Newly Added Downstream Units to Support Styrene Price Q4, 2022
In the third quarter of 2022, China’s styrene prices fell deeply and then bottomed out, which was the combined effects of macro, supply and demand and cost. In the fourth quarter, although there is some uncertainty in cost and supply and demand, combined with historical conditions and relatively certain factors, prices in the fourth quarter will still get some support, and there is no need to be overly pessimistic.
Styrene prices fell to a 5-year low and then bottomed out in Q3.
The price of styrene has entered the downward channel since June 10. On June 10, the highest price in Jiangsu was RMB 11,450/mt. By August 18, the lowest price of styrene in Jiangsu had dropped to RMB 8,150/mt, down RMB 3,300/mt or 29%, giving back all the gains in the first half of the year, and also falling to the lowest price in the Jiangsu market in the past five years (excluding 2020). After that, it bottomed out, rising to the highest price of RMB 9,900/mt on September 20, an increase of about 21% from August 18.
Since the middle of June, international oil prices have declined, mainly because of the continuous increase of the U.S. commercial crude oil inventory and the Federal Reserve's announcement of the largest interest rate increase in recent 30 years. Under the expectation of the continued interest rate increase in the future market, the general trend of the crude oil market and the chemical market in the third quarter were constantly affected. The styrene price in the third quarter fell 7.19% compared with that in the second quarter.
In addition to the macro perspective, the supply and demand fundamentals also had an important impact on styrene prices in the third quarter. In July, the total supply of styrene was far greater than the total demand. In August, the growth rate of total demand was higher than that of total supply, improving the supply and demand fundamentals. In September, the total supply and total demand were basically equal, and the fundamentals were tight. The reason for this change was that the overhauled styrene units were restarted successively in the third quarter, leading to increasing supply. The improvement of downstream profits drove the production of new downstream units, and the terminal demand also improved approaching the peak demand season. Therefore, the downstream consumption of styrene in August increased by about 10% M-O-M.
In the third quarter, China's total domestic supply of styrene was 3,505.8kt, up 3.04% Q-O-Q. The import volume was 244.1kt, up 23.5% Q-O-Q. In the third quarter, China's downstream consumption of styrene was 3,435.3kt, up 3.00% from the second quarter. The export volume is expected to be 121.1kt, down 63.8% from the second quarter.
Narrowing profits led to supply reduction, which boosted the styrene price to rebound.
In July and August, the profits from styrene production by integrated process and PO/SM process both retreated, and producers saw one-month profit loss during the period. Following this, styrene producers began to reduce production or shut down for maintenance, resulting in decreasing supply. Therefore, styrene prices began to move up. In addition, the styrene inventory at main ports fell sharply in August, hitting a historical low level, which also underpinned the styrene price to rise.
Downstream market will usher in intensive new units, supporting the styrene price.
The styrene supply may be restrained in the fourth quarter due to maintenance and production cut. There are some styrene producers having maintenance plans in the fourth quarter. BASF-YPC is expected to take maintenance at its styrene and downstream PS units. SP Chemical’s may take maintenance in December. Sinochem Quanzhou Petrochemical’s styrene units may be overhauled in November or December, and ZPC also has maintenance plan in the fourth quarter. Meanwhile, styrene producers are suffering loss. Against this backdrop, the operating rate of the styrene market will be restrained.
Although there are many new production plans in the downstream market of styrene, there is also great uncertainty. Many units have been delayed to be put into production since the first half of the year, and it is hard for downstream profits to sustain healthy for a long time. At the same time, the end demand may weaken after November, which is expected to affect the production of new units. Therefore, we should continue to pay attention to the actual production progress of the units. If most of the units are put into production as expected, it will form a strong boost to the styrene price.
In terms of cost, the benzene market is expected to stay weak in the fourth quarter. The new benzene unit is expected to come online before the end of 2022. Besides, China’s imported benzene will increase in the fourth quarter considering the weak demand in Europe and the U.S. We should also put an eye on the crude oil price fluctuation.
In addition, through the analysis of the prices of the past ten years, the seasonal index of styrene price in the fourth quarter was flat, and the probability of rise and fall was basically the same. To sum up, the styrene market is expected to be relatively weak in the fourth quarter of 2022, but there is still bottom support. Styrene producers can flexibly adjust supply and demand by controlling operating rate, so styrene prices are unlikely to fall sharply.
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