Commodity market was volatile last Friday. In the night trading hours, most commodities posted strong upward move but then turned downward and slumped. Styrene monomer contract in Huaxicun Commodity Contracts Exchange (SM1701) opened at 9,650yuan/mt on Friday night and went up with its highest at 9,818yuan/mt, but tumbled then with lowest at 9,210yuan/mt.
SM 1701 contract closed at 9182yuan/mt Monday, down 472yuan/mt or 4.89% from the previous settlement. The highest and lowest points were at 9818yuan/mt and 9180yuan/mt, respectively. The open interest increased 80 tons to 40378 tons and the trading volume totaled 35138 tons.
In physical market, East China marker decreased 200yuan/mt day on day to 10,000yuan/mt and Dec CFR China marker dropped $30/mt to $1,180/mt.
Traditionally, SM tank inventory witnesses its lowest level in November. Market players attributed the rise since mid-October, particularly in early November, to the tightness in spot supply and the low tank inventory. Tank inventory in East China main ports increased 15.1kt week on week to 67.1kt on November 9. However, in 2015, the figure dropped below 50kt, but the prices kept decreasing. So, we believe the low inventory level was just a catalyst for the rise, but not the direct cause. The capital inflow into styrene market also lifted the prices.
Downstream derivatives posted better performance than last year, but demand will gradually weaken since November, particularly for EPS. Currently, EPS plant operating rate fell to about 41%. Supply and demand condition was broadly balanced in October-November.
Impact of commodity market and capital inflow will weaken and focus will be back to fundamentals. Supply tightness will ease gradually with the unit restarts and increasing cargo arrivals. Demand from EPS sector will weaken gradually in Nov, particularly in North China. SM prices are possibly to correct down after this around of surge.