The Northwest European Styrene Monomer/Benzene Spread Almost Tripled in a Month

The Northwest European styrene monomer/benzene spread has almost tripled in a month, widening $177.50/mt to $276.50/mt Wednesday, Platts data showed. 

The spread was $99/mt on December 17. 

While styrene spot values have declined $47.50/mt to $1,688.50/mt FOB ARA since the start of 2013, benzene spot prices have simultaneously sunk $110/mt or 7.2% to $1,412/mt CIF ARA Wednesday. 

Significant increases in the spread were attributed to diverging market fundamentals. Benzene spot prices came under pressure from lengthier supplies amid a closed arbitrage window in the US and relatively low downstream operating rates at the start of the year, whilst styrene values were supported by expectations of extremely tight supplies from the end of February on the back of a very heavy turnaround season in 2013. 

According to market participants, Shell will be shutting its 450,000 mt/year styrene plant at Moerdijk in March for six weeks, Styrolution will shut its 500,000 mt/year styrene plant at Antwerp for two months, LyondellBasell will shut its 640,000 mt/year styrene plant at Maasvlakte for six weeks and Repsol plans to shut its 450,000 mt/year Tarragona styrene plant for 40 days. 

Although spot trade in styrene has fallen in January it has relatively strengthened against benzene, with traders actively trying to roll prompt length forward and build inventory. 

"It is all in the air but no one wants to be without styrene in February and March," said a trader. "It's [recent trades] mostly rolling by traders, people want their length to be in March/April, that is the whole game." 

Some market players say that the styrene/benzene delta is far from reflecting the turnaround season, although to a certain degree it has been priced in. 

Whilst there were bold predictions that the styrene/benzene spread would rise to an average $400-500/mt this year on what appeared to be diverging fundamentals between the two products, others were less certain. 

With four major styrene plants out on maintenance this year, with an estimated 258,000 mt of styrene impacted by the turnarounds, a surplus of up to 204,000 mt of benzene could result from that, market sources say. 

"But what people forget to see is that the cracker maintenances [are] on at the same time, so less people are making benzene and it will be balanced," said a source. "There will not be that much benzene floating around." 

According to industry sources, typically, major producers and end-users have around 25,000-30,000 mt in storage capacity, that would allow them to keep enough inventory for 30-40 days. 

Whilst some market participants said that styrene prices began the year at untenably high levels, that threatened demand destruction, what continued to keep sentiment afloat was expectations that producers going out on maintenance would need to come to the spot market to cover some product. 

"Producers can only build so much inventory," said a source. "Would they take the price risk from December to January? A one month outage is around 40,000 mt, and that is at least $60 million and with a $100/mt drop in styrene prices now, essentially means they will lose $4 million. Who would carry so much inventory in this volatility?" 

In addition, it was likely that these producers would be covering their internal shortages through their own global supply chain systems. 

"Shell will be bringing in from the Middle East, LyondellBasell from the US, they will not be relying on traders to cover as they are primarily contract sellers, not spot players," said a source. Sources add that those producers going out on maintenance this year could possibly do a product swap to cover one another in times of shortages as well.