The spread between styrene monomer and its main feedstock benzene plunged to a near 19-month low of $193/mt last Friday as benzene prices surged while SM stayed weak amid a high inventory in China, said traders Monday.
The last time the spread was any lower was on December 6, 2012, when it was assessed at $175/mt, Platts data showed.
The FOB Korea benzene marker was assessed up $24.50/mt day on day at $1,372.50/mt Friday, amid an opened arbitrage window to the US.
But over the same period SM inched up only $3/mt to be assessed at $1,565.50/mt FOB Korea, under pressure from high inventory in China.
Though SM inventory in East China fell last week, it was still regarded as being high by market participants. The inventory held by traders in East China was estimated to be at 170,000-175,000 mt, down from 175,000-180,000 mt the previous week, while the total inventory held by both traders and end-users in the region was estimated at 280,000-290,000 mt, down from near 300,000 mt, sources said earlier.
The SM-benzene spread is tracked closely by non-integrated SM producers who typically aim for a spread higher than $250/mt for profitable production. However, SM margins for non-integrated producers also depend on the price of ethylene as SM is made of 79% benzene and 29% ethylene.
Co-feedstock ethylene was assessed up $16/mt day on day on Friday at $1,451/mt CFR Northeast Asia.
Looking at production margins, based on the latest feedstock prices and a conversion cost of about $150/mt, SM prices were assessed $89.50/mt below an estimated breakeven price of $1,655/mt FOB Korea on Friday.
Benzene supply in Asia has been tight with run cuts at paraxylene/benzene plants, due to poor paraxylene margins. The open arbitrage window to the US has also absorbed more volumes, further reducing availability in the region.
On Friday, July US benzene was assessed at 517 cents/gallon or $1,545.83/mt, rising 22 cents/gallon from Thursday amid short covering in a tight market, making arbitrage economics even more attractive, said sources.