Asian styrene monomer margins at narrowest in 11 months on firm ethylene, tumbling SM

Margins for non-integrated styrene monomer producers in Asia shrank to their narrowest in 11 months Monday due to firm feedstock ethylene and tumbling SM market amid weak demand season in the fourth quarter.

The margin was calculated at $78.85/mt FOB Korea below the breakeven level Monday, down $20.80/mt from Friday. It was last narrower December 17 at minus $97.65/mt, Platts data showed.

The breakeven level is calculated using feedstock benzene and ethylene prices and a production cost of $150/mt.

The SM margin has narrowed due to tumbling SM prices, hit by bearish China domestic market in the middle of the typical off-peak season in winter.

The FOB Korea SM marker fell $30/mt from Friday to $883.50/mt Monday, a six-week low. But the FOB Northeast Asia ethylene marker remained flat over the same period at $1,055/mt, its highest since August 11 at $1,075/mt. The FOB Korea benzene marker fell $11.50/mt from Friday to $633/mt Monday.

The SM margin was at its widest on record on May 14 at $312.60/mt, on the back of tight supply, low SM inventory in China and relatively weaker feedstock benzene prices in the first half of the year.

FIRM ETHYLENE ERODES SM MARGINS

The Asian ethylene market has been climbing since early September, in line with tight supplies from another round of steam cracker turnarounds in the region in the third to fourth quarters.

In South Korea, Lotte Chemical shut its 1 million mt/year naphtha-fed steam cracker in Daesan from October 12 to early November for annual maintenance.

In Indonesia, Chandra Asri shut its 600,000 mt/year steam cracker in Anyer from late September an annual maintenance. The cracker is due to restart December 24.

The strength in the Asian ethylene market accelerated in November following an emergency shutdown of Shell’s steam cracker in the Netherlands.

Shell shut its 910,000 mt/year steam cracker November 11 following a fire. It will take around four weeks to restart the plant.

The shutdown prompted fresh supply crunch concerns as US ethylene cargoes are now seen to be moving to Europe instead of Asia.

The location spread between Europe and Asia was calculated at $71/mt Monday. Typically, traders prefer to move ethylene cargoes to Asia from the Americas if the EU-Asia location spread is more than $100/mt. SM OUTLOOK REMAINS WEAK

Market participants expect the SM margin to remain negative in the fourth quarter and early Q1 next year, given low seasonal demand and a flurry of US SM cargoes arriving in Asia. Many US SM producers tend to sell cargoes at the end of the year to clear out stock, a market source said.

SM demand in Q4-Q1 depends on stockpiling by end-users ahead of China’s Lunar New Year holiday in February, but it may not be as strong as previous years, a market source said Monday.

SM demand is likely to weaken further until February, because of slower construction activity, which will exacerbate the currently sluggish downstream expandable polystyrene market, market sources said.

Demand from EPS makers accounts for around 30% of China’s total SM demand, market sources said.

Thin demand for electronic goods and home appliances amid sustained weakness in China’s economy is also aggravating downstream acrylonitrile-butadiene-styrene and polystyrene markets.

The Asian SM market is set to lose around 223,000 mt of production in H1 2016, in line with H1 2015, but the impact is likely to be quite different.

Volatile upstream crude, China’s weakening economy and a rise in deepsea supply mean the price hike sparked this year by the H1 loss is unlikely to recur next year, market players said.

In addition, the eight turnarounds scheduled in H1 2016 are at SM plants across Japan, South Korea, China, Taiwan and Southeast Asia; this year seven of the eight turnarounds in H1 were in South Korea, concentrating the impact on the benchmark FOB Korea marker.

“There may be some rebound [next year], but not the uptick in price seen this year,” a trader in China said.