ABS supply and demand contradiction intensifies

ABS demand declines as a whole amid the off-season, and the overall contradiction between supply and demand further prominent, the market may not move up in the later period. Currently, the mainstream price falls to 11530yuan/mt in East China, and declines to 10820yuan/mt (excluding tax) in South China. After the Shopping Festival, end-users demand is expected to continue to decline. Moreover, due to the impact of the epidemic in many places in China, production and transportation are slightly hampered, export of terminal products is difficult to boost and demand is hard to improve. In addition, the pressure on the supply side is further increased, and a number of large-scale factories are expected to be completed intensively. Even if it is possible to delay, the short-term predictable supply capacity will continue to rise. The following is a detailed analysis of the current changes in ABS.

1.The cash flow is mediocre and the low benefit is normal.

Judging from the overall ABS market, the cash flow begins to decline at the beginning of the 2022, and losses exist for a long time in the middle of the year. Although it returned to make profits in the second half of the year, the space is limited. In 2022, due to the high price of crude oil, the overall pressure on raw materials enhance, the ABS market continue to be depressed and the overall benefits has shrunk substantially. Since November, as the overall market is weak, although the pressure on raw materials is not heavy for the time being, the overall benefit is still narrowing, and the market is expected to remain weak in the later period. Also, with the continuous expansion of supply and demand pressure, internal competition intensifies and low industry profits will become normal.

2. The plants are expected to be completed intensively, and the pressure at the supply end is heavy.

The adjustment of the supply-side structure has a great impact on the overall profit of ABS, of which the overall China domestic supply capacity is insufficient before 2020, and some of the plants commenced sporadically cannot keep up with the growth of demand. The long-term supply shortage has given a long-term high-benefit situation, but the situation has changed to a certain extent since 2021, especially after the plant of Zhangzhou Chimei has been put into operation in the second half of the year. On the one hand, China domestic production capacity has grown significantly, and supply capacity has increased. On the other hand, China domestic demand growth has stagnated, and domestic production is rapidly squeezing out imports. By 2022, the 150kt/year plant of Cnooc&Lg Petrochemicals and 600kt/year of Liaoning Bora (currently 200kt/year of normal production) have been commenced. The 400kt/year plant of Lihuayi Group (the main body has been completed, and start test run), 400kt/year plant of Zhejiang Petroleum & chemical, 600kt/year plant of Petrochina Jieyang Petrochemical and 250kt/year plant of FCFC Ningbo are expected to be put into production. Although the start-up of some plants may be postponed, the overall supply is expected to increase significantly.

3. Demand growth is insufficient and capacity utilization is difficult to maintain.

In terms of demand, the apparent demand for ABS from January to October in 2022 is 4.686 million tons, down 1.89% year-on-year. Among them, the production is 3.609 million tons, up 6.72% year-on-year, and the import is 1.142 million tons, down 22.01% year-on-year. The overall demand for 2022 does not grow.

In summary, seeing from the subsequent situation, the overall operation of the ABS market tends to be weak, and it is difficult to return to the high-benefit state of the past few years. The demand growth is insufficient, and the disadvantages of intensively commencement of production capacity have been clearly reflected in 2022, and the situation will continue to intensify in the later period. Low profits will be normal. In 2022, the support from the traditional peak demand season for the market is limited, and the decline in demand will be more rapid. In addition, the impact of the current epidemic is still maintained, raw material transportation and terminal product production in some areas are subject to certain restrictions, further affecting terminal demand. It is expected that the follow-up ABS market is still weak, and the price spread fluctuates narrowly in a short-term.