China’s SM Market Sees Gains Amid Low Inventories
China’s styrene monomer market recorded strong gains in September, supported by a sharp rebound in upstream benzene prices, extensive domestic production cutbacks and declining commercial inventories in East China.
Domestic production is expected to be further reduced by Anhui Haoyuan Chemical Group’s maintenance of its 260,000 metric tons per year SM plant in Fuyang, Anhui province. The plant was shut for maintenance on Sept. 26, according to industry sources.
The duration of the shutdown is unclear, with no restart date immediately available. Haoyuan also operates a 200,000 mt/year polystyrene plant at the same site, although it was not immediately clear whether downstream operations would be affected by the SM outage.
The actual production loss will depend on the duration of the outage and operating rates before the shutdown. Based on its nameplate capacity, the plant is capable of producing approximately 21,700 mt/month.
Mixed Sentiment
Elevated feedstock costs and tight prompt availability continued to underpin spot offers, while ongoing inventory drawdowns have further supported physical prices. However, sentiment remains mixed amid concerns over sluggish downstream polymer consumption during China’s week-long National Day holiday which started Thursday, severely eroding processing margins.
The combination of tight prompt supply and expectations of weaker forward demand kept the premium of prompt SM prices over forward delivery values relatively wide.
The midpoint of the OPIS domestic China SM ex-tank assessment surged 14% from 9,560 yuan/mt on Sept. 1, equivalent to $1,210/mt CFR China on an import parity basis, to 10,900 yuan/mt by Sept. 30, equivalent to $1,391/mt CFR China.
Despite some pre-holiday restocking, overall polymer sales remained lackluster during the week ended Oct. 2. Production cuts driven by negative margins temporarily offset weaker spot consumption, helping to maintain a relatively stable supply-demand balance.
Downstream Demand Could Decline
However, downstream SM demand is expected to weaken further during the National Day holiday as some polystyrene and expandable polystyrene producers temporarily suspend operations.
EPS operating rates fell into the low-40s% range and are expected to decline further amid negative production margins and holiday-related shutdowns. PS operating rates slipped marginally into the high-30s%, while acrylonitrile-butadiene-styrene operating rates hovered in the mid-50s%. Unsaturated polyester resin plant operations were estimated in the low-30s%, according to Chemical Market Analytics data.
Meanwhile, Chinese SM export activity slowed ahead of the Golden Week holiday as some overseas buyers were unable to arrange letters of credit in time to secure cargoes before the market closure.
Nevertheless, Indian buying interest remained firm as the continued closure of the Strait of Hormuz restricted the availability of Middle Eastern SM cargoes, prompting buyers to seek alternative supplies from China.
The midpoint of the OPIS FOB China SM assessment climbed 13% during September, rising from $1,305/mt on Sept. 1 to $1,475/mt by Sept. 30, reflecting firm export demand and tight spot availability.
East China commercial SM inventories fell by 8,200 mt week on week to 31,400 mt during the week ended Oct. 2, according to CMA data, underscoring the continued tightness in the physical market despite sluggish downstream consumption.
While reduced domestic production and firm export demand could continue to support SM prices, the market remains vulnerable to fluctuations in upstream energy and benzene costs. A prolonged slowdown in downstream polymer consumption during the holiday period could also limit further price gains despite the tight prompt supply situation, according to market sources.
—Reporting by Hazel Kumari, hazel.kumari@dowjones.com; Editing by Mei-Hwen Wong, mei-hwen.wong@dowjones.com