The consensus in the European styrenics sector is swinging behind the second triple-digit increase in monthly styrene/polystyrene contracts in a row for February, sources said Wednesday.
Market sources talked of a potential ethyl-benzene styrene cost push of as much as Eur140/mt in February, based on current benzene spot prices, euro-dollar exchange rates and ethylene contract price projections.
But producers hinted that they would push for a full pass-through as they sought to avoid losing further margins.
In January, styrene and polystyrene contracts had settled at an increase of Eur120/mt to Eur1,224/mt and Eur1,340/mt FD NWE, respectively.
The scenario of high cost increases in January and February mirrored the situation seen in the first quarter of 2011 when the first two styrene contracts of the year also saw near triple-digit monthly increases.
Spot prices in Europe for benzene -- a feedstock used in the production of styrene monomer -- have surged $188/mt so far in January to be assessed by Platts at $1,308/mt Tuesday, while styrene prices have climbed $175/mt to $1,267/mt in the same time period.
"We can expect another hefty price increase in February," an ABS producer said.
"I think that Eur100/mt [increase] is highly likely, but the full Eur140/mt may be difficult to justify with the present economics," a styrene trader said.
A Eur100/mt increase however would mean that producers would be likely to take a margin loss, to add to those accumulated over the course of last year.
The upstream benzene market has been supported by reduced cracker operating rates, implemented since November/December, and as a result, reduced pyrolysis gasoline and benzene production has forced a number of benzene traders to short-cover.
The resulting rise in January benzene represented a cost-push which also brought styrene and polystyrene consumers out to replenish dry stock levels and pre-buy in anticipation of higher prices in February.
However a change in sentiment was not on the cards and sources suggested that the rise in demand was linked to the upstream cost-push and pre-buying tactics in anticipation of higher styrene prices in February rather than an increase in demand further down the chain.
"Around 80% of demand is due to an anticipation of higher prices," a styrenics producer said.
This meant that consumers were being cautious and only buying on a "hand-to-mouth" basis.
This was the outcome of the weak economic cycle and the fallout from the failure to resolve the euro crisis.
One polystyrene converter said that, if the rise in February is more than the Eur40-50/mt increase it expects or a triple-digit hike materializes "it will surely be a disaster."
"In December stocks were empty and in January everyone must buy; the question is how much. I think that consumers will fill inventories now rather than in February," the polystyrene converter said.
Ethyl-benzene styrene monomer is polymerized to produce polystyrene plastic and ABS.
The polymer is used to produce packaging, roof insulation products while styrene is also used, along with butadiene and acrylic to make ABS. ABS is used in the production of consumer products such as household appliances, power-tools, interior car parts and toys.
