The US spot styrene monomer (SM) price fell to a record low below spot benzene (BZ) feedstock yesterday, challenging styrene operating rates moving into spring.
Styrene production consumes nearly 50pc of all US benzene supply. The Argus styrene assessment fell to $927.50/metric tonne (t) on 28 February, a $159/t discount to benzene. That is the largest styrene discount to benzene since at least 29 August 2016, when Argus assessments for the spread began.
Benzene and ethylene are used to create ethylbenzene, a precursor for styrene. Higher spot prices for March benzene led to a 19¢/USG increase in the benzene contract price for March to 377¢/USG on 27 February. That, coupled with an anticipated increase in the ethylene contract price, is poised to push ethylbenzene-styrene monomer (EBSM) margins firmly into structural negative territory this month.
Most US styrene producers price their styrene based on specific term agreements, which can reference feedstock and production costs, freely negotiated prices and market indexes, but feedstock cost impacts are normally incorporated. Argus estimates EBSM breakeven production costs at $1,150/t for March, assuming fixed costs at 6¢/lb over variable feedstock costs, well over spot discussions for styrene. Most styrene production units in the US are EBSM units.
Propylene oxide styrene monomer (POSM) units are another route to making styrene, but these run in response to PO demand rather than for styrene, which is a co-product. Those economics generally remain more favorable than EBSM units, but remain under pressure when styrene is priced below feedstock benzene.
Softening domestic styrenics demand into polystyrene, expandable polystyrene (PS) and acrylonitrile-butadiene styrene (ABS), in addition to weak export styrene demand and high feedstocks costs, are causing styrene producers to consider reducing operating rates in March or shutting down reactor capacity. Argus Consulting estimated operating rates at roughly 65pc in February. Many units are unable to operate much below this level. Downstream PS operating rates stood at 57.2pc in January, according to American Chemistry Council data, and ABS operating rates stood under 55pc over the same time frame.
The US styrene export arbitrage to Europe — typically the highest netback on paper — remains firmly shut based on styrene discussions last seen at $875-980/t for March fob US Gulf coast on 28 February. By contrast, the netback to Europe stood at $911/t on 28 February, assuming freight, storage and throughput at $99/t. US March styrene stood at a $72.50/t discount to April Europe styrene on the same day, assuming a month lifting window. This failed to cover freight costs on paper for US traders looking to export styrene.
Some EBSM producers have looked to sell ethylbenzene to gasoline blenders opportunistically as a high-octane, low RVP blendstock. Many producers have sold ethylbenzene forward into March and some into April, while buying feed benzene and ethylene to lock the return. Some ethylbenzene units are larger and run at higher operating rates than styrene units, allowing for up to 50,000 t/month of additional ethylbenzene for sale cumulatively among US EBSM producers when styrene units run at average industry rates of 85pc.
Demand for ethylbenzene has maintained some ongoing consumption of feedstock benzene despite reduced derivative styrene operating rates. Participants continue to monitor whether demand for benzene-derived gasoline blendstocks, such as ethylbenzene and cumene, will support benzene prices in second-quarter 2023, which could continue to elevate costs for styrene producers and challenge production margins. Otherwise, weak styrenics demand may place downward pressure on feedstock benzene, which is typically a supply-driven market.
Argus Consulting is a division of Argus Media. Its forecasts and analyses are separate and independent of Argus' news and price assessment business.
