The spread between styrene monomer and its feedstock ethylene in Asia surpassed $500/mt for the first time Monday to hit a record high of $504/mt, Platts data showed, with the SM market continuing on its bullish streak due to tight supplies in the region.
The last record high for the SM-ethylene spread was on July 11, when it stood at $499/mt, according to Platts data which goes back to January 2004.
A South Korean SM producer said he has never seen such margins before, adding that his company's plant was running at full capacity.
"Margins are quite good. The [SM] supply is tight until September," the source said.
SM consists of about 30% ethylene and roughly 70-80% benzene.
The rallying SM market also caused the SM-benzene to reach a new record high of $542.50/mt on Monday, surpassing the previous high of $536.50 seen just last Friday. This is also sharply higher than the average SM-benzene spread of $250/mt seen in 2012, which is also considered the typical breakeven level for SM producers.
SM rose $8/mt from Friday to close at $1,779/mt FOB Korea Monday, while ethylene was unchanged at $1,275/mt CFR Northeast Asia and benzene fell $2/mt to $1,236.50/mt FOB Korea.
Based on the latest feedstock prices and a conversion cost of about $150/mt, the breakeven price of SM should be around $1,497/mt FOB Korea on Monday, $282/mt below Monday's close of 1,779/mt FOB Korea.
The main reason for the firm SM market this year has been the unusually large number of scheduled turnarounds in the first half of the year, coupled with some unexpected outages -- which has kept regional supply tight and inventory levels low in key consumer China.
SM stocks in East China fell about 15,000 mt week on week to 51,000 mt July 12, the lowest level since the first week of January, according to Platts data. In comparison, the average inventory level in 2012 was 87,302 mt.
Meanwhile, Asian ethylene spot prices have broadly been on an uptrend since early May, largely due to strength in the feedstock naphtha market as well as healthy downstream demand from SM, the polyvinyl chloride chain and monoethylene glycol.
The rise in ethylene prices has lagged the rally in the SM market so far this year, but Asian steam cracker margins coming under pressure from a very bearish butadiene market, there is impetus for ethylene prices to rise further to keep margins supported, market sources said.
"Naphtha prices are still rising while butadiene prices keep falling, and it is below naphtha now," said an ethylene producer. "If ethylene goes down too, cracker rates will have to fall."
Naphtha closed $7/mt higher on Monday at $913.13/mt CFR Japan, while butadiene slid $5/mt to $825/mt FOB Korea. Since the beginning of June, the butadiene spot price has dived by $600/mt or 42%.
