Asian styrene supply tightness has helped open an arbitrage from the US, in turn causing global styrene prices to bounce off multi-year lows in a little over a month, sources said.
Asian styrene monomer rose $17.50/mt from Friday to $1,021.50/mt FOB Korea and $1,048.50/mt CFR China on Monday, supported by a bullish domestic China SM market.
CFR China SM was assessed at its highest price since it was $1,076.50/mt on August 17, 2015, Platts data shows.
The CFR China SM marker has rebounded quickly — up 18.68% from its lowest point so far this year of $883.50/mt CFR China on January 21, Platts data showed.
Domestic prices in China rose Yuan 245/mt over the same period to Yuan 8,210/mt Monday, amid active buying.
“The styrene market looks overheated after Lunar New Year. Actual demand is not so strong but some traders anticipate a revival of last year,” a trader in Japan said, referring to healthy demand seen in 2015.
US spot styrene was assessed for March at a six-month high of 44.25 cents/lb ($976/mt) FOB US Gulf Coast on Monday.
This was up 8.50 cents/lb from the January 22 assessment, which was a nearly seven-year low of 35.75 cents/lb, according to Platts data. The US spot styrene market has tracked the Asian market.
Variable costs for US styrene based on raw materials were estimated at 27-29 cents/lb, based on Platts data Monday.
Sources said US sellers were locking in margins of at least 7-8 cents/lb on deals months in advance to take advantage of the lower variable costs due to cheaper feedstocks.
Northwest European styrene monomer barges loading 5-30 days forward were assessed at $987/mt FOB ARA Monday, up $25.50/mt from Friday.
This put styrene spot prices at a discount of $17.83, or 1.8%, to the styrene February CP of Eur925/mt ($1,004.83/mt), compared with a $131/mt discount at the beginning of the month.
Good local demand, high price levels in Asia and a tighter domestic supply outlook were supporting the European styrene monomer complex.
The structurally short European styrene market usually competes with Asia for product from the US. Market sentiment in Asia may thus influence the European complex, as European styrene consumers try to attract US volumes.
As a result, European styrene prices have risen in line with Asian market sentiment in order to keep spot volumes in Europe rather than opening the arbitrage from Europe to Asia.
Asian styrene has rebounded sharply on the back of supply tightness caused by turnarounds, the scrapping of a styrene plant in Japan, active short-covering by traders and limited arbitrage cargoes to the region from the US and Europe.
The Asian styrene market is set to see around 223,000 mt of production taken offline in the first half of this year, in line with a loss of 223,620 mt in the first half of 2015, according to Platts calculations.
“There was a major turnaround season in South Korea last year and in Japan this year, whereas new styrene plant startups in Asia are delayed,” a trader based in Seoul said.
Asahi Kasei’s 320,000 mt/year styrene plant in Mizushima was scrapped in mid-February 2016, Platts reported previously.
East China’s styrene inventory was reported at 95,000 mt last Friday, compared with 128,000 mt on February 27, 2015, Platts data showed.
Bullish sentiment in Asia has been tempered by lower crude oil and benzene prices as well as slower Chinese economic growth and, hence, the price rally is unlikely to be sharp or sustained, market sources said.
“There may be some rebound [in the styrene market this year], but not [like] the uptick in prices seen in 2015,” a trader in China said.
In Europe, prices could get further support from a tighter domestic supply outlook stemming from scheduled turnarounds at several styrene monomer production plants combined with higher Asian prices.
Three scheduled maintenances in Europe could reduce domestic supply by up to 99,863 mt, Platts data calculations show.
The arbitrage to Asia out of the US has been open for most of the last four months, keeping spot supply in the US tight for two to three months in advance as sellers have been selling product forward and locking in margins, sources said.
US spot supply is limited into May, and two producers were heard sold out of spot availability through the first half of the year, sources said.
US sources said the majority of product being sold out of the US is headed to Asia, and that was expected to continue into the second quarter as Asia remained the more attractive export destination.
