Viewpoint: US benzene, styrene could be more volatile

US styrene and benzene markets could see more volatility in early 2020 as falling styrene margins through most of 2019 curbed export contracts.

US traders have shied away from renewing styrene contracts with US producers, particularly on a cost-plus basis, as styrene margins are expected to be below 2018-19 levels throughout 2020.

Global supply increases, particularly in China, are the main driver for lower styrene prices, lower margins and a 2020 expectation for narrower spreads over benzene.

Two world-scale styrene plants are set to begin operations in China in the first quarter. Zhejian Petrochemical is starting up a 1.2mn t/yr styrene unit and Hengli is starting up a 720,000 t/yr unit.

Anticipation of the new production has pushed Asian styrene buyers in the fourth quarter to crimp forward purchases from European and US suppliers and to maintain lower inventories. The inventory drawdowns in China have exposed those end users to volatility if Chinese plants are delayed in starting up, which could produce a stronger-than-expected first quarter for US styrene producers.

In the US, inventories are being seasonally curtailed to reduce year-end ad valorem taxes, and several units will be down for turnarounds in the first half of 2020.

US spot styrene prices in mid-November dropped to the lowest in more than 10 years and moved even lower in early December. The styrene to benzene spread fell by more than $500/t from late March to mid-June — with margins turning negative on paper at their lowest — and did not climb above $200/t for the rest of the year.

Year-to-date through mid-December, the averagespot styrene spread over spot benzene has dropped by more than $200/t, or 45pc, from the same period a year earlier.

US domestic styrene has been pressured by weaker demand, as regulatory pressures push consumers to consume less single-use plastic, a major market for polystyrene (PS).

Demand for styrene-butadiene rubber (SBR) also declined in 2019 and is not expected to rebound in 2020, as automotive demand remains weak amid ongoing trade conflicts.

Spot benzene prices also could see increased volatility amid potentially tighter 2020 supply. Asian paraxylene (PX) producers are expected to cut operating rates in an effort to boost margins, which would create less benzene as a byproduct available for export to the US. US benzene production from selective toluene disproportionation (STDP) units could remain below levels seen from 2016 to 2018.

Gasoline blending demand for toluene could be stronger in 2020, driven by refineries producing more low-sulphur bunker fuel in response to regulations from the International Maritime Organization (IMO) that go into effect 1 January. If the IMO regulations tighten the octane market, as some are expecting, more toluene would be needed for gasoline blending.

That could tighten availability of toluene, or push spot prices high enough to keep margins at STDP units negative, thus curbing benzene supply.

By John Dietrich