Firm ethylene, depressed SM sinks styrene monomer margins in Asia to 11 month lows

Margins for non-integrated styrene monomer producers in Asia shrank to their narrowest in 11 months at the beginning of this week due to firm feedstock ethylene and tumbling SM market amid weak demand season in the fourth quarter, as per Platts. The margin was calculated at US$78.85/mt FOB Korea below the breakeven level Monday, down US$20.80/mt from Friday. It was last narrower December 17 at minus US$97.65/mt, Platts data showed. The breakeven level is calculated using feedstock benzene and ethylene prices and a production cost of US$150/mt. The SM margin has narrowed due to tumbling SM prices, hit by bearish China domestic market in the middle of the typical off-peak season in winter. The FOB Korea SM marker fell US$30/mt from Friday to US$883.50/mt Monday, a six-week low. But the FOB Northeast Asia ethylene marker remained flat over the same period at US$1055/mt, its highest since August 11 at US$1075/mt. The FOB Korea benzene marker fell US$11.50/mt from Friday to $633/mt Monday. The Asian ethylene market has been climbing since early September, in line with tight supplies from another round of steam cracker turnarounds in the region in Q3 and Q4. In South Korea, Lotte Chemical shut its 1 mln mt/year naphtha-fed steam cracker in Daesan from October 12 to early November for annual maintenance. In Indonesia, Chandra Asri shut its 600,000 mt/year steam cracker in Anyer from late September an annual maintenance. The cracker is due to restart December 24. The strength in the Asian ethylene market accelerated in November following an emergency shutdown of Shell's steam cracker in the Netherlands. Shell shut its 910,000 mt/year steam cracker November 11 following a fire. It will take around four weeks to restart the plant. The shutdown prompted fresh supply crunch concerns as US ethylene cargoes are now seen to be moving to Europe instead of Asia. The location spread between Europe and Asia was calculated at US$71/mt Monday. Typically, traders prefer to move ethylene cargoes to Asia from the Americas if the EU-Asia location spread is more than US$100/mt. Market participants expect the SM margin to remain negative in the fourth quarter and early Q1 next year, given low seasonal demand and a flurry of US SM cargoes arriving in Asia. Many US SM producers tend to sell cargoes at the end of the year to clear out stock, a market source said. SM demand in Q4-Q1 depends on stockpiling by end-users ahead of China's Lunar New Year holiday in February, but it may not be as strong as previous years, a market source said Monday. SM demand is likely to weaken further until February, because of slower construction activity, which will exacerbate the currently sluggish downstream expandable polystyrene market, market sources said.