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Styrenics chain imbalance eats into polystyrene margins


March 3, 2009 - Styrene monomer production issues have caused an imbalance in Europe's styrenics supply chain, pushing benzene-styrene spreads to above $400/mt last week and leading to margin losses on polystyrene production.


The NWE spread was assessed at $427.75/mt February 27, returning to levels seen at the start of February.


The situation has been forcing styrene producers into the spot SM market to buy product to cover their contractual supply obligations.


While prices for both benzene, the feedstock for SM, and polystyrene (see chart: Polystyrene G-P Grmny (Euro/mt) ), which is made from styrene monomer (SM), have been depressed by the weak demand picture, SM prices have been boosted by limited supplies and producer short-covering.


The largest European SM production unit, LyondellBassell/Bayer's JV at Maasvlakte, is currently down, while Total's SM plant at Gonfreville in France, which began restart procedures in January, is producing at lower than expected rates, according to sources.


"We are not producing at rates that we would like. Gonfreville is running but we still have to test to reach [higher production] levels," a Total source said.


One source estimated average SM plant production rates in Europe were currently at around 65% of total capacity.


The situation has been forcing styrene producers into the spot SM market to buy product to cover their contractual supply obligations, according to sources.


Most of the styrene purchases recently have reportedly been by producers, rather than by derivative polystyrene suppliers, while some traders have also been taking positions.


This has led to a spike in the price of SM (see chart: Polystyrene G-P Grmny (Euro/mt) to around $765/mt FOB Rotterdam on February 27, according to Platts data.


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However, although demand for SM is good, it has not been strong enough to support benzene prices, as seen by the wide benzene-styrene spread.


Supply imbalance


A number of factors have caused the imbalance in the styrenics chain. All polystyrene producers were hit by a Eur60-65/mt rise in February styrene monomer contract prices.


Producers initially announced increases of Eur70-75/mt at the start of February to compensate and maintain margins.


However, Ineos Nova said it withdrew its original target of Eur75/mt as it was unable to persuade customers to accept higher prices amid depressed demand. Most European PS producers reported accepting a lower Eur30/mt increase in February contracts.


Northwest European PS gross contracts were assessed at Eur870/mt FD NWE, according to Platts data February 25.


Consumer appliances, construction and the auto sector have been the big plastics losers in the current economic downturn.


Olefins production had recently pandered to good polyethylene demand, and thus steam cracker rates have been increased to boost ethylene production, churning out more pyrolysis gasoline--the principal olefin from which most aromatics, such as benzene (a principal feedstock for styrene production), are extracted--and crude C-4--a mixture of various isomers of butene and butadiene--at a time when consumer demand for these streams has hit rock-bottom.


This was confirmed further downstream by the state of the polystyrene market, where demand has fallen to such a level that polystyrene producers suffered a sharp drop in February cost margins.


With styrene supplies limited due to lower operating rates, it was SM producers who were the main buyers of spot cargoes, driving the price higher as unit costs priced higher due to limited production. Styrene producers have successfully sought to balance supplies, bringing more tightness.


This contrasted with benzene, where olefins producers have failed to bring supplies of pygas under control, sources said.


Delayed SM import cargoes also added to the tightness in Europe. Producers, who were looking to imports from the US, working an open arbitrage in January, said some vessels had been delayed. Although no specific reason for the delays has been given, one US-based shipping broker admitted that some cargoes had been delayed.


"Styrene monomer has been very slow to the [European] continent and Far East in the past two weeks," the broker said.


Next page: Upstream benzene pricing below naphtha


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