Weak Margins Propel South Korea’s Hanwha Total to Curtail Styrene Production, Supply Tightening Predicted

South Korea’s petrochemical giant, Hanwha Total Petrochemical, is in thought to execute a cutdown in operation rates of styrene monomer production units to compensate for weak profit margins. The company, boasting a 1.05 million tons per year capacity of styrene monomer unit at Daesan facility, will soon be proceeding with a cutdown of 20-80% in the operation rate whose increment will depend upon the future demand and better margin prospects.

Hanwha Total has been witnessing a deterioration in its sales for quite some time owing to the overcapacity in the region. The margin on styrene monomer production and sales has been estimated to be USD 207 per ton in November which is 35% lower than the margin of USD 320 per ton exhibited by the company in June. The presence of domestic competitors like LG Chemical which runs 170,000 tons per year and 500,000 tons per year of styrene monomer units at Daesan and Yeosu, Lotte Chemical, SK Global Chemical and YNCC, along with the entrance of the new player, Wanhua Chemical, having 650,000 tons per year facility and restart of Sinopec Baling’s 120,000 tons per year facility, reverberate a surplus supply fundamental in the market in the approaching months.

Styrene is a sweet-smelling organic compound that is produced from the dehydrogenation reaction of the ethylbenzene intermediate formed from benzene and ethylene feedstocks. Styrene is predominantly used in the production of polystyrene, expanded polystyrene, styrene-acrylonitrile, acrylonitrile-styrene-acrylate, acrylonitrile-butadiene-styrene resins, styrene-butadiene rubber, and unsaturated polyester resins. The downstream products of styrene are used in a variety of segments, like food containers, insulation materials, rubber tyres, countertops, and bathtubs etc.

As per ChemAnalyst, the vital role of styrene as a building block for industrially important chemicals is expected to drive its demand further at a growth rate of over 5%. The growing population and availability of disposable income are expected to boost the demand for electronics which in turn would drive the styrene demand in the Asia Pacific region which holds the largest share in the global styrene market. The cut down in the production rate of a major facility in South Korea may not hamper the inventories in the immediately following months but is expected to create a shortage over time in the country. The lowering down of supply is expected to impact the country’s export volume which is already on a downward trend for the past 3 years. Furthermore, the supply deficit that will be created in the market due to loss of inventories shall cause the downstream sectors to rely on the import volumes for fulfilling the country’s firm demand thereby triggering a rise in styrene prices.