From mid-late February to early March, the Jiangsu styrene market was glued with emptiness, and the situation of rigid consolidation was throughout. The reason why the post-festival market has stepped out of the stalemate is the result of the interweaving of many factors, such as peripheral factors, upstream and downstream factors, as well as the level of supply and demand of products themselves. And up to now, many factors are still intertwined and the situation is still sticky. The following is a summary of the basic factors:
Bulk commodities
Strong commodities boost confidence in the industry. After the festival, the black systems represented by threads, iron ore and coke, and the chemical systems represented by L, PP and methanol have gone strongly along the whole line. Peripheral strength, the market support for styrene is obvious, bulls take advantage of the momentum to boost.
Stock index synchronization trend is strong. In January, the Shanghai Stock Exchange Index rose rapidly from 2584.57 at the end of January to 3079.5, up 19.1%; the Dow Jones Index rose from 24837 to 26241, up 5.7%.
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Raw material Market
Crude Oil: Continued production cuts in the producing countries and instability in Venezuela have tightened supply together. After the festival, the crude oil market has maintained a volatile upward trend. The Sino-US trade negotiations are progressing smoothly and the global stock market is stabilizing. The industry is optimistic about future demand. By March 5, crude oil WTI and Brent increased by 5.2% and 6.4% respectively compared with the end of January.
Pure benzene and ethylene rebound synchronously, and the production cost rises. Comparing with the end of January, ethylene CFR in Northeast Asia rose to $119, 124, or 11.2%, due to the combined effect of planned or unplanned parking and maintenance of cracking plants in Europe and Korea and batch purchasing of domestic styrene manufacturers. Many domestic styrene units were centralized overhaul, and pure styrene FOB rose slightly slowly in Korea at 8.1%.
Supply and demand level of styrene
Pure benzene and ethylene both rose, and the production cost of styrene rebounded. As of March 5, compared with the end of January, the cost of domestic non-monomerized styrene producers increased by 4%, because domestic spot prices fell during the same period, profits fell by 36%.
The plant started smoothly and profitably. In 2019, the domestic styrene industry maintained high output and high start-up rate. In February, domestic styrene production increased by 2.1% compared with January, and the start-up rate increased by 1.9 percentage points.
In January, imports of styrene reached an all-time high. In January 2019, China imported 395,400 tons of styrene, which was 18% higher than the previous month and 50.7% higher than the same period last year.
East China’s main port stock has repeatedly reached a new high, the mainstream reservoir tank capacity is tight. As of March 6, the stock of styrene in East China main port was 345,500, which was 124.7% higher than that at the end of December 2018 and 246.9% higher than that at the same time last year.
Looking at the inventory data of East China’s main ports over the years, the inventory in 2019 has repeatedly reached an all-time high. Inventory factors have become the biggest negative factor in the heavy market.
Downstream industry
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Influenced by the Spring Festival holidays, except SBS industry, the start-up rate of main downstream industries of styrene dropped, among which EPS and PS decreased by 14% and 22%.
The main downstream industry of styrene maintained high profits. From January to February, the profit of EPS industry was high at 900 yuan/ton, low at 350 yuan/ton, and the average monthly level was 744 yuan/ton and 595 yuan/ton respectively; the profit of PS industry was high at 1845 yuan/ton, low at 1040 yuan/ton, and the average monthly level was 1586 yuan/ton and 1189 yuan/ton respectively; the profit of ABS industry was high at 1677 yuan/ton, low at 1100 yuan/ton, and the average monthly level was 1379 yuan/ton and 1179 yuan/ton respectively.
In early March, following the trend of commodities, Jiangsu futures spot market rebounded, stimulated by the decline of inventory in East China’s main port and the good news of the two sessions. Influenced by the buying-up-not-buying-down mentality, EPS manufacturer’s orders have been scaled up accordingly. The market trend in the second half of the year still needs to pay attention to the following aspects:
1. The change of commodity trend will directly influence the mentality of the industry.
2. The demand development of the main downstream industries and the degree of de-inventory of the main ports in East China will directly determine the supply and demand fundamentals.
3. The trend of crude oil, pure styrene and ethylene, and the change of cost will affect the mentality of the industry on the one hand, and on the other hand, determine the start-up situation of domestic styrene industry.
4. The intention of the main funds. Such a high spot inventory and slow liquidity are a double test for the main capital and the reservoir area. Whether the two can withstand the pressure and wait for the real inflection point to come remains to be seen.
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