China's oversupply of styrene may depress prices in 2021

The global styrene supply surplus may escalate in 2021, because of the increase in production capacity in Asia, and in the case of the continuing epidemic, the uncertainty of demand recovery is obvious.

Although styrene prices in Asia soared in October due to tight supply, in early December, due to the restart of installations by manufacturers in some regions, market supply increased and prices lost momentum for growth.

The increase in profit margins and the reopening of arbitrage business at the end of 2020 have brought more supply to the Asian market. After the inventory fell to a relatively healthy level in the fourth quarter, it may increase again before the Chinese New Year in February.

Asia's styrene production capacity increased significantly

It is estimated that China's styrene production capacity will expand by about 6.88 million tons per year in 2021, which will aggravate the situation of oversupply and lagging demand growth in Asia, and ultimately lead to production cuts. According to industry insiders, the new production capacity to be put into operation includes Zhejiang Petrochemical’s newly added 1.2 million tons/year capacity, CNOOC Shell’s 650,000 tons/year device and Wanhua Petrochemical’s 650,000 tons/year device.

A market participant said: "In the face of excessive competition, suppliers with a good cost structure will have an advantage."

At the same time, due to a large number of factories shutting down for maintenance in the first half of 2021, the production loss caused is expected to partially offset the supply growth and may support CFR China prices. This will also narrow the gap with China's domestic styrene prices and curb Chinese buyers' interest in imported materials.

China's healthy demand for home appliances and automobiles is expected to continue into the first half of 2021. A market participant said that due to the huge downstream profits and the high operating rate, styrene buyers may consider other factors, not just the price, when purchasing. In addition, styrene buyers are even willing to buy spot goods at higher prices.

According to market sources, India, Asia’s second largest importer of styrene, may get rid of the supply shortage in mid-January. Once South Korea's supply returns to normal, American deep-sea freighters destined for Asia will look for sources in India. Since March, South Korea’s styrene supply has been interrupted due to an unexpected shutdown of one of the two upstream steam crackers.

However, the Indian government has ordered that styrene imports must undergo compulsory certification before May 2021, which may cause regulatory problems. However, the deadline for styrene exporters to meet the necessary quality specifications set by the Bureau of Standards of India is expected to be extended.

The North American market depends on exports and the epidemic

In the United States, due to uncertain demand, market participants said that the raw material benzene will determine the fate of US styrene monomer spot in the first half of 2021, after the price reached an 18-month high in November.

The epidemic is expected to affect the operating rate of polystyrene manufacturers. In the case of changes in consumer behavior, polystyrene manufacturers benefit from food service packaging. Market participants said that continued spot export shipments will seriously affect US spot styrene prices.

Although some traders worry that China’s planned styrene production growth may affect the global supply balance in the spring of 2021, the shutdown of factories in South Korea, Taiwan, Japan, and the Middle East may maintain Asia’s raw materials against the United States in the new year. Demand. In the long run, US traders believe that, with benzene prices high and profit margins unsustainable, non-integrated Chinese producers will be most vulnerable to interest rate cuts or production suspensions on a global scale.

European contract buyers hope to get bigger discounts in 2021

Under the dual impact of the impact of the new crown epidemic and the growth of production capacity in Asia, the European styrene monomer market in 2021 is also full of uncertainty.

Among them, the contract styrene discount (the percentage of the styrene contract price determined by the industry each month through negotiations in Europe) is still under discussion, and two different situations have emerged. On the one hand, these discounts are expected to remain stable or even decline due to the meager profits of styrene producers in 2020.

However, a trader said that buyers have pushed for bigger discounts. Under the stimulus of volatile production and hope to get rid of the contract price standard, the opening price discount is as high as 25%. Another trader said that although the 25% discount is not realistic, the discounts on some settled contracts have increased by 1%-4%.

At the same time, market participants said that due to China's new production capacity in 2021, the European styrene market may be consolidated. The new crown epidemic has severely disrupted the automotive industry, and European demand for new cars has declined as the region continues to blockade.

However, polystyrene remains strong at the end of 2020 due to demand from the packaging industry. And manufacturers are still optimistic about the future growth in demand in the construction sector.