Styrene prices recede with the end of futures roll-over

Since mid-month, the styrene market has experienced significant volatility. After a slow decline lasting over a month, the main June contract rebounded sharply within three days, erasing previous losses. Despite limited changes in market fundamentals and planned maintenance schedules, this substantial fluctuation is mainly driven by capital movements. This week marks the rollover period for the main contract, and any early actions by either the short or long positions can cause significant market ripples. Amid declining port inventories, the long position has not been able to realize profits effectively. With strong support from bullish funds, shorts have prioritized closing positions this week, leading to a rapid decline in open interest for the June contract.

Since February, the benzene-styrene price spread has been in a narrow range, reducing the hedging motivation for production plants. The registration volume of warehouse receipts has decreased compared to previous periods, mainly consisting of scattered declarations from port delivery warehouses, undermining the confidence of futures shorts. The narrowing of the benzene-styrene price spread has directly compressed the production profits of styrene plants, causing low operating rates in the styrene industry and driving aggressive procurement by industrial traders and production companies, thereby widening the spread between physical goods and futures.

From a supply-demand perspective, if styrene strengthens independently of benzene, the low operating rates in the industry will immediately impact supply. Conversely, a too-narrow benzene-styrene price spread will affect future supply. Given the low reliance on styrene imports and sufficient domestic effective capacity, the market is likely to maintain range-bound oscillations, with unidirectional trends stemming from upstream and downstream industry conflicts. Downstream expectations for the future remain low, despite government policies promoting trade-in. The ample idle capacity in downstream industries continues to pressure market confidence. Additionally, the unexpected decline in styrene export demand, coupled with the restart of European and American units, is gradually restoring supply, impacting export negotiations in the second half of the year.

Despite the current significant volatility in styrene futures, it is mainly due to the rollover of contracts rather than changes in the supply-demand dynamics of styrene itself. Following the successful rollover of the main futures contract yesterday, the styrene market is expected to return to its fundamental supply-demand dynamics. With the approval of the satellite petrochemical delivery warehouse and substantial idle capacity for styrene, the low inventory at ports may not increase the price elasticity of styrene as before. A pattern of stalemate and oscillation may remain unchanged in the short term.