The beginning of 2021 is expected to bring supply tightness in the polystyrene (PS) market, driven by healthy demand and lower production during the fourth quarter of 2020. However, uncertainty over the impact of the coronavirus pandemic, new capacity additions in Asia and environmental concerns are likely going to add pressure to the market going forward.
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Consumer goods hold the key to Asian PS growth
The Asian PS market recovered in the second half of 2020, carried primarily on the back of China's end-user demand. Supply and demand dynamics in China will be in a strong position to define the market direction in 2021 with increasing capacities and healthy demand for consumer goods.
PS end-users in China, where the COVID-19 situation has been largely under control, received increasing orders from other regions, led by the strength in the refrigerator sector, which is expected to continue.
In addition, surging acrylonitrile-butadiene-styrene (ABS) prices could also lead to an increase in PS demand. In November, the CFR China ABS spot price premium over HIPS was around $600/mt, significantly above the $250-300/mt premium range in the first half of 2020, S&P Global Platts data showed. With a wider price gap, sources expect to see more buyers switching to PS for cost savings, which will shorten the supply.
Further demand growth will however rely on global economic recovery for both domestic and export markets, given great uncertainties amid the ongoing pandemic.
Producers will continue to run at high operating rates on improved margins, whereas tightness in supply is unlikely to ease in the first half of 2021 due to overbooked orders and the ceasing of production at Denka Singapore's 200,000 mt/year line in February.
While a total of 1 million mt/year capacity are expected to come online in 2021, including SP Chemicals' 300,000 mt/year plant and Zhejiang Yisu's 400,000 mt/year plant, the possible delay of construction may limit supply growth and bolster the Asian market in the short term.
US economic growth controlled by COVID-19 developments
Reduced supply and an increase in upstream pricing promise a strong start for the US PS market in the first half of 2021. 2020 ended with strong seasonal demand and tighter availability due to closing of a production line in Q4. Despite the support, several obstacles are expected to hinder growth in 2021 amid uncertainty on the recovery from COVID-19. The virus has had considerable impact on economic growth in the US, a factor correlated closely to PS due to its proximity to the consumer markets.
On a positive note, US producers could see costs fall in Q1 if expectations of more balanced styrene and benzene markets come to fruition. Sources anticipated that in addition to some lengthening in these markets, new styrene capacities in Asia would pressure pricing lower and support more favorable production costs.
PS demand levels are in question, following early expectations of a 1.5-2% market growth, according to sources, prior to the beginning of the pandemic. The supply contractions associated with a US producer shutting one of its lines were anticipated to have nominal impact.
"It will likely just impact spot [of] which there is already little activity," a source said. More than likely, PS pricing will continue to trace movement in the upstream markets with waves of healthy seasonal demand, the source said.
Looking further forward, recycling and the circular economy will continue to play a role in PS fundamentals. A strong push by producers in the US and Europe will continue as they shift toward increasing the production of recycled materials.
European producers look to increase PS circular solutions
In the European PS market, the first half of 2021 is expected to begin in similar conditions to the end of 2020.
Demand for white goods and online deliveries climbed considerably during 2020, rolling back a significant part of the demand erosion for virgin PS felt in the last couple of years, driven by a growing interest for recycled plastics.
Circular solutions will continue to be a significant investment draw for the market, as growing public awareness over environmental issues and an upcoming ban on single-use plastics in the Europe Union will remain a demand driver for virgin PS.
Tight availability at the end of 2020 has supported prices, as well as runaway demand in Asia during Q4 that saw prices lift considerably. Buyers in the market have argued the tightness cannot continue long-term, as they attribute the end of 2020 conditions to multiple maintenance turnarounds, followed by cut run rates.
Exports are becoming a greater target for European sellers, likely tighten the market further, a producer indicated, with orders already received for several thousand tons a month of HIPS to Asia in 2021.