SM-naphtha spread fall to a two month low in Asia

22-Sep-11

The spread between styrene monomer and feedstock naphtha has shrunk to US$453/mt, the lowest level since July 13 due to falling SM prices and relatively stable naphtha, as per Platts. The spread has seen reduction of US$155.75/mt (25.6%), since its peak so far this year on August 5. SM prices have fallen US$64.50/mt (12.5%) since September 12, after SM prices in Europe and the US weakened and arbitrage windows opened into Asia. SM was last assessed Wednesday at US$1407/mt FOB Korea and naphtha at US$954/mt CFR Japan. Asian markets responded negatively on Thursday after the US Federal Open Market Committee's announcement on monetary policy pointed to weak economic growth amid weakening crude prices. The bid for SM cargoes to load in November was at US$1370/mt FOB Korea vs offers at US$1380/mt FOB Korea. No buyers were seen in China's domestic market amid extremely poor demand for the upcoming season from construction, automotive and export sectors. Integrated producers of SM typically require a spread of US$400-450/mt to naphtha to produce with a profit, sources said, but this may vary between producers. Some producers claim the breakeven level is now closer to US$500/mt due to firm energy prices, which have increased the general cost of production. However, other producers typically look at the spread between SM and benzene and ethylene, and margins there still look quite good. SM is made up of roughly 80% benzene and 30% ethylene. Producers typically require a spread of US$250/mt or more between SM and benzene, and the spread was at US$333/mt Wednesday. The spread to ethylene was at US$304/mt the same day. Adding a conversion cost of US$150/mt, that gives a rough breakeven price for SM at US$1318.30/mt, and a profit of US$88.70/mt.