H2 2021 PETROCHEMICALS: Chinese expansions to weaken global styrenic polymers

Houston — Acrylonitrile-butadiene-styrene and polystyrene fundamentals are likely to weaken in the second half of 2021 amid the startup of new plants in China, with the earliest to come online in July.

While limited supply of ABS underpinned the market in H1 2021, the total Chinese ABS capacity will increase by nearly 1 million mt/year in the second half of 2021.

The added production volumes will come online alongside existing run cuts in China, as firm feedstock prices and weaker demand cut into margins.

While China's annual PS imports totaled 1.32 million mt in 2020, according to customs data, new capacities of 1.17 million mt/year expected to be running in H2 2021 will fill the domestic supply-demand gap and further dampen China's appetite for import materials.

Demand for ABS and PS is expected to return to pre-pandemic levels, as support from food packaging and white goods will weaken on easing of lockdown conditions. Challenges will arise for both markets, though, from stricter regulation of single-use plastics in China, in an effort to reduce plastic waste.

Meanwhile, the prolonged global semiconductor shortage will extend its impact on the appliances and automotive industry as manufacturers struggle to secure supplies of chips. With little improvement seen in the second quarter of 2021, sources expect that such chip shortages will continue to hamper ABS and PS demand in the rest of the year.

Market sentiment is mixed, with sources citing potential margin losses in Asia amid weaker fundamentals, but bullish trends are expected in Western markets. Some Asian producers that shifted focus from Asia to the deep-sea market could continue to work the arbitrage as a pick up in demand is expected in the US and Europe by traders.

European ABS to see additional capacities

The European acrylonitrile-butadiene-styrene market will enter the second half of 2021 following record price highs in the first half of the year, driven by extreme tightness in supply, concerns over acrylonitrile availability and volatility in styrene monomer pricing.

Following the tight availability from late-2020 into early 2021 due to import disruption, some European sources questioned how willing the EU market will be to again become reliant on imported material, especially with EU capacities set to increase in H2 2021.

Following maintenance at Versalis's Mantua site, additional production capacity is expected to be online for the fourth quarter of 2021, a source close to the company said. Versalis had previously announced plans to increase mass ABS capacity by 30,000 mt/year at the Mantua site.

The European ABS market is also awaiting on spec production at Ineos Styrolution's Wingles ABS production site in France, which was planned to have a 50,000 mt/year production capacity.

Polystyrene faces uncertainty, weak demand

More stability is expected for the European polystyrene market moving into the second half of 2021. Volatile pricing in the first half of the year was led by surges for feedstock styrene, and also higher up the chain in benzene. This led to a reduction in production run rates across the board, with more significant impacts for non-fully integrated producers in the polystyrene market.

Key upstream issues for the European market are expected to be resolved moving into the summer, which should hopefully lead to more stability in pricing and increased material production. Added to this, greater styrene capacities coming online in Asia should see more material availability globally.

In end-consumer sectors, construction is expected to continue to be impacted by coronavirus uncertainty and material constraints in other sectors until the end of the year, which will feed back into the European PS market.

For GPPS and HIPS, lockdowns saw a surge in consumer spending on white goods and electronics, along with their associated packaging. This is expected to wane as the world reopens.

Vaccinations to support US styrenics

Styrene derivative markets are expected to see strong demand during the latter half of 2021 for North America. The US polystyrene market is set to see continued firm buying interest, with costs expected to ease in the third quarter. Polystyrene production costs surged during the first half of the year, as supply constraints in the benzene market caused prices to soar in May, and increases were passed downstream.

This is expected to ease during the second half of the year, as benzene supply constraints ease.

Vaccine rollout in the US is expected to support polystyrene markets. A similar outlook was expected in ABS, with market sources indicating renewed automotive strength for Q4 as a key factor.

Overall growth in the styrene derivative markets is expected to be closely aligned with economic strength and consumer spending in North America. US GDP growth in Q1 2021 registered at 6.4%. Some sentiment on annual growth indicated a similar percentage, but inflationary pressure and a weaker job market could impact this figure in the second half of the year.