Styrene (EB) futures landed in Dalian Commodity Exchange on September 26. The benchmark price for listing was 8000 yuan / ton. Before the National Day holiday, the price of styrene futures had gone up more than 8000 yuan / ton, and then began to fall sharply.
As for the sharp drop of styrene price since the listing, we think there are three main reasons: first, under the expectation of new production capacity, the long-term is pessimistic, and the era of high profit of styrene will end. Second, styrene port inventory is expected. Third, the price of raw materials ethylene and pure benzene has declined, which gives styrene a room to decline.
For the future operation, in the case that the crude oil price does not rise sharply, based on the styrene production capacity input and the port accumulation expectation, we believe that the styrene price is easy to fall and hard to rise, with more single risks. In the later stage, the bottom of styrene or its cost line, it is recommended to rebound and short in operation.
| Azodicarbonamide (AC foaming Agent) |
I. The futures price keeps falling
The benchmark price of styrene listed on the market is 8000 yuan / ton. Since the listing, the highest price of styrene has risen to 8160 yuan / ton, and the lowest price is 7409 yuan / ton, with a price difference of 751. From the perspective of position, as new varieties become more and more active, under the short position increase, styrene price center of gravity is constantly moving down.
II. 2020 – the year of styrene production capacity
In 2020, the supply and demand pressure of styrene will be prominent, and the price will be under pressure in the medium and long term. According to our statistics on the new capacity input in the downstream of styrene and the estimated consumption of styrene, the demand for styrene is relatively insufficient. It is expected that styrene will gradually bear pressure with the input of styrene capacity.
By the end of 2020, it is expected that China’s downstream production capacity of 3.52 million tons will be released, corresponding to the consumption of styrene of 2.8123 million tons. At the same time, 6.012 million tons of styrene capacity will be put into production, which is theoretically surplus. Although the excess capacity can replace some imports, it means that the competition between domestic and foreign sources of goods will be more intense, and the price of styrene is still under pressure.
Although styrene has a huge production capacity delivery plan, we need to be alert to the low price, and styrene production capacity delivery is not as expected. For the current main contract eb2005, the production of the styrene unit of Zhejiang Petrochemical and Hengli is relatively certain, because the two units are both private large refining projects.
III. high profit era of styrene is coming to an end
Long term pessimistic, styrene production profits continue to be compressed. According to our calculation, since 2017, the maximum profit of styrene production is 4911 yuan / ton, and the minimum is – 612 yuan / ton. At present, the main contract of styrene is eb2005. Based on the expectation that the long-term styrene capacity will enter into excess, the market is pessimistic, the spot price is obviously affected by the futures price, and the styrene production profit is constantly compressed. On the first day of listing, the styrene production profit was 1025 yuan / ton. As of October 22, the styrene production profit was compressed to 412 yuan / ton.
Cost moves down, giving the market space to sell short. The upstream of styrene corresponds to pure benzene and ethylene. Generally speaking, it needs 0.79 tons of pure benzene and 0.29 tons of ethylene to produce 1 ton of styrene. Since the listing of styrene, the price of downstream ethylene and pure benzene has also weakened due to the impact of the sharp weakening of crude oil price. As of October 23, the price of Northeast Asian ethylene was 681 US dollars / ton, and the price of pure benzene was 5650 yuan / ton, down 170 US dollars / ton and 120 yuan / ton respectively compared with the first day of listing. The cost of a significant move down, but also give the futures market enough short space. We believe that unless extreme geopolitical events take place or OPEC further deepens production reduction, it will be difficult for international crude oil to rebound significantly under the weak demand and the expectation of accumulated reserves. Corresponding to the price of ethylene and pure benzene is also difficult to strengthen, short-term cost end is difficult to give styrene enough support.
IV. no obvious improvement in demand
| EDTA |
The demand is weak, and the downstream takes the goods carefully. EPS, ABS and PS account for 70% of the downstream demand of styrene. Recently, the price of styrene has been declining one after another, and the price of EPS, ABS and PS has also been declining one after another, which shows that the current terminal demand is not strong enough, and the price of styrene downstream is weak. At present, the downstream of styrene is more cautious in taking goods and strictly controlling inventory. The demand is mainly rigid demand. In addition, 48% of the demand for EPS terminals is in the board industry, so with the coming of winter, the demand will gradually weaken. Part of styrene supply in Northeast China will flow into East China.
V. under the expectation of accumulation, the rebound of styrene price is blocked
Styrene inventory is expected. Generally speaking, the normal inventory level of styrene in East China is 80000-150000 tons. As of October 23, the inventory of styrene in East China’s main port is 101100 tons. (among them, the ships scheduled to arrive at the port on October 23 haven’t been berthed yet, so they haven’t been put into storage. ）Although the current inventory level is within the normal range, according to the statistics in Table 3, 92600 tons of cargo will arrive at the port according to the plan in the next five days. Under the condition that there are a lot of goods arriving at the port, but the downstream digestion speed is limited, there is a strong stock accumulation expectation for styrene in the future market. Under the pressure of accumulation, although the current styrene price is low, the rebound is blocked.
Vi. summary and operation suggestions
To sum up, eb2005, the main contract of styrene, is facing the following pressure: first, medium and long-term capacity supply pressure. The production of 1.2 million T / a styrene unit of Zhejiang Petrochemical Co., Ltd. and 720000 T / a styrene unit of Hengli Petrochemical Co., Ltd. is relatively certain, because the two units are both refining and chemical integration projects, and their production is more following the progress of large-scale refining and chemical industry. Second, the accumulated stock pressure at the end of the year. Based on the unremarkable demand and a large number of goods arriving at the port, styrene port has a strong stock accumulation expectation at present. The long storage time of styrene is easy to lead to the polymer content exceeding the standard, so the increase of port inventory will greatly reduce the price of styrene.
On the premise that crude oil price does not rise sharply, we don’t think there is any good news for styrene fundamentals at present. Subject to the above two pressures, styrene prices are prone to fall and difficult to rise, and it is recommended to rebound short in operation. As of October 23, the spot cost of styrene is 7253 yuan / ton. For the bottom price in the future, if there is a large accumulation of goods at the port, it is not ruled out that the price of styrene will be closer to the cost end.
Note: the spot cost of styrene is variable, so we need to pay more attention to the price of upstream crude oil, ethylene and pure benzene in the future.
| EDTA 2Na |