China Styrene Supply to Grow in H2, 2022
In H1, 2022, the styrene price showed an upward trend with volatilities. The average price of styrene in Jiangsu market was RMB 9,710.35/mt, an increase of 8.99% over that in H2, 2021 and a rise of 9.24% over H1, 2021. The lowest price in the first half of 2022 was RMB 8,320/mt at the beginning of the year, and the highest price was RMB 11,470/mt in early June, with an amplitude of 37.86%. In terms of fundamentals, the supply of styrene in H1, 2022 increased first and then decreased, and the demand showed a gradually increasing trend, so the overall supply and demand structure gradually tightened.
The market originally believed that the price of styrene would be low in the first half of 2022 under the large expansion of capacity, but the changes in the crude oil market and styrene supply in the first half of the year made styrene refresh the market cognition again, and also made the participants look forward to the market in the second half of the year. Whether many new downstream units can be put into operation in the second half of the year has become a key to the strength of styrene prices.
"Black swan" incidents pushed styrene price to a new high.
The rise in styrene price in H1, 2022 was mainly the result of global inflation. Prices of bulk commodities all increased, including those of crude oil and benzene, which gave strong cost support to styrene. From the perspective of styrene fundamentals, both China’s domestic and foreign styrene units experienced centralized maintenance in H1, 2022. At the same time, the unplanned unit outages also led to a reduction of supply. China’s styrene export increased, which offset the negative impact of weak domestic demand on prices.
New units were put into operation in South China and Shandong in 2022. With the unplanned shutdown of large units in different regions, the regional supply and demand structure also changed periodically. The price difference between South China and Jiangsu markets have changed from discount to premium, and the price difference between Shandong market and Jiangsu market has also gradually narrowed from an obvious discount.
Strong cost buoyed the high price of styrene.
In the first half of 2022, the profit of non-integrated styrene unit was RMB -509/mt, down 226.30% from RMB 403/mt in the same period last year. In the first half of the year, producers lost money most of the time, and only in early June did profits turn positive briefly.
After the Spring Festival in 2022, the international crude oil price rose all the way, driving the strong rise in benzene price. In addition, the fundamentals of the benzene market stayed tight in H1, 2022, and the inventory of benzene continued to decline, underpinning benzene prices. Following this, the price difference between benzene and styrene once narrowed to RMB 500-600/mt, which led to the shutdown and production cut of styrene producers under the pressure of profit loss. This was also the reason why the supply of styrene did not grow as expected in H1, 2022.
Supply growth was less than expected, while export demand grew wildly.
In the first half of 2022, most of the large styrene units expected to be put into operation have been brought on line. As of July, 2.88 million mt/a of styrene capacity has been put into operation in China. See the following table for details.
The new styrene units were generally put into operation as planned, but the growth rate of styrene output was lower than expected. This was mainly due to the long-term closure of some factories against the background of long-term losses and the unexpected shutdown of some styrene units. In the first half of 2022, China’s domestic styrene output was 6,833.9kt, an increase of 13% Y-O-Y and a rise of 8% compared with the fourth quarter of 2021. In the first half of 2022, the import volume of styrene also decreased to a certain extent, which is related to newly added units in China. The import volume of styrene was 730.4kt from January to May 2021, and 522.1kt from January to May 2022, a Y-O-Y decrease of 28.51%.
In the first half of 2022, China’s domestic demand for styrene was lukewarm. The market expected demand to recover after the Spring Festival, but the end demand has not improved significantly even in July, especially from March to April, when the recovery of demand was interrupted due to force majeure. In the final analysis, it was due to the weak demand from the real estate and household appliances industries. In the first half of 2022, the downstream consumption of styrene was 6,597kt, a slight increase of 2% over the same period last year and a decrease of 3% from the fourth quarter of last year. In the first half of the 2022, the export performance of styrene continued to shine, and the export volume has reached a record high. In 2021, China's styrene export volume was 234.9kt from January to May, an increase of 770.00% Y-O-Y. From January to May 2022, the export volume was 342.2kt, with a Y-O-Y increase of 80.42%. The reasons for the increase in exports are as follows: First, there were many planned and unplanned maintenance of overseas units, which led to decreasing supply. Second, in the context of inflation, there were differences in price increases at home and abroad, and there was a certain arbitrage space.
Styrene supply may change from tight to sufficient in H2, 2022
In terms of fundamentals, no new styrene unit will be put into operation in the third quarter of 2022. In the fourth quarter, a total of 2.5 million mt/a capacity will be put into operation, including 800kt/a at Sinopec Guangdong Petrochemical, 600kt/a at Lianyungang Petrochemical, 500kt/a at Zibo Junchen New Material, and 600kt/a at Zhejiang Petroleum & Chemical. However, a number of downstream units are planned to be put into production in the third quarter. Meanwhile, the unit at Zhejiang Petroleum & Chemical with capacity of 1,200kt/a will be overhauled for about 40 days in mid-August, and CNOOC & Shell Petrochemicals will replace the catalyst of phase II unit in end July or early August. Therefore, it is expected that the supply of styrene will only increase slowly in the third quarter. If the new downstream units are put into operation successfully, it will support styrene from the demand side. However, at present, the profits of the downstream industry are all at a loss, which is expected to have an impact on the commissioning progress of the new downstream units. On the whole, it is expected that the supply of styrene will change from tight to sufficient.
From the perspective of cost, the market's views on international crude oil prices are also very different. The uncertainty of the styrene market in the second half of the year is aggravated by the uncertainty of oil market. In the third quarter, if the oil price doesn’t fall broadly and the supply of benzene remains tight, the styrene market may not be particularly pessimistic. At present, some market participants temporarily hold a short attitude towards the future market based on their concerns about the macro-economy and the real estate industry. In the fourth quarter, the international oil price has great downward pressure, and the supply of benzene will increase on the back of steady production of new benzene units. Overall, the cost support for styrene will wane, thus the price of styrene may decline further.
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