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Rare reverse South Korea-US SM arbitrage opens on US plant disruptions

Singapore — A rare reverse arbitrage for styrene monomer to move to the US Gulf Coast from South Korea emerged in the week ended February 10 amid production disruptions in the US, market sources said.

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SM loading in H2 February from South Korea was assessed at $1,484/mt FOB Korea February 9, while US material loading in March was assessed unchanged for the third day in a row at a higher 73.25 cents/lb ($1,614/mt) FOB USG.

With freight between the regions currently seen at $40.50/mt for cargoes of 10,000 mt, the arbitrage is wide open.

Related Platts Snapshot video: Styrene monomer supply disruption alters trade flow between US and Asia

Several sources said H2 February traded values were heard February 8 at $1,500/mt FOB Korea, below the arbitrage level to the US for March.

"I think that the US will still be very tight until end April," a trader said February 9. "If you can find a vessel for end February or early March loading, you can get into US Gulf in April. That is still workable."

The surge in SM prices in the US -- which hit a 30-month high February 6 and have stabilized since then -- was attributed to production issues there.



Americas Styrenics has prolonged the shutdown of its 950,000 mt/year SM plant in St. James Louisiana until mid-March, the company said in a statement in the week ended February 10.

There were also market talk of a force majeure in the US. One source in Asia had heard that the Cosmar plant in Carville, Louisiana, was having problems with its line No. 1, which can produce 575,000 mt/year of SM.

The source had heard that Cosmar informed customers it will allocate only 40% of its planned SM output until June. This could not be confirmed immediately, although several sources mentioned it.

A producer in South Korea said February 9 he had fixed 5,000 mt of SM to the US. A trader said he had about 8,000 mt of SM to be loaded from Daesan within 10 days, also headed to the US Gulf.

There was also talk in the market that a 45,000 mt vessel had been nominated to take SM to the US, but this could not be immediately confirmed.

One trader said he expects the vessel to be co-loaded with other products like benzene. Another trader, in China, said they believed about 15,000 mt of FOB Korea SM had been fixed recently to head to the US.


CHINA PRICES LOW AMID STOCK SURGE


In China, domestic prices for prompt SM cargoes were very low amid weak demand and ample supply there.

East China inventory levels surged post Lunar New Year and were estimated at 122,000 mt February 8. well above the average over 2016 of 81,702 mt and in 2017 to date of 59,660 mt. Sources attributed the surge to weak demand from major downstream EPS manufacturers, which shut throughout the LNY holiday.

Domestic SM prices surged February 10, when China's market re-opened after the week-long LNY holiday. The price of prompt local cargoes was seen spiking Yuan 1,250/mt week on week to 12,060/mt February 10. Chinese traders, especially those with long positions, continued to sell lower on profit taking in the week ended February 10. On February 8prompt cargoes were down to Yuan 11,390/mt, or $1,377/mt on import parity basis.

With relatively low-priced SM cargoes available in China, Chinese traders were also trying to work the arbitrage to the US.

Some were heard talking about selling bonded SM warehouse cargoes to international spot traders and loading them via Jiangyin port. However no deals could be confirmed early February 10. One China-based trader said there could be challenges in terms of vessel space for this unusual route.

Some market participants expect domestic China SM prices to rebound next month when demand from downstream will likely return and supply in east China will likely drop significantly.

"I don't think market can afford to lose so much inventory but in three weeks' time, when demand is back, what do they do? The market may come down more but it is set for rebound soon," one trader said.

Another trader said: "I feel that Yuan prices will be sustained and go up because Europe and the US are still very firm and the Yuan price is the lowest in the world, so it has no reason to go down further."

--Pamela Sumayao, pamela.sumayao@spglobal.com
--Edited by Wendy Wells, wendy.wells@spglobal.com

Read our related analysis: Extreme US styrene shortage turning global trade flows upside down