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Styrene monomer prices dropped substantially at the end of 2018
and remained stable at around $1,000 - 1,100 per mt for most of
this year, before seeing another sharp drop in October. Market
players were surprised that there were no seasonal price
fluctuations and margins remained low this year despite limited
capacity additions.
Usually, a sharp spike or drop in styrene prices is driven by
sudden changes in supply, rather than in demand. There are many
factors which can influence supply situations but operating rate
changes, scheduled maintenances and unexpected shutdowns due to
operational issues are the usual factors.
Operating rates of styrene producers usually have a greater impact
when producers' margins are negative or around breakeven level.
Considering that the margins for styrene producers have been
positive in recent years, most producers would have operated at
maximum rates to enjoy healthy margins. Hence, scheduled
maintenances or unexpected outages would have larger impact on
market supply.
In 2019, global capacity losses due to scheduled and unscheduled
maintenances were greater during spring, driven by more plant
maintenances in Northeast Asia. However, plant operations in North
America were relatively stable compared to many occurrences of
unexpected plant issues in 2017 and 2019. This helped mitigate
capacity losses in Northeast Asia.
Capacity losses during the second quarter in Northeast Asia were
larger than other years mainly due to higher planned and unplanned
maintenance shutdowns by South Korean producers. However, this did
not affect market prices as the Chinese capacity losses were
smaller due to lower planned maintenance shutdowns and operations
were steady, supported by positive margins.
Historically, large planned and unplanned shutdowns in South Korea
would typically severely impact the prompt spot market prices in
Asia and China because of a heavy dependence on imports from South
Korea to the Chinese market. However, this changed since June 2018
after China imposed Anti/Dumping Duties (ADD) on imports from South
Korea. After the implementation of ADD, the Chinese import
demographic has changed drastically and China became more dependent
on imports from other countries and regions including the Middle
East, South East Asia, Japan and some European countries.
Thus, capacity losses in South Korea in 2019, only impacted
domestic end/users in South Korea, with less of an impact in China
or Asia in general.
Another factor influencing styrene operating rates has been the
fluctuating margin for derivatives.
Historically, styrene monomer and polymer margins frequently show
an opposite trend. For example, when styrene producers were
enjoying good margins, polymer producers were suffering from high
cost. When styrene prices and margins were low, polymer producers
enjoyed relatively better margins.
However, during the last 5 years, both styrene monomer and polymer
producers enjoyed positive margins most of the time and it
represented a very healthy cost structure in the styrene monomer
and polymer market.
In 2019, polymer margins have fluctuated more than in previous
years. ABS margins in particular, have declined to negative
territory during certain periods, not only due to weak demand but
also high costs of other feedstocks like acrylonitrile and
butadiene.
These negative margins for polymers also capped styrene prices as
there was minimal restocking demand from the end/users.
The East China styrene inventory level is being used as an
indication of the Chinese supply/demand balance. The Chinese
inventory level follows a seasonal trend, usually increasing during
spring when the demand for styrene increases after the Lunar New
Year holidays and also in preparation of scheduled styrene plant
maintenances during the same period.
In 2019, inventory climbed very sharply in the first quarter of the
year due to a couple of reasons. Speculative traders and
distributors took long positions early in the year with the
anticipation of the usual demand rebound and potential price hike,
which often occurs during this period. There was a sharp price
correction towards the end of 2018 and this encouraged some
pre/buying or restocking demand in early 2019, with the
anticipation that scheduled maintenances and limited capacity
additions during the year would limit supply.
However, slower than expected demand recovery after the holidays
due to on/going uncertainties regarding the US/China trade war and
lower economic growth led to high inventory levels. And this has
pressured prices during the second quarter of the year.
After reviewing the factors which led to stable styrene prices and
lower margins in 2019, we have come up with some forecasts
below.
After the latest round of major capacity expansions - which
occurred in 2010 in China and the Middle East - styrene capacity
additions have slowed and have at best kept pace with incremental
demand growth. This was the main reason leading to a balanced
market and healthy margins for the last 5 years.
However, as we have forecasted for the past couple of years, a big
change will soon arrive. Heavy capacity additions - mainly in China
- will start up within a couple of months. The increase in capacity
will be much greater than expected demand growth. As a result,
Asia's balance will change to a long market and the margins for
styrene producers will decline substantially.
More details of balance and trade change for next five years are
available in our
World Analysis-Styrene.
Posted 06 December 2019 by Brian Lee, Executive Director, Asian Aromatics