Chambroad’s New SM Capacity Aggravates Shandong Oversupply
Since August, the arbitrage window between Shandong and East China has remained largely open. Shandong Chambroad Sidarui New Material Technology’s 670kt/a styrene unit produced qualified products on August 6. With the stable operation of this unit, it is likely that the discount in Shandong relative to East China will become a normal occurrence.
Firstly, the release of new production capacity will intensify the supply-demand imbalance in Shandong. As shown in the table, the average monthly difference between Shandong’s output and total demand in 2024 is approximately 33kt, which is close to the average end-of-month enterprise inventory of 25.8kt. Since Shandong lacks commercial storage tanks, enterprise inventories essentially reflect the supply and demand situation. This indicates that the supply and demand structure in the Shandong market remained in a state of tight balance in 2024.
Chambroad Sidarui currently lacks downstream supporting facilities and the plant is not port-connected, offering no export advantage. Whether the entire or partial styrene production is absorbed within Shandong, it will exacerbate the region’s supply-demand imbalance and exert downward pressure on market prices in Shandong.
Remarks:
1. Output refers to the monthly output of styrene producers in Shandong.
2. Downstream consumption = demand from 7 downstream industries in Shandong / 0.8569
3. Total demand = downstream consumption + shipping volume
4. Shipping volume = domestic shipping volume + export volume of Shandong-based enterprises
Secondly, the sales model determines that its bearish impact on the Shandong market is more significant than on East China. Currently, the sales mode of Chambroad Sidarui is relatively flexible, with a contract-to-pre-sale-to-spot ratio of 4:3:3. It is highly probable that the contract and spot volumes will be absorbed within Shandong, totaling around 42,000 mt per month. This will increase the average monthly difference between output and demand in Shandong to around 75,000 mt, representing a MoM increase of over 127% or so. Even if all pre-sale volume flows to East China, it would only narrow the monthly supply-demand balance in East China to around -4,800 mt, insufficient to reverse the supply shortage situation in the region.
In summary, following the commissioning of Chambroad Sidarui’s unit in August, the oversupply pressure of styrene in Shandong has significantly intensified, while the supply and demand pattern in the East China market remains relatively firm.
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