2023 Global Market Outlook: Aromatics
Introduction
After a year dominated by wild swings in natural gas and energy costs, spiking demand for octanes for gasoline blending, and a troubled post-COVID recovery, global aromatics markets face ongoing turbulence and pressures heading into 2023. In the global benzene, paraxylene and styrene markets, macroeconomic factors, ongoing cost volatility and weak downstream demand will maintain constraints on consumption in the near term. Supply should eventually rebalance after limping to the end of the year, with many units operating at drastically reduced levels, and others outright shutting down or closing permanently. Structural changes to costs in Europe, continuing fallout from the COVID-19 pandemic in China, wounded consumer confidence, and ongoing capacity growth in Asia suggest oversupplied conditions persist into the new year. The hope is that once the supply chain right sizes its inventories and economies stabilize, the second half of 2023 will be better.
Analyst overview
The aromatics markets, from a demand perspective in North America, are very depressed. However, supply is lagging because the octane market is very short, and refiners and blenders are starving the chemicals market of toluene and xylenes. These aromatics have a low vapor pressure and high octane. The latter is of great interest because the dearth of light naphtha in the market is being blended into gasoline. Naphtha is a terrible gasoline blendstock; toluene and xylenes help offset the higher naphtha volumes. These dynamics are expected to last for most of 2023, keeping aromatics volumes for petrochemicals in check while supporting prices.
Benzene is slightly different in that gasoline has a maximum benzene content of 0.62 percent. Also, benzene imports account for about 20 to 25 percent of North America’s supply. Even with demand very poor, imports are still required to meet tepid demand, and Northeast Asia is the primary supplier. Demand for benzene has been weak as its leading derivatives, styrene, cumene/phenol, and cyclohexane, are teetering due to the weak economy. Styrene is suffering even more, with exports vulnerable due to global over-supply. It is worth mentioning benzene demand would be even worse if not for cumene and ethylbenzene blended into gasoline. Nevertheless, benzene prices have been very low relative to energy, and we believe that benzene prices will be somewhat supported as long as oil prices stay elevated.
The styrene industry in 2022 went through a very extended maintenance period which was only exacerbated by unplanned outages. Heading into 2023, we have only been able to confirm one planned maintenance outage that could even be delayed with the weak market. The critical point is that styrene supply will be plentiful, even if producers are sprinkled with unplanned outages. North American producers are fortunate in that the low ethylene prices, relative to other regions, and low energy prices, result in a healthy styrene production cost advantage. This will allow some US styrene exports to flow, with Europe and South America as primary destinations. Historically, Asia would have provided an outlet, but that is no longer the case with all the new world-scale plants commissioned in China. And there is more to come. In summary, North American styrene operating rates should be relatively low in 2023, with lower margins, and we could see plants temporarily idled due to poor market conditions.
Author:
Alex joined Chemical Data (acquired by ICIS July 2020) as a Vice President in August of 2018. Alex has 30 years of chemical industry experience with much of his career in research and consulting. He contributes the styrene, polystyrene and aromatics sections to Chemical Data’s ongoing services. In addition, he applies his wide ranging background in global chemical feedstocks, olefins, aromatics and polymers. In April 2021, Alex assumed responsibilities for the global ICIS/CDI Chemical Analytics business. Alex gives executive and conference presentations providing analysis and forecasts on the chemical industry.
In his career, he has extensive global experience including two separate periods of working in London, UK, with responsibility for Greater Europe and the Middle East.
Benzene
Lower styrene demand, recessionary concerns weigh on US benzene demand
Benzene derivative demand remained soft in late Q4 '22, particularly or styrene – which had its lowest monthly contract pricing in December since February 2021 – despite running at reduced levels. Although demand has been more resilient for some smaller downstream applications, market players remain wary of recessionary headwinds for the first half of 2023.
Demand down outside of pockets for octane boosters
Downstream demand for benzene is mostly down although there are some exceptions for octane boosters.
Styrene demand remains weak at the end of 2022, even with reduced run rates. Styrene is the largest derivative of benzene, accounting for around half of benzene demand in North America.
Other derivatives, including phenol, nylon and methylene diphenyl diisocyanate (MDI) are also experiencing weak demand, with rising interest rates slowing demand for new construction projects. The construction sector is a major end-use market for phenol, MDI and nylon.
