European polystyrene producers were on course to accept lower May prices and, as a result, see margin erosion on a combination of lengthening supply, a stronger euro and more imports from Asia, producer sources reported Monday.
Producers at the start of the month posted May general-purpose PS contract price nominations with a range of Eur30-50/mt. With one producer seeking Eur30/mt ($26.26/mt) this became the de facto reference target for May. But a number of sellers have since reduced their offers, with one producer settling some May contracts at an increase of Eur20/mt.
This implies that it would have to swallow a margin of around Eur15/mt, after the May styrene contract price settled at Eur1,276/mt, an increase of Eur35/mt above April.
One producer said it expected May average contracts to settle at around Eur1,460/mt FD NWE. April net contracts were assessed by Platts at $1,450-1,460/mt FD NWE.
"The market has turned. [Supply] balances are different than Q1. The market is turning into a longish, buyer's market," said one producer.
"Producer stocks [have been] running up a few thousand tonnes since the start of the year. By the end of April [the level] was the highest it has been for a couple of years," the producer said.
Sources pointed to industry statistics published that showed that by April stocks had grown from an average of 15-16 days' worth to around 25-26 days since the start of the year.
Some industry sources said other producers had allowed production to overrun because of an overestimation that supply would be short.
"We've had to restrict and control stocks. Our stocks are well below average, but this is clearly not the case for others," one producer source said.
Sources said the supply situation was baffling, given that demand was described as healthy and better compared to 2010.
"Demand is OK -- it is not causing too many problems," the producer said.
"Demand has increased by 4.5% since last year, even if we take into account imports," a second producer said.
A third producer explained that compared to last year, when supplies were unusually and extremely tight because of a number of unscheduled shutdowns, 2011 was likely to be better balanced while with new capacity additions in the second quarter, this was always expected to see some additional polystyrene length.
"In 2010, a number of shutdowns took place and we recognized that there would not be the same number of shutdowns in 2011. Polimeri has also added another line and the market is not as strong as of late," the third producer said.
Polimeri started production at its new 85,000 mt/year general-purpose polystyrene line at its Mantova, Italy, site in the first quarter.
"There are also lower exports, partly due to the stronger euro, recently. Turkey is considered an export market (and because of the euro) Turkey and Africa demand has fallen, as well as the political situation affecting Libya. They are not importing a lot of polystyrene," the third producer said.
Sources also pointed to "lower-priced" polystyrene coming to Europe from Asia.
"These are all a number of factors that go into the making of a weaker export market, so I'm not that optimistic in terms of [May] pricing. "We could get at best a Eur30/mt, I'd be pleased. I would expect less than Eur1,500/mt [for net May contract prices]," the third producer said.
However, one converter said it was optimistic of achieving lower May prices. I don't believe in an increase of Eur20/mt, I will push for a rollover in crystal [GPPS]," the converter said.
