Asia SM extends losses since early Oct, bearish sentiment to continue

SINGAPORE (ICIS)–Asia’s styrene monomer (SM) prices have hit a new low since end-May 2017 on the back of bearish import sentiment from China and ample supply, with market participants not expecting a rebound in the near future.

The downtrend which extends losses since early October also tracks the ongoing weakness in futures prices and uncertainty over general economic growth.

Packing cases with styrofoam peanuts (Hans Lippert/imageBROKER/REX/Shutterstock)

Bids for November or December parcels were at $1,050/tonne CFR China in the morning of 13 November, a drop of at least $20/tonne comparing with the previous closing at $1,075-1,095/tonne CFR China on 12 November, ICIS data showed.

Import buying sentiment from the Chinese has been continuously softer, despite some buy-in activity a week ago amid market expectations of prices bottoming out because of narrower margins for back-to-back business activity and expectations of slower end-user offtaking activities leading up to December.

The general trend of rising inventories at east China main ports exacerbated weak import buying interest further.

“Inventories will continue to rise until December, since deep-sea product are scheduled to be discharged in end-November and early December,” an importer said.

The decrease in downstream demand, because of slow offtaking activities particularly for expandable polystyrene (EPS) and acrylonitrile-butadiene-styrene (ABS) capped CFR China buying activity as well.

“Even though production spreads have been widening between SM and these downstream products, there is an structural demand problem in between with EPS, ABS producers finding it difficult to offload cargoes and therefore they cannot increase production until their inventory woes are solved,” one Chinese trader said.

Supply, on the other hand, was longer-than-expected because of mostly high run rates for SM units within Asia amid healthy production margins, with drops in benzene and ethylene prices at a much quicker pace as well as tepid contractual offtaking activities from end-users resulting in some producers having to emerge with spot lots.

The market received some respite after the arbitrage for European exports to Asia closed slightly in the past two weeks, leading to expectations of fewer non-ADD (non anti-dumping) origin product, but concerns of weak demand-supply fundamentals in Europe opened the arbitrage again on 12-13 November. Some Western traders attributed it to slightly slower demand in Turkey.

Despite bearish sentiment and fundamentals, market players were still hopeful that prices could stabilise soon and undergo a slight technical correction after drops of more than $300/tonne in the past month. This was following the rebound in upstream ethylene prices on 12-13 November, ICIS data showed.

“Price falls may not be as severe soon since we are hitting a new low since mid-2017, since margins may be squeezed soon if the upstream prices start to show signs of strengthening,” one Chinese trader said.

With additional reporting by Tina Zhang

Focus article by Trixie Yap