The global macroeconomic situation has been volatile, with commercial banks facing challenges due to the Federal Reserve's consecutive interest rate hikes and crude oil prices continuously declining. Consequently, the styrene futures market has witnessed a downward trend, breaking through support levels, but downstream demand has boosted trading volumes at lower prices. Port deliveries have picked up pace due to the gradual improvement of downstream demand and accelerated commissioning of new equipment. Amidst domestic integrated unit maintenance, port inventories have slightly decreased, leading to a slight improvement in the fundamentals of styrene.
In recent years, although the annual growth rate of domestic styrene production has been consistently above 10%, there has been no increase in the capacity of hazardous chemical tanks at ports, leading to high costs for storage and transportation of hazardous chemicals. In 2023, with the significant increase in downstream production, liquid hazardous chemicals will be transformed into solid particles for convenient storage and transportation.
In the first quarter, downstream styrene production is concentrated in ABS and PS equipment, with relatively few EPS equipment commissioned. However, PS equipment in production mainly replaces EPS products used in real estate, to some extent affecting EPS production. In the process of transforming liquid styrene products into downstream solid particle materials, demand for styrene is gradually increasing, leading to increased competition in downstream imports.
From a comparison of cash flows between upstream and downstream, the styrene industry's cash flow has not deteriorated significantly over the past two years. However, there has been a slight improvement compared to 2022. On the other hand, the downstream cash flow has gradually declined since last year, particularly in the ABS industry, with profits accelerating to a loss.
Therefore, as downstream production accelerates in the future, the elasticity of profits in the styrene industry will be significantly greater than that of the downstream industry. In addition to pure benzene hedging against styrene futures, there will also be a gradual shift towards EPS/PS spot hedging. In the context of the styrene industry's large investment cycle, the focus of bearish positions on styrene will gradually shift to downstream products.
