US styrene production costs appeared poised to rise to kick off the new
year amid higher feedstock benzene prices and anticipated gains in North
American January benzene contracts, market sources said Monday.
December benzene contracts were settled at 231 cents/gal, up 8 cents
from the previous month. Since the December contracts settlement, spot
pricing has gradually marched higher and January was heard traded
multiple times in the low-250's cents/gal range.
Market participants have noted that even though demand from the
styrene segment remains soft, supply-side tightness has lent support to
pricing. The tightness stemmed from decreased imports from South Korea,
beginning in October. For the first three quarters of 2019, US imports
from Korea have averaged roughly just over 84,000 mt. That number
roughly halved in October and November with import volumes at about
38,425 mt and 47,400 mt, respectively.
December volumes look to be sparse as well, with 9,000 mt shipped
during the first 10 days of the month. Additionally, imports will likely
be seen from places like Europe, Latin America and Canada, however,
those volumes are unlikely to be significant enough to offset the
reduction from Asia.
STDP MARGINS TIGHTEN BENZENE
The US benzene market has seen further supply-side constraints from
reduced output from toluene conversion units. Selective toluene
disproportionation, or STDP, margins have been largely negative since
the beginning of the second quarter on the back of stronger toluene and
softer benzene and paraxylene pricing, S&P Global Platts data
showed. Paraxylene prices have been negatively impacted by new
capacities coming online in China. Over 8 million mt of new paraxylene
production is expected with the start up of the Zhejiang and Hengli
refineries. With paraxylene soft and economics poor, STDP unit operators
were running at nominal rates, sources said.
Sources have noted that US styrene margins have been razor thin with
production costs estimated anywhere from $760-$790/mt FOB USG and
Platts estimates at $785/mt. US prompt spot styrene prices closed Friday
at $795/mt FOB USG and have averaged $784/mt for the first 15 days of
December.
When looking at the monthly contract formula, which incorporates
feedstocks, natural gas and an adder, margins turn sharply negative with
contract costs estimated at near $867/mt. Platts estimates put losses
for formula-based sellers at near $158,000 for every 5,000 mt sold.
Those selling on a benzene plus adder basis are facing even more dire
circumstances. Considering an adder of $325, benzene plus sellers could
be losing as much as a half million dollars on every 5,000 mt and
possibly more, sources said. Platts estimates show a loss of near
$615,000 per every 5,000 mt sold.
There are multiple reasons to expect that styrene will improve in
2020. As previously mentioned, January benzene contracts are poised to
move higher and those costs are expected to be passed on. Additionally,
the styrene maintenance schedule is relatively heavy in Q1 2020, with
two producers expected to undergo maintenance. This, coupled with
previous run-rate cuts, is likely to further tighten the market, sources
have said.
The primary question mark remains about demand from derivative
segments as well as other regions. An agreement reached between the US
and China last week to halt the escalation of tariffs was promising
though it was far from a resolution. Other factors worthy of
consideration relate to new styrene capacities expected in China as new
crude-to-chemicals refineries could theoretically bring as much as 2
million mt online.
