Unusually tight fundamentals in the Japanese styrene market in 2016 are likely to ease in 2017, according to sources based in Japan.
The styrene market in Japan has been tight this year amid a significant decline in production against particularly strong demand from the polystyrene sector, sources said.
However, fundamental tightness will ease considerably in 2017, as styrene turnaround plans in Japan are staggered and demand from the PS sector returns to normal.
A string of turnarounds and a closure of a line has sharply reduced domestic styrene production this year, sources said.
In March, major producer Asahi Kasei permanently shut its No.2 320,000 mt/year line at its Mizushima complex.
Turnarounds in Japan this year have included Asahi Kasei's No.3 390,000 mt/year in February, NS Styrene Monomer's two units with combined capacity of 420,000 mt/year through February-March, Idemitsu Kosan's 210,000 mt/year line in April, Denka's 270,000 mt/year unit in May and Taiyo Petrochemical's 370,000 mt/year unit at the end of August.
As a result, January-August styrene monomer production fell 13% year on year to 1.29 million mt, according to data from Japan's Petrochemical Industry Association.
Supply remains tight, with Idemitsu Kosan's two other lines down for maintenance in September.
Despite a significant reduction in Japanese SM exports -- January-July SM exports fell 44% year on year to 344,817 mt -- it was not enough to ease fundamentals, sources said.
STYRENE DEMAND BOOSTED BY PS SECTOR
Reduced supply has come hand in hand with a double-digit rise in styrene demand this year, most notably from the polystyrene sector.
Styrene demand from general purpose polystyrene and high impact polystyrene in January-August rose 25% year on year to just under 450,000 mt, a source told S&P Global Platts, citing Petrochemical Industry Association data.
Styrene consumption from PS output accounts for nearly 50% of total demand.
High SM demand was due to high utilization rates at PS facilities in order to build inventories, one source said. This is because some polystyrene units are due to have work carried out to protect against natural disasters, which will lead to lower utilization rates next year.
In addition, polystyrene imports have remained unattractive in Japan as sellers in Asia kept prices high by increasing their margins this year, sources said.
Japanese domestic polystyrene prices are based on a cost-formula basis whereby changes in feedstock styrene prices are automatically translated to PS prices.
However, import PS prices are freely negotiated and are not a direct function of styrene prices. PS sellers in Asia have successfully increased their margins this year, which means PS import prices are relatively higher than domestic prices.
This has supported PS production in Japan and, in turn, styrene demand.
Indeed, Platts data shows polystyrene margins above feedstock styrene in Asia were particularly strong in April through July, averaging $156/mt over the period. The approximate breakeven cost is estimated to be around $100/mt.
STAGGERED TURNAROUNDS
In contrast to the styrene turnaround schedule in Japan this year, they are more staggered and fewer in 2017, with three next year from five turnarounds so far this year.
Idemitsu Kosan will conduct maintenance at its 210,000 mt/year Chiba plant in March. Unlike 2016 when both its units in Chiba and Tokuyama were shut, it will not shut the 340,000 mt/year Tokuyama units in 2017. Instead, it will stagger the schedule among the two locations every year, a company source said.
NS Styrene Monomer will shut its Oita plant in February-March and Asahi Kasei will conduct maintenance at its 390,000 mt/year Mizushima unit in May-June.
FUTURE DEMAND
On the other hand, demand from the polystyrene sector is expected to return to normal levels.
The main driver of polystyrene demand is the packaging sector, accounting for nearly 50% of total polystyrene use, according to Petrochemical Industry Association data.
Japan's population is shrinking, which means there is little support from the consumer sector for PS demand.
Sources are mixed on their outlook for demand for 2017.
The first source said he expected PS demand to decline 2% every year as of next year, while a second source said PS consumption in Japan was likely to to be flat at best.
Sources said converters may substitute use of polystyrene with lower priced polypropylene, which could also dent polystyrene demand in the future.
What is clear is that fundamentals in 2016 were unusually tight this year in the Japanese styrene market, but this will not last until next year.
