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Styrene monomer cash-margins positive after five months in negative territory

September 8, 2008 - Cash margins for non-integrated Asian styrene monomer producers turned positive for the first time in five months on steep declines in the price of benzene and ethylene in recent weeks, Platts data show on September 5.

Based on a formula which combines 79% of benzene costs with 29% of ethylene costs, and a conversion cost of $180-200/mt, Northeast Asian SM makers, which are not backward integrated, were looking at cash margins of between $5.12/mt and $25.12/mt as of September 5.

Producer cash margins once again took a hit, falling to its lowest point this year to minus $127/mt in the first week of August.

Based on the above formula, SM cash margins have been in negative territory since early April 2008 on sharp increases in the price of feedstock benzene and ethylene while SM stagnated on weak demand. Japanese producers like Nihon Oxirane announced run cuts on poor production economics.

Feedstock ethylene prices started climbing from early March and hitting a record-high level of $1,695/mt CFR Northeast Asia on July 10, soaring $490/mt from April, tracking tight supplies and bullish naphtha market. Asian naphtha values climbed to a fresh high on July 4 to $1,246/mt CFR Japan.

The Asian benzene market also started climbing from April. The price of benchmark FOB Korea benzene hit a record-high of $1,355/mt on July 14, soaring $282/mt from April 1.

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Firm SM market lifts margins almost breakeven in June

In May, styrene monomer prices then increased sharply amid signs of improvement in demand from expandable polystyrene and acrylonitrile butadiene styrene makers as well as rising upstream crude oil prices. (See chart of Styrene Monomer FOB Korea.)

SM prices surged over $200/mt in the month while cash margins of non-integrated producers which had touched a low of minus $120/mt in the first week of May improved to almost breakeven levels in the first week of June.

After touching a high of $1,658/mt on the FOB Korea benchmark end-May, styrene monomer prices stagnated again, despite further gains in the price of crude oil and feedstocks.

Realization that downstream demand for EPS and ABS was not as strong as the market had forecast sentiment dampened leading SM prices to stabilize despite rising cost pressures.

Producer cash margins once again took a hit, falling to its lowest point this year to minus $127/mt in the first week of August.

With downstream demand weak in the month of August and EPS and ABS producers cutting plant operation rates in August to under 50% of nameplate capacity, SM producers across North and Southeast Asia announced fresh rounds of operation rate cuts and advancement of turnarounds.

Korea's Yeochon Naphtha Cracking Center cut runs by 15% while Lotte Daesan announced plans to reduce runs by 15% in September. Korea's Samsung Total Corporation and LG Chem advanced scheduled turnarounds from September to August.

The majority of Japanese producers are currently running their styrene monomer units at 80-85% on nameplate capacity, enough to just meet term commitments.

Next page: SM cash margins finally touch positive in September

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