Styrene prices slump with futures roll-over

In the first half of the month, spot styrene prices at ports surged past 10,000yuan/mt to 10,160yuan/mt, with two traders defaulting, amid aggressive shorts in styrene futures. Prices have fallen sharply this week, now down to 9,420yuan/mt as of today. As delivery month approaches, Dalian Commodity Exchange has restricted trading by ordinary members, accelerating roll-over. Shorts were mostly hedged positions, while sustained pure fund shorts were difficult, leading to sharp declines during main contract roll-over.

With the main contract rolling from October to November (2310 to 2311), the short squeeze-driven uptrend in tight September fundamentals comes to an end for now. October supply would be ample. The spread between SP EB2311 and EB2312 also dropped from 321 to 136. Barring significant fundamental changes, spreads could fall further.

Styrene monomer tank inventory in East China main ports decreased by 0.3kt week on week to 37.3kt on Sep 20, 2023. Cargo arrival was 19kt and offtake was 19.3kt. Commercial inventory, known as the inventory held by traders, was 24.1kt. Current port inventories are at historical lows. The inventory level is expected to increase in October.

Regarding styrene margins, the short squeeze in September allowed rare profit opportunities this year, with plants raising run rates to yearly highs but cutting downstream PS and ABS rates. And some plants hedged in EB2310 to lock in profits. We expect September futures long positions to decline gradually into delivery month but still above historical levels, while hedged short positions will stabilize production despite expected October losses.

While crude oil hit yearly highs and port inventories are low, multidays covering shorts could temporarily stabilize markets. But October hedged shorts and original inventory build-up expectations will likely accelerate unilateral and spread price declines after October delivery.