Polystyrene under pressure in Asia as users prefer cheaper alternative

The Asian polystyrene market has come under pressure in recent months as an increasing number of coal-to-olefins plants started up in China inundating the market with cheap polypropylene; an alternative to PS, as per Platts. The spread between the CFR China general-purpose polystyrene and CFR Far East Asia PP injection grade hit a five-week high of US$149/mt on Tuesday, due to record low PP prices. GPPS can be substituted with PP, and both are mainly used in the manufacturing of common plastic products like disposable supplies, toys, and CD cases. Typically, when the CFR spread between GPPS and PP reaches around US$100-$150/mt, downstream manufacturers consider changing their feedstock from GPPS to PP, said market sources. "Coal-to-olefins [propylene] is coming from North China to East China and South China, creating a supply glut in the local markets," said a China-based polymer trader. CTO-linked PP injection cargoes are estimated to be priced about Yuan 200/mt below Sinopec's naphtha cracker-linked PP cargoes, an industry source said. Because of this supply glut from CTO plants, the price for propylene -- feedstock for polypropylene -- has been falling. China has seen about 1.3 mln tpa of new PP capacity come online this year, most of which are CTO/methanol-to-olefins based. These include Ningxia Baofeng Energy Group's PP plant at Ningdong with a capacity of 300,000 mt/year; PuCheng Clean Energy Chemical's 400,000 mt/year plant at Weinan City; and Shandong Shenda Chemical's 200,000 mt/year plant at Tengzhou. As such, first-half 2016 is expected to see current lackluster demand and oversupply from North China CTOs continue. "Demand growth still happening but capacity addition is faster," said a trader. Many new CTO/MTO-linked integrated PP plants are expected to be started up as well. In addition to the 1.3 million mt/year capacity that was added this year, another 1.3 million mt/year may be completed by early 2016, sources said. As cheap PP flooded the Chinese market, end-users shunned the more expensive alternative PS, putting it under pressure. Market participants expect the Asian GPPS market to come under further pressure in 2016 with new startups and a weak manufacturing sector in China. PS supply is set to increase in 2016 adding to the bearish outlook for the market, with 160,000 mt/year of new capacity expected to come onstream, in tandem with on-going new PP expansions. Volatile upstream styrene monomer was also a cause of concern for the downstream PS market.