Negative styrene margins pressure run rates, feedstock demand in Asia.

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Petrotahlil — Asian styrene production is set to remain suppressed throughout January amid negative margins as expectations of increased supply weigh on the market, producer sources said Jan. 7

The styrene production margin was calculated at minus $74.45/m Jan. 7, moving $13.59/mt further into the red on the day, based on feedstock costs of $640/mt CFR China for benzene and ethylene at $1,065/mt CFR Northeast Asia, and typical production costs of $150/mt, S&P Global Platts data showed.

In December, styrene margins averaged minus $19.41/mt, while the run rate averaged 82.55%, according to S&P Global Platts data.

Run cuts were heard being considered by standalone producers across Northeast Asia on expectations of a supply surplus as new capacities of 1,450,000 mt/year are expected to come online in China in the first quarter of the year.

China's SP Chemicals (Taixing) Co., Ltd in Jiangsu province was said to be the first producer to adjust operation. The company slashed output at its 320,000 mt/year plant to 75% of capacity on Jan. 1 from full capacity, a company source told Platts Jan. 5, attributing the reduction to sluggish demand and weak margins.

An integrated producer in China said his company had received several inquiries about operations in January from market participants, expecting a cut in run rates due to the negative margins, but said integrated producers were less likely to reduce operating rates than standalone producers as their margins were more viable.

"Unless storage tanks are full, they will not lower run rates," the source added.

BENZENE IN LIMBO

However, with standalone styrene producers cutting output, spot benzene demand on a CFR Asia basis was expected to fall, market sources said, with ample domestic East China supply to meet demand there.

However, the benchmark FOB Korea benzene price has tracked a multitude of factors since December, including demand and pricing in the US and in China.

The North Asia-US arbitrage has narrowed in January after hitting a 2020 high of $100.29/mt Dec. 3. With the FOB Korea benzene price assessed at $672.67/mt and the March DDP US Gulf price at 232-237 cents/gal, the arbitrage is closed at the lower end of the price range and only just sufficient to cover freight at the higher end. However, March FOB USG paper stands at 240 cents/gal ($717.60/mt), remaining viable for cargoes to move trans-Pacific to the US market.

Meanwhile, CFR China benzene values have been depressed by cheaper domestic East China cargoes that have lured buyers in China away from imports.

China and the US accounted for 76.6% of South Korea's benzene exports in 2020, and the reduction in seaborne demand from China could limit demand outlets for South Korean supply.

"The market [will have to] rebalance itself," an Asian trader said Jan. 7.

ETHYLENE FIRM

The Asian ethylene market remains tight amid cracker outages in Northeast Asia, strengthening the spot ethylene price to $1,065/mt CFR Northeast Asia Jan. 7.

With expectations of spot ethylene prices rising further and non-integrated styrene producers grappling with negative margins, buying indications for ethylene were seen weakening, and styrene run cuts were expected to increase the availability of spot ethylene cargoes.

However, with the two methanol-to-olefins or MTO units restarting in early January in Shandong and Jiangsu provinces, China's domestic supply of ethylene started to recover.

Looking forward, the arbitrage from Europe and the US to Asia remains closed on the back of firm local demand and prices, with FD Mont Belvieu ethylene in the US assessed at $953.49/mt and CIF NWE ethylene in Europe assessed at $1,094/mt Jan. 6, Platts data showed.

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