In China, HIPS prices pull away from GPPS, but PP is trading close to par with propylene

In China, the premium processors must pay between general-purpose polystyrene (GPPS) and high-impact PS (HIPS) has widened steadily over the past year. Higher HIPS production costs as well as relatively better demand for HIPS, especially from processors serving the home appliances industry, were cited as the main reasons for the increasing gap in pricing, according to plastics pricing service ChemOrbis.

ChemOrbis reports that styrene costs, which increased $205/ton from the beginning of July to the beginning of August, have lost nearly half of this gain since then. Spot styrene prices on an FOB Korea basis have fallen $100/ton since the beginning of the month. Spot benzene prices on an FOB Korea basis retreated by $150/ton since the start of this month after rising $195-200/ton during the July-August period.
 
Spot butadiene prices had reached record high levels in July but spot prices now are $130/ton lower on an FOB Korea basis and $200/ton lower on a CFR China basis when compared to the first week of August. Although spot butadiene prices have lost noticeable ground due to lackluster downstream demand, they are still trading at very high levels and this fact continues to put pressure on HIPS suppliers, says ChemOrbis.

HIPS production costs remain relatively higher than GPPS costs even though butadiene feedstock costs have fallen off the record high levels recorded in July. This situation coupled with relatively better demand for HIPS caused the premium for HIPS over GPPS to reach as high as $230-265/ton in the past few weeks.

The story is markedly different for polypropylene (PP), as ChemOrbis reports that spot homo-PP prices in China have been trading close to par with spot propylene prices on an FOB Korea basis since the beginning of August. This has resulted in significantly squeezed margins for non-integrated suppliers. Spot PP prices regained some premium over propylene last week as spot propylene prices fell at the start of the last week.
 
Spot PP prices have closely tracked movements in propylene prices over the past few months, according to the plastics pricing service. Prices for both PP and propylene steadily declined from mid-May to the beginning of July before stronger propylene prices pulled PP prices higher from the beginning of July until the start of August. 

The change is significant compared to the latter half of2010 when PP suppliers were able to price their product at strong premiums over propylene. ChemOrbis says suppliers normally target a premium of $170/ton over propylene on their homo-PP prices to China in order to cover freight costs from South Korea as well as conversion costs. 

Homo-PP prices traded at a premium of $200-300/ton over propylene from October 2010 to February 2011 but have not reached this level since. From February to July 2011, homo-PP prices traded at a reduced premium of $70-140/ton over propylene. After the premium briefly moved back to around $160/ton early in July, strong increases in propylene combined with lackluster PP demand kept the premium below $100/ton throughout the month of August.