With Asian styrene monomer prices rebounding on emerging demand and upcoming turnarounds, the arbitrage to send cargoes from the US Gulf to the region has opened up, said market sources Thursday.
The FOB US Gulf Coast SM marker hit a near six-year low of 36 cents/lb, equivalent to $793.44/mt, on January 15, data showed.
The marker last was any lower on March 24, 2009, at 35.75 cents/lb, data showed.
The FOB Korea SM marker, on the other hand, has been rebounding since hitting a near six-year low of $805/mt on January 13.
The marker was assessed at $883.50/mt FOB Korea on Thursday, up $66.50/mt week on week and up $78.50 from January 13.
If cargoes are booked now in the US for delivery to Asia, they would reach their destination around March, said sources.
While SM prices for February and March were not being assessed in Asia yet, considering freight rate of $60-$65/mt for 5,000-12,000 mt cargoes moving from the US Gulf to East China, the cargoes would be priced around $886.50-$891.50/mt when they reach Asia, Platts estimates.
This is cheaper than current cost for a South Korea-origin cargo of 5,000 mt, at around $902.50-$903.50/mt, which includes freight of $19-$20/mt from South Korea to East China. AROUND 40,000 MT SEEN COMING IN FEB-MAR
Traders have already started to book cargoes, with around 40,000 mt of SM estimated to be heading from the US and Europe to reach Asia in February and March.
A 5,000-mt SM cargo was heard booked from Texas, US, to South Korea for loading over December 25-31, said another market source.
Another 5,000-mt SM cargo was also being booked for loading over end-January early February from Rotterdam to East China, said a market source last Friday.
“There is only one outlet [Asia] to sell SM nowadays, and there is a huge turnaround from March in South Korea. So, even if the arbitrage window has not opened fully yet, it is worth sending the US or Europe-origin SM to Asia,” a third market source said.
South Korean SM producers will shut as many as five out of eight plants, or 70.8% 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 from the turnarounds is about 174,740 mt of SM.
In tandem with expected supply tightness due to turnarounds, emerging demand from downstream acrylonitrile-butadiene-styrene and high-impact polystyrene markets was seen as it is the peak demand season for these products for use in the air-condition and refrigerator manufacturing sectors.
However, market opinion on whether the arbitrage economics could be sustained going into March was divided.
If crude rebounds after the Lunar New Year holidays and with the turnarounds planned in the first and second-quarters, the SM market is expected to remain boosted in March, a market source based in Seoul said.
But even then the key factor would be demand, said another source based in Singapore.
The loss in production notwithstanding, the “key question is if there is demand” for this “lost SM,” he said. The SM market will likely be oversupplied by March, with volumes arriving and demand not seen to be firming majorly, he added.
– Platts.com
