2. 2
What is styrene monomer?
Natural
Gas
Crude Oil
Coal
Reformer
Steam
Cracker
BTX
Extraction
Ethylene
Benzene
Styrene
Xylene
Toluene
PS
ABS
EPS
3. 3
What happened?
After China’s Yuan devaluation
8800
8850
8900
8950
9000
9050
1120
1125
1130
1135
1140
1145
1150
1155
1160
8/11/2015 8/12/2015 8/13/2015 8/14/2015
CFR China SM($/mt, left) China domestic SM(Yuan/mt, right)
Domestic SM up with
increasing demand
US Dollar-denominated
SM downChina’s yuan
devaluation
announced Aug 11
Tue
4. Thinner USD SM spot trading market
Widening RMB/USD SM spread may
persist
Lower SM inventory in E. China may
continue
USD->RMB SM arbitrage not
workable under steep backwardation
4
What may happen further?
5. 5
Domestic SM market in China has been firmer than import
market due to prolonged credit risk issues since 2014
Source: Platts
<Relevant news>
http://www.platts.com/latest-news/petrochemicals/singapore/weaker-yuan-widens-sm-price-
gap-for-domestic-27711271
800
900
1000
1100
1200
1300
1400
1500
1600
1/2/2015 2/2/2015 3/2/2015 4/2/2015 5/2/2015 6/2/2015 7/2/2015 8/2/2015
Styrene CFR China Marker China domestic import parity
$110.969/mt
on Jul 8 2015
6. 6
Currency risks aggravate thin USD SM liquidity
SM inventory in China at historical low
Source: Platts
500
600
700
800
900
1000
1100
1200
1300
1400
1500
0
50000
100000
150000
200000
250000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
SM inventory in E. China 2014
2015
4-Year Average
SM CFR China Monthly Average
8. China net short in SM - S. Korea No 1 SM exporter to
China in 2014
Source: China Customs, Korea Customs
Unit: mt
38%China’s
SM Imports
S. Korea 1,415,022
Taiwan 468,557
Japan 465,913
Saudi Arabia 444,304
Iran 285,054
Kuwait 208,206
US 152,262
Total 3,676,954
25%
4%
0
20
40
60
80
100
Percentage(%)
US
Kuwait
Iran
Saudi
Arabia
Japan
Taiwan
S. Korea
9. • If USD SM is cheaper, it can be resold in domestic market, which creates more demand for USD SM, which
becomes in an equilibrium (RMB≈USD) in general.
• But in a steep backwardation and hovering uncertainties in Chinese macro-economies and volatilities in currency
market, difficult.
• Chinese buyers prefer to buy prompt domestic SM cargoes.
7
RMB>USD not always under pressure
But, USD->RMB arbitrage not workable in a steeply
backwardated market
RMB: 10-days forward Prompt
TT in advance: no currency risks
exposure
USD: 15-45 days forward
LC 90 days: high currency
exposures during 90 days
of LC period
H2 Aug H1 Sep-H2 Oct As of
Aug 21
10. Period Impact on USD SM Reasons
Short-term Negative • Inactive USD spot SM
• less demand for expensive USD SM Market
• bad signals on Chinese economies
*assuming other factors(supply/demand fundamentals) are unchanged
Mid-term Neutral(?) • Impact from Yuan devaluation may be neutralized by
devaluations of other Asian currencies(Korean won
etc.)
• Technical adjustment of relatively firmer Yuan value
over other Asian currencies
• China is basically net-short, anyhow, need to buy
imported SM.
Long-term Positive(?) • If the devalued Yuan boosts China’s re-exports markets,
which are downstream of SM, it can stimulate
feedstock SM demand. 10
What implications in SM market?
11. 11
Appendix: Slowing China GDP growth
rate & declining PMI
-1.00%
4.00%
9.00%
14.00%
19.00%
24.00%
0
2,000
4,000
6,000
8,000
10,000
kt
China SM Demand(kt)
China GDP Growth Rate(%)
China SM Demand Growth Rates(%)
Source: World Bank, HSBC, Markit, KPIA
41.0
43.0
45.0
47.0
49.0
51.0
53.0
55.0
57.0
Jan09
Jun09
Nov09
Apr10
Sep10
Feb11
Jul11
Dec11
May12
Oct12
Mar13
Aug13
Jan14
Jun14
Nov14
Apr15
Jul PMI plunges 2-year low
PMI Index
Linear (PMI
Index)
Jul
PMI:47.8
