Will Wide Styrene-Benzene Price Spread Sustain?
After the May Day holiday, the styrene market posted its first major rally since the Lunar New Year, surging for three consecutive days with a cumulative gain of RMB 885/mt, up 12.35%. While prices rose across the industrial chain, styrene’s outperformance rapidly widened the styrene-benzene price spread to RMB 1,800/mt, compressing margins at downstream EPS, PS and ABS producers. Looking ahead, styrene port inventory is likely to remain low, with near-term demand still supported by pre-existing orders, keeping fundamentals firm in the short term. However, longer-term expectations lean weaker as high price spreads face contraction risks amid potential supply-demand shifts.
Last week, driven by tariff reductions and unplanned unit shutdowns, styrene prices rose by 12.35% from RMB 7,165/mt to RMB 8,070/mt. The U.S.-China mutual tariff cuts broadly lifted commodity markets, but styrene outperformed significantly. This rally stemmed from two factors: First, the tariff reductions improved market expectations for downstream demand recovery. Second, styrene’s fundamentals remained supportive, with low port inventory, sustained positive downstream margins, and amplified sentiment due to an unplanned early shutdown of Hengli Petrochemical’s 720kt/a styrene unit, ultimately triggering a trading halt on futures contracts.
However, benzene fundamentals stayed weak. The styrene-benzene price spread rapidly widened from RMB 1,500/mt in early May to RMB 1,800/mt, surpassing both 2024’s peak and historical YoY levels.
This week, supported by macro-optimism and rising feedstock prices, styrene downstream sectors also saw price increases and higher transaction volume. However, end-user price hikes lagged behind feedstock gains, squeezing their profits into the negative. Notably, the ABS sector faced intensified cost pressure from surging butadiene prices, reporting a weekly average loss of RMB -352/mt, up 208% MoM. While tariff cuts and a 90-day suspension of 24% duties boosted end-user order recovery, rigid demand for feedstocks rose amid price rallies. In the first two days of last week, EPS, PS and ABS all saw rising trade activities. However, transactions weakened as prices peaked and bullish sentiment faded. EPS reportedly outperformed, with some producers securing orders scheduled through early June, which could sustain PS, ABS and EPS operating rates at least until late May.
However, analysis of order structures and late-week performance suggests limited sustainability for further price gains. PS, EPS and ABS transactions comprised three types: 1) rigid demand from tariff-driven order recovery; 2) speculative buying amid price momentum; 3) short-covering by agents or end-users. With weakening new order momentum and falling feedstock prices, speculative demand is fading. While order surges temporarily support operating rates, the sustainability hinges on actual material pickups from these orders.
Since April, styrene downstream operating rates have started to decline, with the pace accelerating in late April, driving inventory drawdowns at EPS, PS and ABS producers. Currently, the EPS, PS and ABS sectors face falling inventory, lower operating rates, and margin compression. This stems from three factors: high pre-existing inventory, weak new orders, and scheduled maintenance due to frequent April and May holidays. Inventory began dropping as supply tightened and orders moderately improved, while margins contracted as downstream price hikes lagged feedstock surges. Looking ahead, downstream operating rates may see limited recovery, but sluggish end-user pickups are expected to limit demand momentum, likely leading to inventory rebuilds in downstream sectors.
In April, negative downstream feedback was offset by concentrated styrene unit maintenance, keeping styrene fundamentals firm. May saw a partial recovery in downstream operating rates, with styrene inventory dropping to historically low levels and some new orders. Meanwhile, styrene supply faced further unplanned reductions, sustaining near-term price strength and supporting the styrene-benzene price spread at high levels. However, high spread expectations in June and July may incentivize supply increases. In addition, some unit maintenance may be delayed, or some shutdown units, like units at Shenghong Petrochemical Group and Tangshan Risun Aromatic Hydrocarbon, may be restarted. Furthermore, Seasonal demand weakness in June and July could slow new order growth, allowing inventory to rebuild and gradually pressure operating rates downward (especially if tariff hikes resume). This points to a rising supply and falling demand for styrene. The benzene and styrene price spread may narrow. However, startups of new PS and ABS units may provide temporary support.
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