However, as low-octane naphtha continues to be blended into gasoline, demand continues for octane boosters such as cumene and ethylbenzene, even outside of traditional seasonality.
Although benzene levels that can be blended into gasoline are limited, downstream products such as ethylbenzene and cumene continue to be blended into the gasoline pool.
Demand for high octane/low Reid Vapour Pressure (RVP) blendstocks remains strong this winter, even though the winter season traditionally results in more high octane/high RVP blendstocks coming into the gasoline pool, historically resulting in weaker demand for high octane/low RVP blendstocks.
This trend is providing some support for benzene demand downstream.
US benzene import arrivals declining
In the latest trade data available in the ICIS Supply & Demand Database, South Korean benzene sent to the US declined in October from all months in Q3 '22. These reflect future imports for benzene that will arrive in January and February 2023.
Earlier this summer, following record-high US benzene prices, almost 100,000 tonnes of benzene departed South Korea for the US per month. However, for the two latest months with available trade data, an average of less than 15,000 tonnes of South Korean benzene left for the US per month.
Although the US has significant domestic production of benzene, the US is a net importer, and South Korea is the largest supplier.
On the domestic supply front, toluene conversion economics remain unviable, as benzene prices continue at a substantial discount to toluene, which is a reversal of historical pricing.
Despite lower interest rate hike, concerns for 2023 recession remain
Last week, the Federal Reserve raised its benchmark federal funds rate by half of a point - after raising rates by 0.75 points after each of its previous four meetings.
Despite the initially positive market response to the 50 basis point hike and a lower-than-expected increase in the Consumer Price Index (CPI), concerns of a recession for 2023 linger, especially after additional interest rate hikes for 2023 were signaled by the Fed.
Benzene spot remain undervalued; contracts down
Despite a recent uptick in spot prices, benzene remains undervalued relative to crude oil.
The US spot benzene-to-WTI (West Texas Intermediate) crude oil ratio rose in mid-December to 1.65:1, higher than in much of Q4. However, benzene remains undervalued relative to the price of crude oil relative to five-year average. The benzene-to-WTI ratio has been below five-year averages for more than four consecutive months.
US December benzene contracts have settled down 19 cents/gal from November. They are now assessed at $3.07/gal ($922.96/tonne) FOB (free on board) US Gulf.
After wild swings in contract prices this summer, benzene contract fluctuations have normalised later in the year.
Benzene is used to produce a number of intermediates that are used to create polymers, solvents and detergents.
Major producers of US benzene include ExxonMobil, Marathon Petroleum, Shell, Flint Hills Resources, Chevron, CITGO, LyondellBasell, Valero and Total.
Author:
Deniz Koray is a markets editor who has been at ICIS for more than three years. He covered the surge in isopropanol prices in the early stages of the coronavirus pandemic and has now transitioned to covering products such as propylene glycol, benzene, oxo-alcohols, and titanium dioxide.
Styrene
US styrene market poised for stability after volatile year
The US styrene sector enters 2023 with sufficient supply and soft demand and, with a light turnaround schedule ahead, should see much steadier market conditions than in 2022.
Supply
Producers have been separately managing inventory as both domestic and global demand is weak entering the new year and questions surround how quickly the economy can recover from its current state of cautious consumer behaviour amid high interest rates and inflation.
Most plants are currently at separately reduced run rates due to current market conditions. That is expected to continue through 2023 barring an unexpected economic recovery.
Both Westlake and INEOS Styrolution separately shut down Gulf Coast plants overlapping Q3 and Q4, but they have returned to operation. The market is still absorbing that extra production.
Plants have been running in the low to mid-70% operating rate, but at least one producer has recently increased its run into the low 80s.
Although the first quarter is traditionally the heavy maintenance season for US styrene plants, no major turnarounds are scheduled for the first half of the year. This is in sharp contrast to the heavy turnaround season in 2022, which saw more than 40% of US styrene capacity down at various times during the first part of the year.
An average of 20% of production capacity was offline in the first half of the year.
Those outages sent styrene prices rising to record levels.
Propylene oxide/styrene monomer (POSM) plants are also running at separately reduced rates, which is likely to continue until the economy recovers.
POSM plants, which represent about 20% of US styrene capacity, are more affected by economic conditions because they are more durable-goods sensitive.
