As styrene supply rises, where will demand support come from?

Recent Market Dynamics and Futures Performance

Despite weak fundamentals, styrene futures have rallied unilaterally. This surge was primarily driven by the launch of upstream pure benzene futures, where strong performance in far-month contracts pulled styrene prices higher and squeezed downstream margins into negative territory.

Since early July, styrene operating rates have continued to climb. Even with rising port inventories, forward prices for H2 July delivery held firm at a 290-300 yuan/ton premium to the August futures contract. This pressured trading sentiment, causing port spot prices to slip to a 2-30 yuan/ton discount against H2 July forwards.

Supply and Demand Outlook

Styrene supply has increased markedly, led by the restart of the Bora plant. While the Risun Chemical facility is undergoing maintenance, few other planned turnarounds are scheduled for July and August. Supported by healthy producer margins, non-integrated units continue to operate at high rates, and the new Jingbo plant is slated for commissioning at the end of July.

The supply-demand balance indicates that at current run rates, domestic styrene supply will reach an all-time high between July and September. With downstream demand expected to hold at approximately 1.5 million tons per month, the resulting oversupply will likely compress producer margins, ultimately forcing non-integrated plants to cut production.

Q2 Review and Q3 Margin Outlook

A supply deficit in the second quarter-caused by maintenance at integrated facilities and delayed new plant startups-fueled speculative activity amid inventory drawdowns. This widened the basis significantly over the past three months and incentivized non-integrated producers to operate at full capacity.

Consequently, the wide basis and high styrene profits in Q2 eroded downstream margins to the lowest levels of the year. Margins for EPS and PS, in particular, hit record lows, compelling some major derivatives plants to either shut down or reduce operating rates.

Looking ahead, the market must rebalance. A downstream margin recovery is anticipated in Q3. This market-driven profit redistribution along the value chain is expected to both curb overall supply and stimulate downstream restocking and production demand.

Q3 Forecast and Key Uncertainties

The outlook for Q3 aligns with the expectation of a narrowing processing spread between pure benzene and styrene futures. However, as liquidity in the July forward market is largely confined to industrial traders, prices remain susceptible to deviations driven by speculative capital.

Key uncertainties for the third quarter include:

·The timely startup of the Jingbo plant.

·Potential unplanned outages at integrated facilities.

·The impact of potential government subsidies for the home appliance and automotive sectors in the second half of the year on downstream operating rates.