Panama Canal Congestion Effect on China Styrene Market
The congestion at the Panama Canal has varying degrees of impact on the styrene industry chain. The most direct and obvious impact of this incident is on the ethylene industry, which in turn affects the cost and production of styrene.
Ethylene prices gained amid decreasing spot supply.
China’s spot ethylene sales volume has been rising annually due to the refining industry's recent growth in olefin capacity. Zhejiang Satellite Energy, Zhejiang Petroleum & Chemical, Sinopec, Sanjiang Chemicals, SP Chemicals (Taixing), Funde (Changzhou) Energy ?Chemistry Development, etc. are some of the major sales companies in East China. China’s import of American ethane was directly impacted by the canal congestion issue. The drop in ethane supply directly impacted ethylene output at Zhejiang Satellite Energy, which uses the ethane cracking technique to create ethylene. The ethylene plant of Funde (Changzhou) Energy & Chemistry Development was offline at the same time, which resulted in a decline in the ethylene market's spot supply in East China. As a result, the ethylene that flowed to North China also dented, which led to a rapid increase in ethylene market prices.
From November 10 to November 24, the ethylene price at China Jinshan Associated Trading rose by RMB 600/mt to RMB 7,500/mt, and that at Luxi Chemical rose by RMB 950/mt to RMB 7,450/mt.
The congestion at the Panama Canal will linger in the future. The import ships will detour into China to guarantee China’s ethylene output, but this will result in longer arrival times and higher freight costs. It is anticipated that the occurrence will keep ethylene prices high until the middle of December. At the same time, attention should be paid to the operation of supporting downstream units of ethylene producers.
Benzene prices may suffer downward pressure if the congestion cannot be reduced.
From the perspective of the global trade flow of benzene, South Korea is the largest exporter, while China and the U.S. are the first and second largest importers, respectively. The Panama Canal is a necessary route for transporting Asian benzene to the U.S. Since the goods for December have already been sent out, the short-term impact will be reflected in the arrival time of shipments from Asia to the U.S. If the congestion can not be effectively reduced, the transportation costs from Asia to the U.S. will be further affected, and it will have an impact on the trade flow in Asia in January 2024. Currently, China’s domestic benzene market is weak affected by the increase in imports and the inventory growth at the main ports. Therefore, benzene prices in the Asian market may experience downward pressure.
Rising ethylene prices pushed up styrene production costs.
This week has seen a slowdown in the sentiment that last week’s canal congestion had on the price of styrene. Following the revelation last week on the effect of ship congestion on ethylene production, the market hype intensified and shifted its attention to the production dynamics of styrene producers that purchase ethylene from the market. The word of styrene unit shutdowns started to leak into the market. After a week of monitoring, ethylene supply problems haven't had an impact on the output of styrene manufacturers who bought ethylene from the market. Nonetheless, the cost of styrene has somewhat increased due to the rise in ethylene costs, and future attention will be paid to the impact of profit issues on styrene producers. The price of styrene in Jiangsu increased by RMB 370/mt between November 10 and November 20, with the price increase of ethylene being only one of the contributing causes.
Overall, the last two weeks’ congestion at the Panama Canal has directly and immediately raised the price of ethylene and styrene while having a negative effect on the market for benzene in the future. Going forward, it will be important to keep an eye on the dynamics of Zhejiang Satellite Energy’s styrene units as well as the arrival of imported benzene.
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