Margins for non-integrated styrene monomer producers in Asia shrank to their narrowest in six months Friday due to bearish SM demand and relatively firm feedstock ethylene prices.
The margin was calculated at $4.25/mt FOB Korea above the breakeven level Friday, down $13.65/mt from Thursday. It was last narrower March 20 at $3.10/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 weak demand ahead of the typical off-peak season in winter and as concerns loom about the strength of China’s economy.
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.
SM OUTLOOK REMAINS WEAK
Despite H2 supply tightness amid ongoing turnarounds in Asia and the Middle East, SM prices are expected to keep falling, pressured by thin demand.
The FOB Korea SM marker has fallen 39.5% from the year-to-date high of $1,454.50/mt on May 15, Platts data showed.
Asia and the Middle East are expected to lose around 525,300 mt of SM supply in H2 with a total 23.8 million mt/year production capacity shut for maintenance during the period, according to Platts calculations based on information from market and company sources.
The turnarounds are scheduled at major SM plants in the Middle East, Taiwan, Japan and China over August-December.
SM demand is expected to weaken further in winter 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 Caixin/Markit China General Manufacturing Purchasing Managers’ Index for September was 47.2, its lowest since March 2009.
The CFR China ABS marker has fallen 27.2% from a year-to-date high of $1,710/mt on May 13 to $1,245/mt Wednesday.
The FOB Northeast Asia EPS marker has fallen 24.8% from a year-to-date high of $1,590/mt on May 13 to $1,195/mt Wednesday.
A relatively firmer feedstock ethylene market, partly due to tight supply amid turnarounds, was also narrowing SM margins.
CFR NEA ethylene has rebounded 15.8% from its year-to-date low of $799/mt on September 4 to $925/mt Friday, according to Platts data.
Market participants expect the SM margin to turn negative in the fourth quarter, given low seasonal demand and a flurry of US SM cargoes arriving in Asia.
Many US SM markers tend to sell off cargoes at the end of the year to clear out stock, a market source said.
