Styrene Spot-Futures Price Spread to Narrow in Aug
In June, the styrene market showed a roller-coaster ride. In July, the downward trend in late June continued. The spot-futures price spread rose broadly in July and is expected to gradually narrow in the future.
In July, the styrene spot market was relatively strong against the background of less arrival and large export at ports. On the contrary, styrene futures prices kept falling owing to macro weakness, the decline in crude oil prices as well as the expectation of weakened supply and demand structure in August. Therefore, the price spread between spot styrene prices and styrene futures prices climbed continuously, once rising to RMB 1,294/mt.
Low port inventory supported spot styrene prices.
Styrene inventory continued to decline since March, and fell to a relatively low level in late July. At the beginning of July, through the understanding of the export shipment expectation in July, it was estimated that the about 30-40kt of styrene would be loaded for export in July. The port inventory at main ports in July is around 50kt, most of which are for export preparation, and there are few tradable spot goods. Therefore, it was predicted that the styrene supply would be tight in H2, July. However, due to the uncertainty of the shipping date, the styrene export ship has not started loading at the wharf until recent days. It is the main reason why the spot price is relatively firm. Moreover, the delivery of futures began at the end of the month, and the spot-futures price spread remained high after the futures changed month.
Styrene futures prices kept falling on weak macro and supply-demand structure.
In July, there was a wave of loan interruption in the real estate market, which further affected the already difficult real estate market. The main downstream industries of styrene are buildings and household appliances, which have a non-negligible connection with real estate, so the market has insufficient confidence in future demand. Since late July, large styrene plants that were reduced in production or overhauled in the early stage are expected to resume work in succession. The new unit put into operation at the end of June also maintained stable production, and shipments have been sent to East China. In addition, robust exports in the first half of 2022 are also expected to cool in August. Judging from the export negotiation and transaction in July, exports in August will be few.
It can also be seen from the figure above that the downstream demand for styrene showed a downward trend in July, especially ABS and PS, both falling on an M-O-M basis. It is expected that domestic demand will not increase significantly in August. In addition to the 200kt/a PS plant at Qingdao Haiwan Chemical that was put into operation in July and the 180kt/a EPS plant at Anqing Xingda Chemical that is expected to be put into operation in August, there will be no increment in downstream demand. Moreover, according to the relevant data of terminal household appliances, the consumption of styrene is also expected to shrink. On the whole, the supply and demand structure of styrene may continue to weaken in August. The port inventory has fallen to a low level. If there is no export in the later stage, the port inventory will gradually increase.
Spot-futures price spread will narrow in August.
At present, the spot price of styrene is much higher than the futures price. From the macro and supply-demand structure, the upward drive is insufficient, and the rising space of styrene spot price is limited. After the weak expectation gradually turns into reality, the strength of the spot market will no longer exist, and the spot-futures price spread will gradually narrow. Market participants should pay attention to the effective accumulation time of styrene port inventory.
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