Global styrene shortage to persist

Much of the conversation on styrene at the European Petrochemical Association (EPCA) annual meeting in Vienna this year revolved around global supply and the likelihood of seeing a new plant anytime soon.

ICIS firmly believes that China plants will take some time to be built and that new supply in other parts of the world should be very limited.

With old plants in Europe and the US, unplanned shutdowns should continue, meaning continued volatility for pricing and supply shortages.

Global operating rates for styrene should reach 90% in 2018, according to ICIS Analytics and Consulting data. This strong global utilisation has come through slow demand growth, but even more limited capacity growth, including closures in developed markets.

This limited supply has been exacerbated by unplanned shutdowns, as old plants have failed more often. The result has been healthy margins for producers and price uncertainty for buyers. However, new Chinese supply has been looming, with a total of around 8m tonnes/year expected in the mid-term.

This new supply has been encouraged by good margins, a drive for self-sufficiency and substantial trade barriers including new antidumping duties (ADDs) applied this year, which added to the retaliatory trade tariffs that can lead to import duties of up to 80.7% on US product.

This new supply represents around 25% of world demand and should have a disruptive effect on global utilisation, pricing and margins. However, questions remain on how fast this product can come.

Some new units have already opened in 2018, but these are small and not integrated. They have not had a significant effect on world balance. The big impact will only come when some of the mega-sized integrated units come on stream.

The first of these have been pushed back to 2020, with a significant number due in 2020 and 2021. However, ICIS continues to believe that the impact will be less significant than it would appear on paper.

Firstly, these projects have been repeatedly delayed. Management of the companies have a vested interest in being optimistic on the start-up, hoping that it will discourage other late comers. At least one of these plants should be pushed back a couple of years.

Secondly, even when plants do open they may do so in a phased manner. Take the large 1.2m tonne/year Zhejiang Petrochemicals plant. Industry executives point out that this is made up of two or more trains and the company could choose to open one train first before following with the others.

Thirdly, if the new plants do all open, the resulting styrene glut in China could force older, smaller non-­integrated plants to run slower or even close.

Many of the new plants were done in partnership with planned coal-to-olefins units which were never built for economic reasons. These plants are now profitable, with the shortages of styrene and high prices within China, but would be less so if prices were to fall.

ICIS believes that China will continue to be a styrene importer in the mid-term as Asia supply continues to be plentiful.

Even with antidumping duties (ADDs), prices in China could be attractive for some Asian players, given the length in the market outside China.

So what about plants outside China? One plant is under construction at Triunfo in Brazil and should be completed by 2019. However, the unit is small (160,000 tonnes/year) and is integrated downstream with Innova’s expandable polystyrene (EPS) business.

Styrolution recently said it was conducting a feasibility study for a new US Gulf coast styrene plant. Many players in the market were surprised – on today’s economics the plant could make sense, but increasing global styrene supply and increased trade restrictions could put pressure on US export prices in future.

China is no longer an option for US styrene, and the European market could also loosen once China develops its own supply.

Some players at the EPCA meeting thought the plant would go ahead – INEOS has always bucked trends and often profited from its anti-consensus view. Some people have suggested that the plant is to replace an older, smaller unit.

Either way, this plant is some years off and the impact on global supply is as yet unknown. Outside of Brazil, the US and China, a number of plants are planned, but geopolitics make these more unlikely.

Kian Petrochemicals in Iran is in the early stages of planning a propylene oxide/styrene monomer (POSM) unit, but increased US sanctions could make investment harder. Egypt has a couple of projects planned but doing business is hard there too.

Investment in India is picking up, but no one as yet has committed to building a styrene unit. Elsewhere, planned Chinese capacity has led to indefinite postponement of a Korean project.

All in all, we think the operating rate will fall both in China and globally – but in a controlled and slow manner rather than a sudden drop. Longer-term environmental moves away from plastics generally and styrenics particularly could have an impact on demand. As a result we predict little new plant building globally after the new wave of Chinese supply.

Rhian O’Connor works as a senior analyst in ICIS Analytics and Consulting. She is the author of the European styrenics forecast report and updates styrenics and propylene oxide on the ICIS Global Petrochemicals Supply Demand database.