Nov China EPS Prices Reached an Annual Low
Preface: From the middle of June 2022, China EPS market prices mainly fluctuated downwards caused by lower cost, increased supply and shrunken demand. Gross profit saw a notable decline compared with that in H1, 2022. Market participants still hold a bearish sentiment with cargoes and sales moving southwards. Fundamentals and other related factors should be concerned.
In H2, 2022, China EPS market was weak, and the mainstream prices moved down. Entering Q4, 2022, EPS prices still showed a downtrend and reached the annual low point. Up to November 29, the prevailing EPS EXW prices for general materials in Jiangsu were RMB 8,500-8,900/mt in cash, down RMB 3,500/mt or 28.23% compared with the high-end price on June 10, and down RMB 3,600/mt or 29.75% compared with the low-end price on June 10.
Cost: Decreased styrene prices dragged down EPS prices.
Styrene prices can exert notable impacts on EPS prices because they show strong convergence, which can be seen from the following chart. From the middle of June 2022, styrene market prices moved down constantly caused by the temporary increment in supply and drops in prices of international crude oil and benzene, dragging down EPS prices greatly.
As seen from the following chart, the correlation coefficient between the styrene and EPS prices was around 0.98 from 2022 to early June 2022, while it declined slightly to 0.97 after June 2022. The average profit in the EPS industry was RMB 559/mt from 2022 to early June 2022. From the middle of June to now, it was RMB 231/mt.
Supply: EPS supply may increase with new units coming on stream.
EPS enterprises reduced operating rates or shut units from Q3, 2022 caused by limited demand and the Mid-Autumn Festival holiday. However, EPS supply increased with new units at Qingdao Rengeng New Material, Anqing Xingda New Material, Henan Far East Chengyi Technology, etc. coming on stream. In addition, cargoes in northern China kept moving southwards with demand from the building insulation materials industry in northern China weakening from H2 October 2022. Enterprises in some regions faced higher competitive pressure.
Demand: EPS market was in the off season.
From H2, 2022, China EPS demand changed affected by hot weather period, busing farming period and demand peak season in September and October, etc. EPS market demand is in the off season currently. EPS market demand from the building insulation materials in northern China declines with the weather getting colder. Thus, EPS market demand continues to contract in line with the decrease in downstream enterprises’ procurement. From late October, EPS market demand kept moving southwards, mainly from the foaming packing industry. In addition, tough transportation in some regions restricted demand. On the whole, weak downstream demand gave thin support to EPS prices.
Outlook: EPS prices may mainly be weak, along with temporary increases.
EPS market prices may be weak first and then move up in the near future. First, overall downstream speculative demand may underperform. The building insulation materials industry in northern China is expected to be in off season in the next three months, meanwhile, foaming packing industry demand in southern China may be limited. Downstream users are expected to show weak buying interest near the Spring Festival, which may give thin support to EPS prices. Second, supply may be ample with cargoes moving southwards and demand contracting. Some holders of resources in some regions are expected to face sales pressure amid higher competition. Third, market participants still hold a bearish sentiment. Market deals may be slow caused by tough transportation in some regions. In addition, styrene market prices can hardly support EPS prices strongly. However, there will also be some positive factors to stimulate EPS prices temporarily. The price will show an overall downtrend with some temporary rises seen. EPS demand may increase later because of stockpiling before the Spring Festival holiday. Moreover, close attention should be paid to the changes in international crude oil prices and commodity market.
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