LyondellBasell plans to start up a new propylene oxide/tertiary butyl alcohol (POTBA) plant by the end of Q1 2023, which could impact POSM plant utilisation rates even more. It will produce 2.2bn lbs/year of tertiary butyl alcohol (TBA) and 1bn lbs/year of propylene oxide (PO).
For the first full year of operations, the company expects it to produce 50% of the annualised capacity of the plant.
Demand, exports
Demand is likely to stay weak in the new year as the world is long styrene and economic headwinds dominate.
Domestic demand may improve moderately in the first half of the year from the weakness that ruled Q4, but derivative demand from polystyrene (PS) and expandable polystyrene (EPS) are likely to stay soft at least until Q2. Construction demand is also weak.
Plants will be separately running at reduced nameplate operating rates in an effort to balance supply and demand.
Exports are more of an unknown.
Extremely high production costs in Europe are attracting regional transfers from the US. Several US styrene producers have plants in Europe as well, some of which have either separately shut down or are running at drastically reduced rates.
That activity will likely continue through the winter.
China has added new styrene capacity the past two years which has discouraged exports from the US. In addition, China continues to struggle with COVID-19-related lockdowns which has dampened its demand.
With styrene weak globally, US exports will remain restrained through the first half of the year.
Mexico is likely to continue to be a chief export destination for US styrene, as well as Brazil.
Styrene is a chemical used to make latex and polystyrene resins, which in turn are used to make plastic packaging, disposable cups and insulation.
Major North American styrene producers include AmSty, INEOS Styrolution, LyondellBasell Chemical, Shell Chemicals Canada, Total Petrochemicals and Westlake Styrene.
Author:
John Donnelly is a Senior Markets Editor at ICIS with more than 30 years of experience covering the petrochemical, oil and energy industries. He has covered a variety of petrochemical markets with a current focus on ethylene, propylene and styrene.
Europe aromatics markets to see more painful months before slow recovery
Difficult conditions in Europe's aromatics markets are expected to continue well into 2023 before they rebalance, according to market participants, with an outlook overshadowed by hobbled demand, cost volatility and vulnerability to external shocks.
Weak benzene demand to continue in coming months
Like styrene, benzene production economics have been challenged in recent months, discouraging producers from making the aromatic chemical, which is an important feedstock for a range of polymers, solvents and detergents.
Benzene supply has been curtailed, as crackers minimised output in recent months, but availability has generally remained ample to lengthy, as demand was severely constrained. Benzene availability is expected to remain ample in the coming months, with ongoing disruptions set to continue in derivative markets.
Demand for benzene has been supported by healthy export volume, particularly to the US in recent months, amid favourable arbitrage economics, although in general this has not been sufficient to balance the market.
At the time of writing, benzene prices had only recently recovered to levels making it economical to produce, after months of poor spreads over feedstock naphtha.
Participants have linked benzene's poor performance in Europe to weakness in other regions, and many have suggested a broader market recovery won't be seen until mid-2023.
“The fact that China is not pulling its weight is adding to (pressure on the market),” another Europe-based benzene trader said.
Outflow volumes have been capped by recent increases in freight and shipping costs, as well as limitations in vessel space and changes to demand dynamics, particularly in the North American market.
Domestically, multiple downstream units, including styrene and phenol, have been running at minimal operating rates or have been taken offline completely as a result of generally poor domestic demand linked to widespread market disruption.
The end-of-year period has been characterised by unusually strong selling pressure, as players sought to minimise inventory levels approaching the new year.
“They are selling because they don't need it,” the trader said. “They all want to have cash and no inventory at the end of the year.”
Benzene demand could improve if export opportunities remain open and once downstream industries begin to recover and normalise.
“Benzene consumption in December is looking better than November (but it’s) still below averages overall... Next year will still be challenging,” said Europe-based aromatics producer.
“Looking at the contractual offtake, there’s some positive signals there - nothing firm, but it depends who you talk to,” the producer added, noting that market participants didn’t “want to commit to volumes.”
Government programmes to boost infrastructure spending and support construction industries may also help the benzene market to rebalance, as multiple benzene derivatives and polymers are important durable goods utilised in the construction sector, for example expandable polystyrene (EPS) and methylene diphenyl diisocyanate (MDI).
