China's styrene surges on lower inventory and rate cut

China's styrene market posted strong upward move this week along with the rise in crude oil prices. East China styrene increased by 450yuan/mt from last Friday to 8,910yuan/mt Wednesday and CFR China styrene increased by $28/mt to $1,200/mt. 

Crude oil moved on Wednesday, touching $90 a barrel for the first time in seven years, boosted as tight supply and rising Russia-Ukraine tensions added to concerns about further disruption in an already-tight market. Brent crude gained $1.76, or 2%, to settle at $89.96 a barrel, after surpassing $90 for the first time since October 2014. WTI crude closed up $1.75, or 2%, to $87.35 a barrel. The rise in crude oil prices also lent strong supports to chemical commodity prices in Chinese market. 

In styrene fundamentals, port inventory fell back and some producers lowered operating rate due to poor economics. This renewed speculations prior Chinese New Year holidays. Traders were active to change hands while downstream plants chose to wait on the sidelines. 

Tank inventory in East China main ports decreased by 16.5kt week on week to 86.5kt on Jan 26. Cargo arrival was around 37.8kt and offtake was around 54.3kt. Commercial inventory, known as the inventory held by traders, was 56.2kt. 

Styrene production margins remained poor. As of January 26, styrene cash flow turned positive, to around 90yuan/mt owing to the rise in styrene Wednesday. However, the cash flow has been hovering low for several months and the figure was still around minus 129yuan/mt on January 25. (Styrene cash flow= SM East China-(0.79*BZ East China + Ethylene NEA on RMB parity+800RMB)

Due to the persistent poor economics of styrene, operating rate of non-integrated units remains low. New Solar Chemical has recently shut its 300kt/year styrene unit in Jiangsu province due to poor economics without clear restart timing. Tangshan Risun Chemical has lowered operating rate of its 300kt/year styrene unit in Hebei Province due to glitch and is expected to shut the unit for maintenance in the coming days. Anhui Jiaxi plans to shut its 350kt/year styrene unit early February for around 15 days of maintenance. 

In downstream, demand for styrene is weakening with the approach of Chinese New Year (February 1). EPS plant operating rate has decreased and further rate cut is expected. Many EPS producers will conduct maintenance during the holiday with total capacity accounting for around 85% of China's total EPS capacity. And for most plants, the turnaround would likely to last for 10-15 days. PS plant operating rate is expected to decrease slightly but product inventory at production site might remain stable given logistics restrictions. As for ABS, only one produce has turnaround plan. 

The market could see short-term increase given speculative sentiment. Eyes could rest on SM plant operating rate and crude oil prices.