Styrene supply continues to increase, demand transmission sustains

China's domestic styrene production reached a historical high of about 1.24 million tons in July, and the supply continues to increase in August with the completion of routine maintenance, despite the delayed startups of new units. However, styrene prices have remained elevated compared to pre-Spring Festival levels. Port inventories have also dropped to historically low levels. The startups of styrene-integrated downstream units in recent years have lowered conventional operational costs and driven the consumption of styrene.

From the beginning of the year until now, the styrene industry has generally been profitable. Particularly during the Chinese New Year period in January and February, factories managed to recoup the profits lost over the past five months through hedging with futures and pre-sales. The overall profitability has been slightly better than in 2022. Additionally, within the integrated production process, profits from benzene have also helped turn around styrene production's losses, ensuring stable operations in the styrene industry this year. Amid industry-wide maintenance in June, domestic production saw a slight decline. However, as the maintenance units resumed operations, domestic production in July reached a historical high level. It's anticipated that domestic production in August will set a new historical record.

An increase in the maintenance of styrene units in South Korea is mainly attributed to poor economics in the industry. Despite good profits in upstream benzene, adjustments are being made to maximize profitability. The significant rise in styrene prices in Chinese ports, along with the depreciation of the Chinese yuan, will affect styrene export negotiations. It's expected that styrene exports to South Korea will be limited in August and September. South Korea's imports mainly involve purchasing styrene from Japan, Kuwait, Singapore, and Taiwan, which will impact China's net import volume to some extent.

EPS production is stable, with limited new capacity. Recently, Daluwang started production successfully, enhancing Hengli's styrene consumption in Northeast China. ABS production is increasing rapidly, despite industry losses. End-use orders have improved, aiding with the successful startups of FCFC's units and the rate hike of some units, accelerating styrene demand digestion. ABS primarily relies on in-park supply, and strong exports of new energy vehicles and household appliances sustain ABS demand. PS is showing weaker performance. After SECCO's unit restart in July, overall operational rates are supported, but industry losses are around 500 yuan/mt, leading to some financial risk hedging. However, the PS market liquidity is limited, with little hedging volume, constraining incremental styrene consumption.

Amid the sustained rise in domestic supply, it doesn't immediately appear unmanageable. The pressure from reduced import dependence has led to a gradual decline in net imports, though not necessarily reflected in export volume. Additionally, downstream products with low profit margins are prompting demand for recycled materials, and the drive to enhance Chinese manufacturing for export also suggests downstream potential to accommodate styrene demand.