“Aniline is supposedly recession proof,” another trader said referring to government-based building projects that usually provide steady levels of demand for MDI. “(But) even those chains are seriously struggling,” the trader said.
Recent data showed that EU and eurozone construction output increased in October from the previous month, indicating a possible end to a downward trend that has persisted through most of 2022.
However, high production costs linked to the recent jump in natural gas prices, and partly stemming from the Russian invasion of Ukraine, threaten to continue to disrupt production up and down the chain.
The European Chemical Industry Council (Cefic) recently noted that natural gas prices in Europe were still 6.2 times higher than those in the US. The current spate of resulting chemical plant shutdowns has been the worst since the 2008 financial crisis.
Such demand constraints are anticipated to continue well into 2023, with some participants expecting no significant recovery until the second half of the year.
Caution overshadows styrene market outlook
Styrene supply has been significantly reduced through much of 2023 because of both unfavourable production economics and weak domestic consumption of derivative products such as polystyrene.
Styrene is a chemical used to make latex and polystyrene resins, which are, in turn, used to make plastic packaging, disposable cups and insulation.
Europe styrene spot and contract price margin estimates have been in negative territory since mid-2022 amid ongoing feedstock and utility cost pressure, according to ICIS Margin Analytics.
The majority of spot transactions in recent months were carried out by producers, where spot prices have been lower than some domestic production costs and well below styrene contract prices.
Producer LyondellBasell, which alongside Covestro jointly operates the Maasvlakte 315,000 tonnes/year propylene oxide and 680,000 tonnes/year styrene monomer (POSM) unit in the Netherlands, announced in late October the unit would stay offline until the end of 2022 because of poor production economics and weak demand.
Similarly, producer Trinseo announced in late 2022 it would shut down its 330,000 tonne/year Bohlen unit in Germany, and Italian producer Versalis shut its 150,000 tonne/year Mantova unit June amid soft market conditions.
The closures, shutdowns and minimisation of operating rates are indicative of a market that has struggled to find balance in 2022. And with derivative consumption seen remaining under pressure in the coming months, this imbalance is also expected to continue.
“It's a market where you have to be cautious,” a Europe-based styrene producer said.
Despite the cuts, availability of styrene has been generally ample in recent months, with relatively little spot volume traded.
“If you would ask me, I wouldn't restart until Q1," a Europe-based styrene trader said, referring to the closure of one European unit. The trader suggested it would be better to have low inventory levels under these conditions.
"The weak macroeconomic environment has become increasingly evident," said ICIS styrene analyst Moritz Lank.
"Rising interest rates are hampering wider investments and high energy prices are driving up costs and putting a squeeze on consumer spending," Lank added. These trends are expected to continue during Q1 2023, with the return of seasonal demand in Q2 likely to be much weaker than normal.
“Everyone is a bit depressed right now wondering will (conditions) change,” a Europe-based styrene trader said. “Eventually it will improve.”
Thinner market more vulnerable to external shocks
Since aromatics and derivative producers have reduced production rates to minimum levels, inventory volumes are vulnerable to smaller changes in market conditions.
The market could tighten quickly if demand improves or another external factor further limits supply.
"The expectation is you'll see big volatility, with low liquidity (and) big swings," a trader said.
Author:
Fergus Jensen is a London-based markets editor and covers the European aromatic chemicals and cyclohexane markets at ICIS.
Fergus cut his teeth as a commodities journalist in Southeast Asia, and cooks a decent nasi goreng.
Benzene
Asia benzene market eyes end-use recovery in 2023
Asia benzene players are hopeful for a demand recovery from end-use sectors next year in the aftermath of the pandemic and the economic downturn this year.
During the course of 2022, benzene and its derivatives, particularly styrene monomer (SM), suffered margin erosion.
“The general sentiment has improved. We are expecting to see higher demand for gasoline, in line with the easing of travel restrictions, which also bring more consumption for end-products,” said a China-based trader.
On 7 December, key market China announced the lifting of its most stringent COVID-19 policies, which has boosted travel within and beyond the country.
One of benzene’s feedstocks, toluene, and one of its derivatives, cumene, could be used for gasoline blending.
Toluene being directed to gasoline blending instead of producing benzene, leads to a cutback in benzene production; a rise of cumene demand could bolster benzene consumption; both factors help in strengthening benzene’s performance.
