Shandong-East China Arbitrage Window Set to Open in August
In July, the supply-demand balance in Shandong saw an M-O-M decrease of 8.54%, and that in East China expanded negatively by 4.77% M-O-M, indicating an improved supply and demand structure for both markets. In August, the port inventory in East China is projected to stay low, thereby supporting the East China market price. However, the Shandong market price may be weighed by growing supply and reducing demand. As a result, the arbitrage window between the two markets may open in August.
Supply
In Shandong, styrene output in August is expected to grow by 22% from July. Qingdao Haiwan Chemical’s 500kt/a unit was restarted, while Wanhua Chemical reduced the operating rate of its styrene unit due to insufficient propylene supply caused by PDH unit maintenance. Other units in the Shandong market are in normal production.
In East China, styrene output is predicted to increase by 5.1% from July, which is not as significant as the increase in Shandong, mainly due to increasing unplanned shutdowns and load cuts in the region. Specifically, the operating rate of Zhejiang Petroleum and Chemical’s one 600kt/a PO/SM unit was reduced by 20%-40%, owing to its ethylbenzene unit failure; SP Chemicals planned to take one-week maintenance in the second half of August.
Demand
In August, the consumer end is still in the traditional off-season. Whether there is an increase in consumption mainly depends on the downstream profit recovery and whether new units are put into operation. Based on the data from July, the profits of SBS, SBR, and ABS industries in the seven major downstream sectors increased M-O-M, and these three industries are expected to bring demand growth in August. As of the end of July, these three industries accounted for 24% of styrene consumption in Shandong and around 31% in East China. At the same time, EPS, PS, and UPR are expected to see a decrease in demand for styrene due to a decrease in industry profits in July. These three industries account for 70.25% and 35.4% of styrene consumption in Shandong and East China, respectively. In addition, Changzhou Xingda New Material is expected to put another 180kt/a new unit into operation in August, which will also bring demand increment to East China. It is expected that styrene demand in Shandong will decrease M-O-M in August, while demand in East China will increase M-O-M.
In August, it is expected that supply will increase and demand will decrease in the Shandong region, with a weakening support to the styrene price. The East China region is expected to see a double increase in supply and demand, with port inventories remaining low and providing strong support for the price. The difference in supply and demand may further widen the price spread between the two places. In addition, the restart of Tianjin Bohua Chemical’s unit in mid-August may suppress the flow of Shandong's goods to Hebei and other places, which is also detrimental to the Shandong market. To sum up, the arbitrage window between Shandong and East China is expected to open in August.
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