The year 2008 is extraordinary for China. Despite the snow storms and May 12 earthquakes, China has successfully held the Beijing Olympics and Paralympics and enforced the New Labor Law amid the indirect impacts from the global subprime crisis and financial turmoil. As a primary feedstock of daily necessities, building materials, home appliances and automobiles, the development of domestic styrene monomer (SM) market is closely related to the global economic environment.

1. China’s SM and downstream industries flourished in 2007

China’s SM market experienced sharp expansions during 2007. China’s GDP increased 11.9% YoY during 2007, but the growth rate of apparent demand of SM and derivatives both surpassed that of GDP.   

Unit: 10Kt

Figures from the above table show that the growth rate of China’s domestic apparent demand of SM doubled that of GDP and outpaced other three major SM derivatives in 2007. The growth rate of apparent demand of ABS also exceeded GDP by over 50%. As a primary raw material of home appliances, automobiles and daily necessities, the accelerated increase of ABS demand was in line with the expanded domestic needs of consumer goods, driven by the proliferated construction and real estate industries during 2007. Being a major material for packaging and building materials industries, EPS also secured fast gains during 2007. The growth pace of its apparent demand approached that of GDP in 2007. However, PS industry remained sluggish. Demand increased slowly, with no pick-up signs. Some downstream producers said in order to fend off the influences from soaring crude oil prices since the second half of 2007, suppliers and end users had built up stocks and bought raw materials. The purchase rush had resulted in high inventories of raw materials and finished products by the end of 2007. Although partial goods were reflected in the increase in SM apparent demand, they were not yet been depleted.

2. SM and some downstream industries sinking into predicament in 2008

Among SM and its major downstream industries, SM and ABS managed the fastest growth pace in their apparent demand during 2007 but have been the hardest hit in 2008. Steep declines in overall operating rates and profits have driven the two industries into a predicament.

The table above shows that China’s SM industry obtained strong profits and high operating rates during 2007. However, their profits took a nosedive since the beginning of 2008. Domestic non-integrated SM producers have been losing money, and some enterprises have curtailed operations to ease inventory pressure. A coordinated production cut has been implemented by domestic SM industry in a bid to maintain a reasonable supply-demand structure and stabilize prices. This resulted in significant reduction in the overall operating rates from 2007 levels.

China’s ABS industry also posted a sharp decline in profits. Rising crude oil prices and supply shortages have boosted feedstock ACN and BD costs. However, the bearish ABS industry failed to shift the incremental cost increases and has been roiled by negative profits since the start of 2008. Moreover, the gloomy market situation also forced domestic ABS operations down. Meanwhile, domestic ABS demand remained weak as consumption from daily necessities and automobiles decreased amid the softened marco-economic environment, while supply was ample on the back of mounting stocks of raw materials and finished goods in 2007. The worsened supply-demand fundamentals made a hard hit on domestic ABS industry.

PS and EPS industries ran at reduced operating rates but enjoyed relatively strong profits. After the construction boom in 2007, increased demand for EPS due to the May 12 earthquake provided a temporary impulse, pushing up profits at EPS producers and helping keep the average profits healthy. However, the EPS industry lost money in the traditional low demand season lasting from July to August.