Asian styrene cash margins reach 18-month low on firmer feedstock benzene

Producer cash margins for Asian styrene monomer reached a 1 1/2-year low, weighed down by firmer feedstock benzene, coupled with sluggish downstream SM prices amid oversupplies, sources said.

Cash margins narrowed to minus $125/mt Jan. 31, the lowest since June 8, 2022, when they were at $128/mt, S&P Global Commodity Insights data showed. The margin recovered slightly to trade at minus $121/mt Feb. 1 but remained at a 1 1/2-year low.

The cash margin is calculated based on the difference of weighted spot prices between styrene and its feedstocks ethylene and benzene, along with a $150/mt operating cost.

"The demand is relatively stable ... however, SM margins remain very weak, and the main reason is due to high benzene costs. It should come down along with crude oil prices," a producer from Northeast Asia said.

The ICE front-month Brent crude oil futures contract fell $1.93/b on the day at $80.29/b Feb. 1.

Benzene gains momentum

Demand for benzene picked up, as traders began taking positions ahead of the US gasoline blending season that starts from April, according to market participants.

This anticipated demand likely pushed prices for prompt months higher, as traders sought March-loading cargoes.

"Traders are moving cargoes into their own tanks in the US Gulf Coast in anticipation of the start of gasoline blending season. Actual chemical demand is rather poor," said a source.

Furthermore, low benzene inventories in China likely prompted Chinese buyers to seek cargoes, said sources.

China, along with the US, are the two top buyers of benzene from South Korea -- the largest Asian supplier.

Benzene inventories in East China were last heard at around 53,000 mt in the week ended Jan. 31, compared to 70,000 mt a week ago.

Asian benzene prices have been on the rise after reaching a low of $834.17/mt Dec. 7. Platts assessed Asian benzene $2.67/mt lower on the day at $997.33/mt FOB Korea Feb. 1, S&P Global data showed.

As of Feb. 1, the backwardation between March and April loadings for FOB Korea physical cargoes was assessed at $17/mt, the data showed.

Asia-US arbitrage shut

While higher US Gulf Coast prices prompted traders to move cargoes from Europe to the US, a relatively thin US-Asia spread and elevated freight rates have kept the Asia-US arbitrage window technically shut.

The US-Asia spread stood at $116/mt, whereas the Europe-US spread was at $14/mt Feb. 1, according to S&P Global data.

Recent delays in the Panama Canal have curbed flows to the US and pushed up freight rates, said market sources. Ships loading in Asia would need to cross the Panama Canal to reach the US Gulf Coast, or otherwise need to divert through Cape of Good Hope, resulting in a much longer journey.

Oversupply in styrene monomer, derivative markets

Despite volatile upstream benzene and crude oil prices, price discussions for styrene monomer were subdued amid persistent weak demand and ample supplies, sources said.

Platts, part of S&P Global, assessed CFR China styrene monomer at $1,089/mt Feb. 1, up $8/mt on the day, tracking firmer Chinese domestic benzene prices.

"There is too much supply of benzene downstream products. This has led to the current situation when there is too much supply so there is not much demand [for SM] now, especially for spot. No one in the downstream markets wants to buy styrene monomer now," said a source.

SM stockpiles in East China were heard to have risen 14,300 mt in the week to 94,400 mt on Jan. 31, sources estimated.

Furthermore, reduced operating rates in some downstream markets further pressured demand for SM.

In the week ended Jan. 26, downstream markets such as polystyrene and acrylonitrile-butadiene-styrene were heard reducing operating rates to 64.28% and 62.4%, respectively. PS was down around 1.14%, while ABS was down around 3.85% from a week ago.