Singapore (Platts)--21Feb2013/610 am EST/1110 GMT

The price gap between imported and domestically produced styrene monomer in key consumer market China, which hit its widest 11-month high Monday, may dampen demand for imports and potentially restrict buoyant global SM prices, market sources said Thursday.

The spread between the two prices hit $67.70/mt on Monday -- the highest since March 29, 2012, when it was at $79.1/mt. The spread has since narrowed to $55.40/mt Wednesday with CFR China SM assessed at $1,746.50/mt, up $4/mt day on day, and the domestic price in East China rising Yuan 50/mt over the same period to Yuan 12,650-12,700/mt, or about $1,691.1/mt on an import parity basis.

Market sources said Thursday that the wide gap could potentially reduce demand for spot cargoes on a CFR China basis as it would be cheaper to buy from the domestic market.

"China is not tight [on SM anymore], it has returned to normal," a China-based trader said Thursday.

"CFR China cargo inventory pressure is very low while domestic cargo inventory pressure is high," a Chinese trader said.

In the international market, SM supply is viewed as relatively tight due to a series of turnarounds in the Middle East, Southeast Asia and Northeast Asia -- as well as in the US and Europe -- over February to April-May.

Meanwhile, low demand for SM around the Lunar New Year period has allowed inventory levels in China to build, other market sources said. The exact inventory level in the East of China remains unclear this week, but most estimates range around 80,000-90,000 mt, up from 63,500 mt over the last couple of weeks.

It is normal for SM stocks in China to hit their annual peak before or after the Lunar New Year period. Stocks peaked at 151,300 mt in the first week of February 2012 and at 170,000 mt in the last week of February 2011, Platts data showed.

The inventory level reached a low of 35,900 mt in the last week of September 2012, when the domestic price of SM was almost $130/mt above the CFR China price. The reverse price spread widened to as much as $259/mt on October 29, 2012, data showed. The CFR China price rose to become higher than the domestic price again only in late December 2012.

The unusual situation of the domestic price rising above CFR China price was created by a series of steam cracker turnarounds in China in the second half of 2012, reducing supply of feedstock benzene.

--Gustav Holmvik, gustav_holmvik@platts.com

--Edited by Haripriya Banerjee, haripriya_banerjee@platts.com

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