Styrene manufacturers are struggling on the brink of profitability

Thread Content

Since March, driven by rising oil prices, the styrene market has maintained a strong performance trend; it quickly surpassed the 10,000 yuan per ton mark from its level of 8,900 yuan at the beginning of the month, reaching a new high for the year. The current average price in the styrene market is 9,462.5 yuan. “Although the price of styrene remains high, it is not enough to offset cost pressures. Coupled with the impact of the pandemic, which has led to difficulties in shipping and weakened demand, most styrene producers are struggling to stay at break-even, especially those with non-integrated production facilities that are facing significant challenges. Given factors such as expected easing in supply and weakening demand from key downstream sectors, it is anticipated that non-integrated plant operators will continue to struggle to avoid losses in the short term. ”Analyst Wang Chunling from Zhongyu Information analyzed. Rising cost pressures: \"Although the average price of styrene reached a high level this year in March, due to cost pressures, we incurred a theoretical loss of nearly 600 yuan per ton of product.\" ”Zhang Ming, the head of a styrene production company in East China that sources raw materials from outside, said that the company not only faces cost pressures but is also affected by declining demand; currently, the profitability of its production facilities is about 268.05% lower than it was at the end of last year. Recently, driven by the generally strong oil prices, the markets for the two key raw materials used in styrene production – ethylene and pure benzene – have performed well, with their prices reaching new highs for the year. On April 12, the average price in the ethylene market was 1,573.25 yuan, representing a increase of 26.34% compared to the beginning of the year. As for pure benzene, the market price saw a significant rise starting from early March; by April 12, the average price was 8,410 yuan, an increase of 16.32% compared to the beginning of the year. However, the current average price in the styrene market has risen by only 12.65% compared to the beginning of the year, which is far lower than the increases in the prices of the raw materials ethylene and benzene. “For non-integrated plants that rely on external supplies of raw materials such as pure benzene and ethylene, the upward trend in the price of styrene products is not sufficient to offset rising costs, thereby eroding profit margins. ”According to Wang Laifu, an analyst at Hongye Futures, the gross profit of non-integrated facilities in East China currently remains around -693, which is double the loss level observed in January and February. “Although the price of styrene is rising, most styrene producers are struggling to stay at break-even, with those operating non-integrated facilities facing particular difficulties. ”Wang Laifu said. Given the expectation of loose supply conditions, and based on the assumption that new production capacity will be released in large amounts this year, the industry as a whole holds a relatively pessimistic view regarding the possibility of breaking out of a loss-making situation in the future. According to statistics, in 2021, China added 2.67 million tons per year of new styrene production capacity, and a large amount of this additional capacity was put into use this year as well. As of the end of March, the production capacities of Yantai Wanhua at 650,000 tons per year, Zhenli at 630,000 tons per year, and Shandong Lihua Yi at 720,000 tons per year had been brought online. Additionally, three more production units belonging to Maoming Petrochemical, Luoyang Petrochemical, and Tianjin Dagu are scheduled to come online in the second quarter, with a combined capacity of 990,000 tons per year. It is estimated that about 3.55 million tons per year of new styrene production capacity will be added in the first three quarters of this year, which already exceeds the annual new capacity of 880,000 tons per year in 2021. Therefore, the supply-side pressure for styrene this year is likely to be greater than last year. “Although many styrene plants began to shut down for maintenance in the second half of Q1 due to losses, most of them remained shut down only until mid-to-late April. ”According to Wang Chunling, as April arrived, the 650,000 tons per year maintenance unit at SAIKO was restarted, and the operating rate of the styrene industry has risen from 74.5% in late March to 75.9% at present. In the later stage, multiple production units that have been shut down for maintenance, such as those in Hebei Shengteng and Shandong Huaxing, will be restarted one after another, and it is expected that the operational rate will increase further. On an annual basis, the supply side of styrene is likely to remain ample, failing to provide strong support for the market. The key downstream markets are all showing weakness. \"Due to the sporadic outbreaks of the pandemic in China, the distribution of styrene’s three main downstream products – expanded polystyrene (EPS), polystyrene (PS), and acrylonitrile-butadiene-styrene terpolymer (ABS) – has been hindered, resulting in an increase in product inventories.\" As a result, downstream factories are less willing to operate, with their utilization rates generally declining, which makes it difficult to boost demand for styrene. ”Wang Laifu analyzed. In terms of EPS, the current price for ordinary material in East China is 11,050 yuan. The inventory levels of sample companies within the country remain at a relatively high level of 26,300 tons, while the operating rate has dropped to 38.87%, which is a significant decrease compared to around 55% at the beginning of the quarter. Regarding PS, the current price in the Yuyao area is 10,600 yuan. The inventory of finished products at sample companies has increased once again since March, reaching 97,800 tons, while the operating rate has dropped to 65.94%, a significant decline compared to around 75% at the start of the quarter. Regarding ABS, the current price for 757K in East China is 15,100 yuan. The inventory levels of finished products at the sample companies remain stable at 190,000 tons, following the slight reduction in inventory in February; meanwhile, the operating rate has dropped slightly to 87.4%. Overall, a turning point in the domestic epidemic situation has not yet been reached; transportation and logistics are struggling to recover in a short time, and demand for styrene in downstream industries is weak, failing to keep up with the rise in energy costs. With the expectation of resumed operations of maintenance facilities and the commissioning of new production capacity, it is unlikely that the average price of styrene in the market will return above 10,000 yuan per unit, and it will also be difficult for manufacturers to see an improvement in their profit levels in the short term.