Consumption and derivative additions
According to the ICIS Supply and Demand Databased (SnDD), benzene consumption in Asia and the Middle East is expected to rise by around 2% to more than 3.7m tonnes in 2023.
About 50% of benzene goes to ethylbenzene which produces SM; 20% to cumene which in turn produces phenol and acetone; and 15% to cyclohexanone which manufactures caprolactam.
An example of the end-use consumption is that 20% of SM goes into acrylonitrile butadiene styrene (ABS), from which 80% is used to manufacture household appliances and 10% to automobiles.
Some 1.2m tonnes of annual nameplate capacity of SM could be added in Asia across 2023; for phenol, the annual nameplate capacity additions could be around 1.6m tonnes, and around 2.4m tonnes for caprolactam.
Benzene utilisation and additions
Prior to the pandemic, the utilisation rate in Asia and the Middle East was at 75% in 2019. The rate dropped to 69% in 2020.
By 2022, utilisation had improved to 72%, though the rate could be mitigated in 2023 to factor in stronger margin protection against the surging energy cost.
Planned maintenance 2023*
The peak maintenance period appeared to be in March stretching into April in 2023, as compared with the second quarter of 2022.
This coincided with projections of a gradual pick-up in the economy, as China continued to grapple with rising COVID-19 infections post-lifting of movement controls. The infection rate was expected to rise further during the Lunar New Year holiday on 21 to 27 January.
Caution looms
“We’re hopeful but also acutely aware China’s COVID-19 profile and management has been vastly different from other nations," said a southeast Asia-based trader.
"Many of their elderly remain unvaccinated and that could escalate into a strain on their healthcare amid other resources. How well their economy, and the global economy, perform, is not that strongly optimistic.”
Additional reporting by Helen Lee, Jenny Yi, Jimmy Zhang, Josh Quah, Tina Zhang, Yoyo Liu
Author:
Angeline Soh is a senior editor with ICIS, where she has been reporting on petrochemicals for almost 10 years. Prior to joining ICIS, she worked in public relations for six years. Angeline graduated with a Master of Mass Communications from Nanyang Technological University (NTU) in 2012.
Styrene
Asia SM near term demand uncertainty remains, recovery to take time
The Asian styrene monomer (SM) market could see a marked recovery in 2023 as current challenges brought about by the pandemic ease and global macroeconomic conditions improve.
The global energy and inflation crisis triggered by the Russia-Ukraine war as well as strict COVID-19 related lockdowns in China weighed heavily on the Asian SM market in 2022.
China demand recovery on track but will take time
On 7 December 2022, the Chinese government announced the “new ten measures” aiming to further ease the COVID-19 containing policies.
This marked the finale of the country’s controversial zero-COVID policy which resulted in reoccurring lockdowns and a protracted economic slowdown.
The deceleration of Chinese economy inevitably impacted the regional SM market as the country remains a the major importer and consumer of SM in Asia.
Several market participants hope that China's economy could make a recovery sometime and act as a catalyst to regional growth in 2023 as domestic COVID-19 restrictions are removed and international travel resume.
However, the recovery is not likely to be evident immediately due to the current wave of the virus sweeping across China despite the government easing its zero-COVID-19 policy.
Various major cities, including Beijing, Shanghai, Guangzhou and Wuhan have continued to report a surge in COVID-19 cases.
“The population remained cautious after the restrictions were eased. Rising consumption and accelerated downstream sales, as expected by some market participants, were not happening as many people were still staying at home to avoid being infected,” a Chinese styrene market participant said.
As macroeconomic challenges remained, it could also take time for the government to restore consumers’ confidence which has been overthrown in the past three years of frequent lockdowns and policy flip-flops.
“As we are heading to the Lunar New Year soon, it is likely that we will have a relatively sluggish early 2023, while the downstream consumptions could see certain pick up after the peak of COVID-19 waves,” the same market source added.
Near-term regional run rates to remain low
With the slowdown in downstream demand especially in the second half of 2022, some styrene suppliers have expressed concerns over piling inventories and have suggested that their production rates would remain low in early 2023 as a response to the a weak demand outlook and shallow margins.
"Our plant has not been running full in Q4 2022, and this is likely to continue in early 2023. We will consistently assess the margins and adjust the operation rates considering the challenging situation," a northeast Asian SM maker said.
