very difficult start to 2017, when styrene prices recorded significant increases for five consecutive months mainly due to supply issues in the US, European PS and EPS players fear that this scenario could repeat itself this year.

The fact that all shutdowns are planned leads to some optimism as both styrene sellers and their customers have had time to make necessary arrangements to cover a significant part of their supply commitments and needs respectively.

EPS producers do not feel nervous yet for that particular period as the market has been recently confronted with limited availability of material due to occasional production issues, particularly strong demand that was further enhanced by tightness in the polyurethanes industry, and a few short planned turnarounds toward the end of the year.

Amid speculation and rising concerns that styrene prices might spike in the next couple of months, EPS buyers tried to pre-buy volumes and build some stock but the stretched nature of the market left most disappointed.

Some PS players have decided to follow a similar strategy in terms of pre-buying by making forward deals, at the end of last year, for a good part of their requirements in the first quarter of 2018.

Price-wise, they paid around €100/tonne more than the market price in early December but feel that they made the right choice given the outlook of feedstock prices for the next months.

Regarding demand, EPS volumes are expected to continue the strong performance of the past months and make a solid start to the new year as no significant supply progress is expected in the polyurethane market.

Even if the months of January to March are usually weak in terms of order entry given the cold in most parts of the region, this year feels already different as January orders have started being placed even from late November 2017.

EPS customers, apart from the ongoing speculation on styrene supply, will aim to secure material ahead of the second quarter of the year when the strong season of the market slowly begins as the improved weather conditions support construction.

The European economy is projected perform strongly in 2018 with GDP growth of around 2.5% and EPS players feel confident that the market should be growing by 2.0% as well.

On the PS front, the fact that many customers decided to pre-buy volumes in December ahead of Q1 might mean that demand in January could be lower than expected, even if it should pick up normally as the market comes back from the holiday season.

For the rest of the year, no big changes are expected, although PS demand is closely linked to styrene price developments and increased feedstock volatility will not be easy to handle volume-wise.

The European PS industry was heavily impacted from strong upstream increases in the first half of 2017 which it did not manage to recover, despite evident optimism and better months for demand from last May onwards.

Although it is rather unclear how feedstock prices will eventually develop for the first half of 2018, PS buyers made it clear that a similar scenario to 2017 would not be sustainable and it would only push them closer to the decision to move away from PS.

Last year, some companies made that step and switched to more competitively priced materials like polypropylene (PP) and polyethylene terephthalate (PET) and it will not come as a surprise if the same was to happen again this year.