Styrene supply-demand structure improves on more unit issues

After the National Day holiday, China's styrene market continued to experience sluggish trading. Its volatility closely followed crude oil trends but underperformed oil itself. In September, defaulting on futures contracts weighed on trading sentiments. Downstream factories were buying physical goods as per necessity. After a decline, the market is now fluctuating with narrowed intra-day variations.

Starting this week, there have been increased incidents of maintenance issues in styrene production units. Wanhua Chemical's 650kt/year PO/SM co-production unit is scheduled for rate cut in early November, lasting approximately ten days. Additionally, Zhenhai LyondellBasell's Phase I and II styrene units, each with a capacity of 600kt/year, have reduced their operations to 60% due to cracking failures and are expected to resume full capacity in 3-5 days. Huatai Shengfu plans to shut its 450kt/year styrene unit for 2-3 weeks starting October 20. These issues have impacted the supply for October. Moreover, port inventories remain low.

Maintenance schedules for Zhejiang Petrochemical's two new units remain undecided. Initial plans considered staggered maintenance for two weeks, affecting a production volume of 25-30kt, thereby constraining supply for November.

From a balance perspective, unexpected production issues shifted October from a relaxed balance to a tight one, and November is anticipated to remain tightly balanced. Both Zhejiang Petrochemical and Wanhua's exports have reduced incoming shipments, ensuring port inventories stay low until December, thus strengthening the spot-futures spread.

With a decline in styrene prices, downstream PS/EPS industries have seen a significant profit recovery, mitigating previous losses. EPS plant operating rate continues around 60% due to the National Day shutdown, but replenished orders support high operational levels in October. PS, on the other hand, operates at a relatively low level due to earlier high inventory, with integrated plants running at around 50%. After digesting loss-making stocks, the market is expected to see a sentiment boost in restocking, and operational levels are projected to increase slightly. ABS profit margins are deteriorating, with strong expectations for future reductions. Styrolution is rumored to be launching a second ABS production line soon. Overall, the demand is anticipated to remain steady.

Currently, the price difference between styrene and benzene is at an annual low. With increasing maintenance issues in styrene units, this price gap is likely to widen. This will motivate styrene producers to hedge by short selling, and monthly differences will reflect the tight supply-demand balance, suggesting bullish sentiments may return.