The prices of most products in the styrene industry chain fell last week, with the exception of a slight increase in ethylene. Crude oil saw the largest decline, followed by styrene. The drop in styrene prices exceeded that of both upstream and downstream products, causing profits within the chain to shift towards the ends and intensifying losses for styrene production units. While the industry's operating rate began to recover from a low in late June, there is significant focus on whether the worsening profit losses will hinder this upward trend. Although there are market rumors of styrene plant load reductions, no substantial production cuts have materialized yet.
1. Smooth U.S.-Iran Talks and Final Signing Lead to Volatile, Falling Oil Prices
Initially, continued U.S. threats against Iran and announcements of potential strikes, aimed at pressuring a swift peace agreement, kept oil prices volatile at high levels. Subsequently, the U.S. announced that negotiations with Iran were progressing smoothly, and both parties would sign a peace accord. Following the signing, the U.S. would lift its maritime blockade on Iran, and Iran would reopen the Strait of Hormuz. During this process, repeated reassurances to the market that the strait would reopen led to expectations of a significant drop in crude prices, potentially even below pre-conflict levels. This significantly eased market concerns, leading to a continuous decline in oil prices.
The broad decline in crude oil was the primary factor dragging down prices across the styrene chain. However, the relatively larger drop in styrene prices is also related to weak expectations for its own supply and demand fundamentals.
2. Restart of Maintenance Units May Lead to Gradual Inventory Build-Up
Last week, with the sequential restarts of several major styrene units—including Zhejiang Petrochemical's 600 kta unit, Liaoning Baolai's 350 kta unit, and the first-phase 620 kta unit of Zhenhai LyondellBasell—the weekly styrene operating rate increased by 2.37 percentage points. Further increases are expected over the next three weeks. Although main port inventory saw a slight drawdown last week, a high volume of arrivals is scheduled for this week. Coupled with reduced offtake following the Dragon Boat Festival holiday, a significant inventory build-up is anticipated in East China's main port storage areas this week. Overall, the expected inventory drawdown for the month is once again falling short, weighing on market sentiment and amplifying the price decline.
As styrene prices fell more sharply than benzene, styrene production losses intensified. Cash flow losses once reached -650 yuan per tonne, placing them at a relatively low level for the past three years, though not the absolute lowest.
Examining the relationship between styrene gross margins and operating rates from 2023 to 2026, theoretical gross losses exceeding -500 yuan/tonne have typically coincided with low industry operating rates. However, this correlation does not necessarily indicate that losses cause further rate declines; rather, low operating rates themselves can lead to a gradual recovery in margins. This dynamic arises for two main reasons. First, short-term improvements in theoretical profits do not prompt immediate adjustments to operating rates by companies, as such decisions require comprehensive consideration, including an assessment of how long severe losses might persist. Second, after enduring a prolonged three-to-five-year cycle of industry losses, companies have developed certain psychological expectations and risk resilience. Currently, there is no indication of significant delays in restarting idled units. Non-integrated producers with weaker risk resilience had already reduced loads in early June, and their current operating rates are not high, leaving limited room for further decreases.
3. Declines in Both Crude and Styrene Continue to Dampen Downstream Purchasing
Although the price declines for downstream products were smaller than those for raw material styrene, market trading sentiment remained weak. The continuous emergence of low prices affected market psychology. There is also no sustained recovery expected for the composite operating rate of styrene downstream sectors. Even as styrene prices approached the 8000 yuan/tonne threshold, sparking some bargain-hunting demand, this was insufficient to offset broader pressures. As raw material prices continued to fall, market procurement sentiment grew increasingly cautious. Buyers are concerned both about potential further price declines and the possibility of a rebound, given current low styrene prices and significant production losses. Overall, fundamental demand from end-users has not yet reached a recovery phase. Short-term price stimuli for inventory replenishment lack sustainability and have a limited effect on boosting raw material prices.
Looking ahead, expectations for increased styrene supply are relatively clear. Even if production halts occur due to profitability issues, they are unlikely to alter the outlook for continued inventory accumulation. On the demand side, until end-user demand recovers, downstream styrene demand is likely to remain weak and stable. In summary, whether styrene prices can stabilize and cease their decline depends partly on a rebound in raw material costs and partly on strong performance from benzene. However, with the smooth conclusion of U.S.-Iran talks and crude oil continuing to break through support levels and decline, the styrene industry chain may face continued negative pressure.
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