Slow contract discussions could add early 2023 spot liquidity in Asia
The general market tepidness in 2022 has made some market participants unsure about the situation next year, resulting in bumpy year-end contract negotiations.
Few contract discussions were heard concluded until mid-December as buyers and sellers were having various disputes in terms of premiums, quantities and even pricing formulas.
“A few suppliers were asking for cost-based formula pricing for the 2023 contract, but we could not accept that as this pricing methodology could make us fully expose to feedstock cost risks,” an Asian styrene buyer said.
Some buyside market participants were looking at the spot market to fill the demand gap on top of existing inventories instead of compromising on yearly contract prices which could potentially bring substantial disadvantages in 2023 budgeting.
“We still have some inventories in hands due to slow downstream sales. This could support our production in early 2023 while we may also check the spot market if necessary,” the market source added.
India import demand could become more attractive
While most of Asia was suffering from tepid downstream sales which led to cautious SM consumption, demand from India appeared stable during the second half of the year and the buyers were still actively enquiring for import cargoes despite the regional lull.
Importing more than 750,000 tonnes of styrene in the first three quarters of 2022, India's overall SM imports could match China's by the end of this year.
The trend could attract more attention in 2023 should the consumption stays stable and logistics situation on the intra-Asia westbound eases.
Freight rates to play key role in intra and inter-regional trade
Surging chemical tanker shipping rates in 2022 added an additional barrier to the regional styrene market, hampering the liquidity of cargo flows both intra and inter-regional.
“Freight was widening the buy-sell disparity, and the tonnage tightness was making our job even more difficult as we could hardly promise to our clients that we would secure the vessels," a northeast Asian styrene trader said.
The massive hikes in freight rates on various trading lanes limited the mobility of spot cargoes, forcing buyers and sellers to source for nearby counterparties.
Volatile bunker levels and tightness in long-haul tonnage were also shutting inter-regional arbitrage windows.
As the crude market slowly cooled down at end 2022, and as regional tonnage tightness eased albeit marginally, the regional shipping market is likely to see further changes or corrections in 2023.
With China easing its COVID-19 restrictions, the rotation of chemical tankers on China-bound trade lanes could also accelerate further, contributing to more availability and affordability of chemical tankers in the region.
Author:
China’s SM demand growth to lag behind supply, eye on exports
Demand growth in China’s domestic styrene monomer (SM) market will lag behind that of supply in 2023, promoting domestic suppliers to look for outlets to export their extra cargoes.
SM capacities rise further, undermining margins and operations
Domestic SM capacities have kept on rising in recent years in line with expanding integrated projects, as SM is a major derivative of ethylene crackers and aromatics plants.
Margins of producing SM in China mostly remained in positive territory before 2020, thus attracting more investments and further pushing up new capacities.
Capacity expansions have been intensive since 2020, which thus weighed down on spot prices. The surging SM capacities have also boosted demand for upstream benzene, thus supporting benzene prices. The price spread between benzene and SM narrowed as a result, decreasing the margins for producing SM and even bringing negative margins.
More SM units went into long-term shutdowns due to negative margins instead of technical glitches in 2021-2022, thus dragging down the overall operating rate.
Despite lower operating rates, domestic SM supply has remained in a sharp uptrend due to intensive capacity expansions.
With more capacities expected to come on stream in 2023, the margin outlook for the domestic SM chain is bearish.
China’s effective SM capacity is expected to rise by 16% year on year in 2023 according to the ICIS Supply and Demand Database, while demand growth may just reach 5.3% and output growth is likely to be 4%. The utilisation rate of domestic SM plants is expected to drop to 64% in 2023 from 71% in 2022. More SM plants are expected to be offline amid negative margins.
Downstream capacities rise sharply
The bearish margin outlook has forced domestic SM producers to look for more outlets. They are paying major attention to expanding downstream. Producers will be able to adjust their production and sales based on margins for SM and downstream products.
In addition, healthy margins for SM’s three major derivatives, expandable polystyrene (EPS), polystyrene (PS) and acrylonitrile-butadiene-styrene (ABS) in the past few years have attracted some new investments, besides the capacity expansions by major existing producers.
These, combined with the plans for the whole SM industry chain at some integrated producers, have jointly pushed up downstream capacities sharply in 2022. Downstream capacity expansions are expected to speed up further in 2023.
