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Insight | Time: Jan 19 2020 4:27PM
Styrene margins remain negative on firmer feedstock and weak fundamentals
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Styrene market remained fluctuating in the first half of January on weak fundamentals, although the market could find some supports from firmer oil prices. SM margins remained negative with the increase in upstream benzene and ethylene prices. In January, many Asian naphtha stream cracker cut rate due to poor margins, resulting in less ethylene production. Meanwhile, pygas-fed benzene output also decrease in the regions. And in East China, benzene inventory was quite low. Therefore, ethylene and benzene both moved upward.

By January, East China SM cash flow was at minus 391yuan/mt, increased by around 31yuan/mt from minus 422yuan/mt on January 9.

Market focus recently was mainly on the supply side, including the operating rate and the commissioning of new units. Despite the poor margins, operating rate of SM units in China was still high. Domestic supply increased with the restarts of Shandong Yuhuang and Jiangsu New Solar.

Inventory in East China also recovered since late November 2019. Tank inventory in East China main ports increased by 15.5kt week on week to 164kt on Jan 15. About 31.5kt cargoes arrived and 16kt consumed. Commercial inventory, known as the inventory held by traders, was 108.9kt.

In terms of new capacities, Hengli Petrochemical started commissioning at its 720kt/year SM unit in mid-January. Zhejiang Petroleum & Chemical has achieved on-specification ethylbenzene and started commissioning at its SM unit. ZPC has the nameplate capacity to produce 1.2 million mt/year of styrene. The company has started its 2# reformer and was expected to get aromatic products soon.

In demand side, with the Chinese New Year approaching, demand from downstream sectors was weakening. Many expandable polystyrene plants shut down units. Coupled with commissioning of Hengli and ZPC, most market players adopted a wait-and-see stance.

Styrene market is likely to keep fluctuating in weakness. Eyes could rest on the commissioning of new units and impact of negative cash flow on operations.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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