On Tuesday, the CFR China price of SM rose $18/mt day on day to $1,686.50/mt while the domestic price of prompt SM cargoes in East China inched up Yuan 50/mt ($6.80/mt) to Yuan 11,950/mt, or around $1,632.10/mt on an import parity basis. As the domestic price is based on a prompt market and the CFR China price reflects first- and second-half of January delivery cargoes, the spread shows a tighter market ahead. The widening contango between January and February indicated the same trend.
The last time the gap between the CFR China price and domestic price was wider was on March 13 at $55.10/mt, and the widest gap so far this year was on February 18 at $67.70/mt.
"These days the [CFR China] SM price follows the trend in benzene, and also the expectation of tight SM supply during the turnaround season [starting from February-March next year]," was pushing SM import prices higher, a trader said Wednesday, adding that "the prompt [domestic] market is not tight owing to slow demand at the end of the year."
As many as eight SM plants in Northeast Asia are expected to shut for turnarounds in the first quarter of next year, mostly in Japan, but also in China, Taiwan and South Korea.
Several other maintenance shutdowns will follow in the second quarter and later in the year, and traders seem to be taking long positions for February-March with the contango between January and February widening $10/mt day on day to $19/mt on Tuesday.
One trader said the recent price increase in SM was caused by the "benzene [price] jump plus [the expectation] of increased demand after the Lunar New Year holidays."
From the start of November at $1,227/mt FOB Korea, benzene has risen 8.7% to $1,334/mt FOB Korea on Tuesday. Over the same period the SM/benzene spread -- an important measurement of profitability for producers of SM -- has narrowed from $388/mt to $325.50/mt, shrinking 16.1%.
Asian benzene has been driven up by firm prices in Europe and the US even though the end of the year typically is the low demand season for SM in Northeast Asia with expandable polystyrene and other downstream producers lowering operating rates during the winter season. It is also typical to see a build in SM inventory levels in China around the Lunar New Year holiday period, which next year will take place in late January and early February.
