By Emily Burleson, Sophia Yao, Simon Price, Ashna Mishra
Supply is likely to increase in the Asian styrene market in the second half of 2021 as producers are expected to restart production disrupted earlier in the year and as new plants start up in China.
A potential shift in trade flows may also emerge after the supply recovery in the US and Europe.
New styrene capacity totaling 3.6 million mt/year is slated to start up in China in H2 2021, including Sinopec Gulei, Shandong Lihuaya and phase two of the giant Zhejiang Petrochemical. The expected capacity expansion volumes outstrip China’s 2020 import of 2.83 million mt and are expected to accelerate China’s transition from a net importer toward self-sufficiency and exports.
Styrene cargoes were actively traded on an FOB China basis from February until May, and these arbitrage windows are likely to increase in frequency because of China's production expansion, although deepsea arbitrage values will also contribute to how quickly these flows increase.
Styrene monomer is a crucial feedstock for polymers including polystyrene, styrene-butadiene rubber (SBR) and acrylonitrile butadiene styrene (ABS), which are used for packaging, automotive manufacturing and other consumer products.
FOB China trading will slow and face keener competition if the US-Asia arbitrage reopens, one market source noted.
Feedstock ethylene and benzene spot prices will need to fall before the US export arbitrage to East Asia, which has been closed since December 2020, can reopen, sources said.
“If ethylene gets cheaper, we could once again regain cost-competitiveness,” a US styrene producer said in May.
Even if export demand falters and feedstock prices retain strength, many US styrene producers will continue to run at high volumes because of efficiencies of scale and integrated supply chains, sources said.
“Asia being cheapest and the US not competing is not sustainable,” one trader said in April. “Europe’s not going to take our styrene forever. What’s the US going to do with those cargoes?”
As plant maintenances finish across Asian regions, if demand growth slows and leads to imbalanced supply, prices could fall, thereby reducing production margins. Sources expect Chinese demand along the styrene value chain to weaken in H2 2021 if the coronavirus pandemic keeps easing and the market returns to normal.
European demand in H2 was projected to be robust, a producer said, with renewed interest for downstream products. As planned and unplanned maintenances end, supply levels are set to normalize, producers said. Additional volumes were also expected to resume into Europe from the US as the domestic American market finds its own feet after supply disruptions.
The Indian styrene market, which is reeling under the second coronavirus wave, may remain highly uncertain through H2 2021. Downstream producers were forced to cut rates in Q2 because of low domestic demand, which may pick up starting in July if the vaccine drive gathers pace, sources said.
However, if demand weakens, that could impact international suppliers as well, and they may have to cut operations, a source said.
A more balanced market is expected for European styrene in the second half of the year, according to sources, as supply disruption in the first half of the year eases.
Severe supply disruption hit the European market in March following an unplanned outage at the Maasvlakte POSM facility in the Netherlands jointly run by Covestro and LyondellBasell. This caused havoc in the spot market, as the plant is the largest merchant source of material in Europe. Further issues hit in April and May due to supply shortages, after price hikes in feedstock benzene.
Price levels in H1, which reached a record high in March of $2,489.25/mt FOB ARA for prompt loading, were destructive to the industry and may cause many smaller end consumers to switch to alternate product streams. Pricing would have to fall for sustainable growth to return to the market, a trader said.
Unexpected months long outages among US styrene producers sent prices soaring there as well in the first quarter of 2021. Styrene feedstocks also saw supply crunches and high subsequent demand, boosting US petrochemicals prices over and above gains in crude.
The extent to which US production and inventories return to the status quo in the second half of 2021 will determine the economic viability of exporting US material to Northwest Europe, the Mediterranean and East Asia, among other destinations.
US styrene plants have a light maintenance schedule through the remainder of 2021, and upstream, S&P Global Platts Analytics forecast that refinery operating rates may achieve roughly 95% of capacity over the summer, which would increase their benzene output.
However, a key wild card in the production for US benzene and styrene is the Atlantic hurricane season, which runs June 1-November 30. Changing climate patterns since 1990 led the US government in April to adjust expectations for a higher number of storms and hurricanes in an average season.
The 2020 season was the most active on record, and any major weather event may cause further capacity outages in the US.
