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Analysis: Extreme US styrene shortage turning global trade flows upside down

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Analysis: Extreme US styrene shortage turning global trade flows upside down

London — At the turn of the year the eyes of styrene traders were fixed on Asia, where a heavy turnaround season planned for the end of first quarter looked set to make the region the main price-setter globally.

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But, contrary to initial expectations, it is the US that has so far been dictating the pace of accelerating rises in global pricing.

The unexpected styrene shortage in the US market, which propelled prices to a 30-month high last week, has left Asia and Europe without their usual resupply and opened the first opportunity to ship styrene to the US from both regions in almost a decade.

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

Soaring styrene prices have pushed producers' margins to multi-month highs, while consumers, at least in the Atlantic region, are struggling to pass down these feedstock increases to their own customers, and are being forced to trim down run rates.


IT'S ALL ABOUT US


At the moment around 40% of US styrene production capacity is affected by various technical issues.

Last week Americas Styrenics delayed the restart of its 950,000 mt/year unit in St James, Louisiana after a turnaround until mid-March as it sought to make repairs to critical equipment.



This was followed by a problem with a superheater at the 1,179,500 mt/year Cos-Mar styrene plant, which led to a declaration of a force majeure on styrene supplies.

Several EU-bound styrene cargoes from the US were canceled as a result of these hiccups, according to shipping reports.

The US typically exports around 2 million mt of styrene a year, primarily to Latin America, Asia and Europe.

While exports to Latin America have been largely stable over the past three years, the balance of supplies to Europe and Asia strongly depends on the prevailing market conditions in these regions. For example, Europe's share in total exports dropped from 33% in 2014 to 12% last year, while exports to Asia rose from 15% to 42% in the same period.

US EXPORTS OF STYRENE (MT)

Source: US International Trade Commission

The only source of styrene imports into the US is neighboring Canada, which sent 522,365 mt of styrene to the US last year.

The last time the US imported styrene from Europe was in 2008, when supplies from Netherlands totaled 9,728 mt, while the last significant volumes of styrene moving from Asia to the US were in 2005 when Korea sent 1,000 mt.


ASIA UPSIDE


The Asian styrene market remains unexpectedly the lowest-priced market globally. In fact, last week saw a steep decline in Chinese prices, which put pressure on the rest of the region.

East China styrene inventory levels surged as major downstream EPS manufacturers shut throughout the Lunar New Year holidays.

Stocks were estimated at 122,000 mt last week, above the 2016 average of 81,702 mt.

Since then the market has staged a bit of a rebound, with prices rising to $1,521/mt CFR China and $1,496/mt FOB Korea Monday.

But the arbitrage window is now firmly open on paper, and traders, including some in China, have been heard trying to make it work.

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

A South Korean producer said he had fixed 5,000 mt of styrene to send to the US and another trader said he is loading 8,000 mt of styrene from Daesan within the next 10 days, also destined for the US Gulf.

A third trader, in China, said he believed about 15,000 mt of FOB Korea styrene had been fixed recently to head to the US.

Some were heard talking about selling bonded SM warehouse cargoes to international spot traders and loading them via Jiangyin port.

One China-based trader said there could be challenges in terms of vessel space for this unusual route.

It is expected that domestic China SM prices will rebound next month when demand from downstream returns and East China inventories sink.

"I don't think the 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."

GLOBAL STYRENE ARBITRAGES ($/MT)

Source: S&P Global Platts


DEMAND DESTRUCTION IN EUROPE


Global tightness and local production constraints are likely to keep European prices high for the rest of February and going into March.

Poland's Synthos has reportedly experienced some production hiccups at the start of the month, leading to extra purchases of styrene. Further issues were heard in France, though these remained uncorroborated.

Trinseo is set to start its regular maintenance works this week, and might go to the spot market to buy extra molecules to last it through to mid-March.

Spot prices are already above the invoiced prices for contract deliveries, which is leading to consumers' maximizing their contractual offtake.

Contract price for February was agreed at Eur1,560/mt FOB ARA. After a 12-13% rebate net contract price equates to Eur1,357-1,373/mt ($1,445-1,462/mt), or over $100/mt below the current spot market.

While maximizing their offtake, some European consumers, such as EPS producers, are actually struggling to pass down the styrene rises to their customers, and are being forced to decrease run rates.

The surplus of feedstock styrene can then be sold in the merchant market, providing these companies with extra revenue streams.

Expensive styrene in Europe has also led to talk of a potential deterioration of competitiveness for European-origin styrene derivatives.

One source said that this could result in an influx of cheaper polystyrene into Europe in coming months.

The Europe-US styrene arbitrage is also open on paper at the moment.

Should the spread widen, it is possible that even European styrene would flow to the US. In addition, some demand might emerge from Latin America should the US fail to supply this region. European traders estimated that around 10-15,000 mt of styrene already moved to Brazil in the second half of January.

--Maria Tsay, maria.tsay@spglobal.com
--Pamela Sumayao, pamela.sumayao@spglobal.com
--John Calton, john.calton@spglobal.com
--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com

Read our related story:Rare reverse South Korea-US SM arbitrage opens on US plant disruptions