Styrene monomer supply disruption alters trade flow between US and Asia
By Pamela Sumayao
Welcome to the Snapshot a series that examines the factors driving and shaping global commodity markets today.
The styrene monomer market has taken the centerstage in the petrochemicals scene.
Traders have been eyeing a very rare reverse arbitrage opportunity to bring styrene monomer cargoes from Asia to the United States.
Rare Korea-US SM arbitrage opens after a decade
And by rare, we’re looking at the last time being more than a decade ago. Way back in 2005, to be exact, about 1,000 metric tons were shipped from South Korea to the US.
Recently, we’ve heard market participants say about 13,000 to 20,000 metric tons are heading to the US. Bulk of the volume is loading from South Korea by end-February to very early in March.
Deals on FOB Korea basis for US-bound cargoes were heard hovering at about 1,500 dollars per metric ton in the first half of the month.
Why are we seeing this unusual reverse arb?
Two things: US production disruptions AND weak demand from China.
Production issues in US SM plants boost US Gulf prices for styrene
Let’s look at the US first. There’s a prolonged shutdown at Americas Styrenics’ 950,000 metric ton a year SM plant in St. James Louisiana.
Next, a problem at the 1.2 million metric ton per year Cos-mar plant in Louisiana as well, which led to a declaration of a force majeure. A source had told Platts that Cosmar will allocate only 40% of its planned SM output to customers until June.
With these issues, the US is facing a serious styrene shortage/ and prices in the Gulf Coast surged to a 30-month high. March FOB US Gulf Coast was assessed at 75.75 cents per pound on February 15. That’s around 1,670 dollars per metric ton. On the same day, FOB Korea H2 February laycan was assessed at 1,498 dollars per metric ton. With freight at around 40 dollars per metric ton, the arbitrage was open with a differential of over 130 US dollars.
On top of the supply disruptions in the US, we’ve also seen weak spot styrene monomer demand from East China due to high domestic inventory levels.
With the arbitrage still workable on paper on February 15, sentiments were mixed.
One trader said they still have some negotiations to work out the arbitrage. Another trader was more conservative, saying deals for this rare arb opportunity are done. Some traders find it too risky if the Asian cargoes arrive in the US by end April – by then, supply tightness could have already eased.
Our Platts Market Movers poll for our Twitter followers last week showed that 48% of the voters think the reverse arbitrage will remain open until May. But traders we’ve talked to expect domestic China prices to rebound next month, when demand from downstream returns, and East China inventories start shrinking.
Until next time on the Snapshot, we’ll keep an eye on the market.