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Asian styrene monomer prices hit record highs in 2013 amid global supply tightness

By Gustav Holmvik in Singapore

October 8, 2013 - The average price of styrene monomer has risen by more than 20% year on year so far in 2013 to hit a record $1,724.7/mt CFR China, according to Platts data that goes back to January 2004.

Asian SM hit an all-time high of $1,833.50/mt CFR China on July 22. In fact, so far this year the price has not fallen below $1,600/mt.

In comparison, the average price in the three first quarters of 2012 was $1,425.80/mt CFR China.

The main reason for the spike is supply tightness due to many reasons including maintenance at so many SM plants across the world, and also increased production capacities among end-users such as expandable polystyrene in China.

Analysis continues below...

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In just the first half of this year, at least 18 plants in Asia went through maintenance scheduled as well as unscheduled such as unexpected outages, leading to an estimated production loss of about 600,000 mt.

A number of producers based in the Middle East shut their plants for scheduled maintenance and some also faced unexpected technical problems.

SM plants in all major regions of Asia, as well as in Europe and the US, went through maintenance in H1 2013 with a second round of turnarounds over August-October seen in Asia.

As a result, stocks held by traders in East China have been on an average 29.7% lower so far this year than in 2012, Platts data shows. So far this year the inventory level has averaged 61,400 mt, compared with 87,302 mt last year.

Market sources said in the last week of September that the inventory with traders was as low as 35,000 mt, the lowest level recorded so far this year and also since July 2009.

Soaring margins for producers

The record prices have also seen SM production margins hit peaks not seen before.

In 2012, the average spread between SM and its main feedstock benzene was about $250/mt. Since early March this year, the SM-benzene spread has been above $300/mt, leading to an average spread of $390.90/mt in the first three quarters of this year, an increase of 56.4%.

Looking at co-feedstock ethylene, the average spread between SM and ethylene jumped 79.1% from $234.10/mt in 2012 to $419.30/mt so far this year.

Also, the price gap between SM and petrochemical feedstock naphtha has widened 53.2% from an average of $512.80/mt in 2012 to $785.70/mt so far this year, meaning the margins of integrated SM producers have improved as well.

Amid the sharply improved margins, one new SM plant has entered into production, Singapore's SP Chemicals' 320,000 mt/year plant at Taixing, Jiangsu province, which started up in August.

Other producers are also eyeing opportunities, such as South Korea's SK Global Chemical, currently considering revamping and restarting its idled 350,000 mt/year SM plant at Ulsan.

However, a revamp of the plant could take as long as one and a half years, a source familiar with the matter said earlier.

But in the meantime it would be logical to presume that the other SM producers will run their plants as high as possible to reap the rewards of the good margins.

How long will the good times last?

The low SM inventory levels in China was currently supporting prices, a trader said recently, but added that by the end of October "we could see a correction" as plants restart after maintenance and demand typically weakens with the onset of winter in China and Northeast Asia.

Expandable polystyrene, one of the main drivers of the SM spot market in key market China, typically sees demand soften in the colder months of the year as construction activity slows down.

However, towards the end of last year this trend was completely reversed as SM climbed 40.9% from an annual low of $1,239.50/mt CFR China on June 13 to a high of $1,746.50/mt CFR China on December 31.

That rise was brought about by cracker turnarounds and a shortage of SM-feedstock benzene in China in the second half of 2012.

However, this year's situation seems different and the SM market is currently expecting prices to drop from October to November with a backwardation between the two months of about $40/mt.

Related chart: CFR China prices reaches all-time highs in 2013

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