The effective capacities for EPS, PS and ABS are expected rise by 7.2%, 44.7% and 49.8% respectively in 2023, according to the database.
Bearish economy weighs on end-use consumption
Demand for EPS, PS and ABS, closely related to end-use consumption for automobiles, household appliances, and packaging in China, is expected to lag behind its capacity rises in the face of bearish outlook for global economy. Margins and operating rates of EPS, PS and ABS plants, therefore, will be under pressure and their support to the SM market will be limited.
While EPS, PS and ABS capacities are increasing rapidly, their demand growth in 2023 is merely expected to be at 4%, 2.8% and 6% respectively, and downstream output growth is only at 3.6%, 5.8% and 8.4% respectively, the database showed. This may lead to hefty oversupply in the PS and ABS sectors and accordingly curb plant operations.
Therefore, despite rising capacities in the EPS, PS and ABS sectors, weak end-use consumption and limited output growth may not be able to digest additional SM supply in 2023.
Import volumes to decrease, eyes on exports
Reliance on imported cargoes is set to decrease in 2023 in line with rising domestic capacities, while exports are to be expected.
Export volumes have shown a sharp rise since 2021, with volumes in January-October 2022 even exceeding the total of the previous four years to hit 542,122 tonnes.
The intensive export activities could bring down inventory pressure at east China ports. This has led to mid-to-low inventory levels at east China ports so far in 2022, despite mounting production.
Author:
Tina Zhang is an ICIS Industry Analyst based in Shanghai. She joined the company in 2013 and focused on China styrene market from 2016. Prior to that, she covered sulphur, titanium dioxide (TiO2) and diethylene glycol (DEG).
Toluene
Asia toluene to see increased spot market activity on systematic changes
Toluene in Asia for 2023 is likely to be marked by a systematic tighter availability of supply amid near-term price weakness.
A general shift in selling strategy for producers to reduce term contract volumes in favour of more spot cargoes will have a significant impact on downstream procurement strategies in 2023.
Prices for toluene at the start Q4 2022 were largely supported by supply tightness in northeast Asia before falling from mid-November on oversupply concerns as downstream production capacity was reduced.
Amid strong selling pressure being observed for December- and January-loading cargoes, market participants indicated that near-term price weakness had limited impact on ongoing term contract negotiations for 2023.
While most term contracts were yet to be concluded, premium levels over the FOB South Korea index being discussed were higher than that of 2022 and largely within the $30-40/tonne range.
The change in selling strategy will lead to a more active spot market with many downstream buyers indicating that their required volumes could not be met by their supplied term contracts.
Key destinations for northeast Asian exports are typically in India and southeast Asia and it is likely that market dynamics for these regions would have a larger impact on spot prices.
As such, in addition to the downstream paraxylene (PX) and benzene margins in northeast Asia, reselling opportunities into India and southeast Asia would also play a major role in terms of influencing supply and demand dynamics.
The rise of China's role as a toluene exporter will have a significant impact in terms of spot pricing dynamics with Chinese sellers opting to price their term and spot cargoes on an FOB (free on board) China basis as opposed to the typical market usage of FOB South Korea.
The use of an FOB China pricing basis presents a different set of exposure for toluene buyers with export pricing being largely dictated by the equivalent of the domestic Chinese market.
With reselling options to India or southeast Asia typically conducted on an FOB South Korea or fixed price basis, this could also present new challenges to market participants in terms of risk management.
As such, it is possible that spot cargo pricing dynamics could also begin to change in line with China's growing influence as a key supplier of toluene from northeast Asia.
In terms of production capacity, ICIS Senior Analyst Jenny Yi points to an expected 9.7% growth rate in terms of capacity in 2023.
On toluene demand, Yi expects that the "recovery of end-user demand will still be slow on the back of the global economic recession and high inflation" with a growth rate of only 0.2% expected in terms of demand.
One key source of this growth according to Yi will be Wanhua Chemical (Fujian)'s TDI plant planned expansion from 100,000 tonnes/year to 250,000 tonnes/year in 2023.
Author:
Heng Jun Kai is a senior editor at ICIS and currently covers the toluene and mixed xylenes market. He has had prior experience in price reporting for various commodities in the metals industry, including iron ore and battery metals.
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