Asia SM likely to bottom out ahead of huge turnaround in Mar

Massive turnarounds at styrene monomer plants in South Korea in March and an expected recovery in demand post Lunar New Year may lead to a bottoming out of SM prices next month, industry sources said Monday, January 27.

The Platts FOB Korea SM marker rebounded to $886.50/mt last Friday from a near six-year low of $805/mt on January 13, Platts data showed.

S KOREAN TURNAROUNDS

South Korean SM producers will shut as many as six out of eight plants — or 76% of the country’s total SM production capacity — for maintenance over the first and second quarters of 2015, Platts has reported.

The estimated loss of production in March due to planned maintenance is calculated at around 194,550 mt.

This is more than the arbitrage volume from the US and Europe to Asia of around 25,000-40,000 mt for March, Platts had reported.

Even after taking into account new supply from start-ups in Q1, which is estimated at around 31,000 mt/month, supply tightness due to the huge turnaround is likely to surpass this additional inflow.

China’s Shandong Yuhuang Chemical Ltd. plans to startup its new 240,000 mt/year SM plant in Shandong province in February-March, and China National Offshore Oil Corp. will likely start its new 120,000 mt/year SM plant in Hainan in February, Platts previously reported.

SEASONAL DEMAND IN SPRING

Another bullish factor for the SM market, was emerging demand from downstream acrylonitrile-butadiene-styrene and high-impact polystyrene markets — as these two products are in their peak demand season ahead of spring, when air conditioner and refrigerator manufacturing picks-up.

These downstream products are used in the manufacture of air conditioners and refrigerators.

With warmer spring weather ahead, the current sluggish expandable polystyrene market may also recover on the back of returning construction activity in the northern hemisphere, according to a market source.

UNCERTAINTIES STILL HOVERING

Nevertheless, uncertainties are still hovering in global energy markets, and may keep pulling down the Asian SM market, if bearishness continues.

The recent tumble in global crude oil futures and the current uncertainty surrounding the direction of these futures, could still have an influence on SM prices.

Crude oil futures fell during Asian morning trade Monday, staying below $50/barrel, with Saudi Arabia likely to maintain its oil policy, which is currently focused on defending its market share against a rising tide of non-OPEC output, at least in the near term following the death of King Abdullah and the succession of his half-brother Salman.

Last Thursday, the European Central Bank announced a quantitative easing program in a bid to combat falling prices and flagging growth in the eurozone.

The ECB is to kick-start a Eur60 billion/month ($69.4 billion/month) bond-buying scheme in March, until September 2016.

With this, a depreciating euro may limit buying interest among downstream European EPS end-users who need to buy dollar-denominated cargoes from Asia.