Recently, Platts Energy Information announced that with the successive commissioning of new facilities in China, the market fundamentals of acrylonitrile-butadiene-styrene copolymer (ABS) and polystyrene (PS) may weaken in the second half of this year.
Asia faces challenges
The limited new supply in the market supported the fundamentals of the ABS market in the first half of the year, but China’s ABS production capacity will increase by nearly 1 million tons/year in the second half of the year. While the new production capacity is about to be put into production, due to strong raw material prices and weak demand, the production profit margin has been weakened, and the capacity utilization rate of China’s existing ABS and PS devices is declining. After the newly added capacity is put into production, the capacity utilization rate may further decline.
According to customs data, China’s total PS imports will reach 1.32 million tons in 2020, but it is expected that China will add 1.17 million tons of PS capacity per year in the second half of this year. This will fill the gap between domestic supply and demand and further curb China’s demand for imported PS. Market participants predict that ABS and PS demand will return to the level before the new crown pneumonia epidemic, because the relaxation of the lockdown measures taken to prevent and control the new crown pneumonia epidemic will weaken the market demand support from food packaging and white goods. In addition, in order to reduce plastic waste, China has imposed stricter supervision on single-use plastics, and both ABS and PS markets will face challenges.
At the same time, due to the difficulty of manufacturers to ensure chip supply, the prolonged period of global chip supply shortage will expand the impact on the home appliance and automotive industries. As the situation hardly improved in the second quarter, sources expect that this type of chip shortage will continue to inhibit the demand for ABS and PS for the remainder of this year.
Market sentiment was mixed. Sources said that weak fundamentals in the Asian market may lead to a decline in profit margins, but it is expected that there will be a bullish trend in Western markets. As demand in the United States and Europe will pick up, some Asian producers that shift their focus from Asia to the deep-sea market may continue to engage in arbitrage business.
Tight supply of ABS in Europe eased
Due to extremely tight supply, concerns about the availability of acrylonitrile, and styrene monomer price fluctuations, European ABS prices hit a record high in the first half of this year. Affected by the interruption of imports, from the end of 2020 to the beginning of 2021, the supply of the European ABS market is tight. Some European market participants question whether the EU market is willing to become dependent on imported materials again, especially when EU production capacity will increase in the second half of 2021.
It is reported that after the maintenance of the Versalis factory in Mantua, Italy, more production capacity is expected to go online in the fourth quarter of this year. Versalis previously announced plans to increase the ABS production capacity of the Mantua plant by 30,000 tons per year. The European ABS market is also waiting for the official commissioning of Ineos Styrolution’s ABS production facility in Wangle, France, which is designed to produce 50,000 tons of ABS per year.
European PS terminal consumption is weak
In the second half of 2021, the European PS market is expected to be more stable. The European PS market prices fluctuated greatly in the first half of this year, mainly because the prices of raw materials styrene and benzene soared. The soaring price of raw materials has forced European PS producers to lower the operating rate of their installations, which has had a greater impact on non-integrated producers in particular.
The key upstream raw material problem in the European PS market is expected to be resolved in the summer, which is expected to lead to more stable prices and an increase in PS production. In addition, the increase in styrene capacity in Asia should increase the supply of the global styrene market.
In the field of terminal consumption, the construction industry is expected to continue to be affected by the uncertainty of the new crown pneumonia epidemic and material restrictions in other industries. This impact will continue until the end of this year, which will be fed back to the European PS market. For general-purpose polystyrene (GPPS) and high-impact polystyrene (HIPS), the lockdown measures taken by governments during the new crown pneumonia epidemic has led to a surge in consumer spending on white goods, electronic products and related packaging. However, this trend is expected to gradually weaken as economic activity resumes its vitality.
North America’s demand for styrene derivatives sees increasing
In the second half of the year, demand for styrene derivatives in North America is expected to become strong. As costs are expected to fall in the third quarter, buying interest in the US PS market will continue to be strong. In the first half of this year, the cost of PS production in the United States soared because of the tight supply in the benzene market, which caused prices to soar in May. The increase in raw material prices was passed on to downstream products. With the easing of benzene supply restrictions, this situation is expected to ease in the second half of this year.
The rapid advancement of the US vaccination program will support the PS market. The outlook for ABS is similar. Market sources pointed out that the recovery of the auto market in the fourth quarter is a key factor. The overall growth of the styrene derivatives market is expected to be closely related to North America’s economic recovery and consumer spending. In the first quarter, US GDP grew by 6.4%. Some people’s views on the annual growth rate also show a similar ratio, but inflationary pressures and a weak job market may affect the second half of the year.
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