Prices of Benzene and Styrene Plummet! EPS Industry Profit in September Only 288.63 CNY/Ton, Styrene Value Chain Faces Worsening Losses!

With the contradiction between the supply growth rate being too fast and the insufficient follow-up of downstream demand becoming increasingly prominent, the profit margins of benzene and its downstream industrial chain continue to be squeezed, leading to a trend of normalized losses in the industry. In August 2024, the Ministry of Commerce, along with three other departments, issued the "Notice on Further Improving the Work of Old-for-New Home Appliances," aiming to provide subsidies to consumers who purchase eight types of home appliances that meet the standards of Grade 2 or above energy or water efficiency. By October 15, 2024, the number of applicants and purchasers for old-for-new home appliances nationwide exceeded 20 million and 10 million, respectively. According to the data for September, thanks to the incentives from the August policy, in addition to the loss of profit for styrene itself, its downstream products such as EPS, PS, and ABS have achieved overall profitability.

In the short term, the profit margin of the entire industrial chain in September 2024 has expanded. The spot price of pure benzene in East China showed a fluctuating downward trend in that month, with an average monthly price of 8,320.48 yuan/ton, a decrease of 182.7 yuan/ton compared to the previous month. At the same time, the price of styrene in East China also showed a fluctuating weakening trend, with an average monthly price of 9,141.19 yuan/ton, a decrease of 375.51 yuan/ton compared to the previous month. The price drop for pure benzene and styrene was quite significant, with the price difference narrowing to 820.71 yuan/ton. In such a market environment, the profit of the EPS industry in September reached 288.63 yuan/ton, the profit of the PS industry was 229.47 yuan/ton, and the profit of the ABS industry was 185.86 yuan/ton. Obviously, thanks to the positive impact of the home appliance subsidy policy, the entire downstream industrial chain of styrene achieved profitability in September.

Since the second half of 2022, the profits of styrene and its downstream industrial chain have shown a downward trend overall. From the data of the second half of 2023, styrene and its downstream products were generally in a loss state. In August 2022, the total profit for four products of styrene, EPS, PS, and ABS was 2,016 yuan/ton, and this figure continued to decline, reaching -1,940 yuan/ton in February 2024. Although there was a profit recovery between March and May, it remained in the loss zone. By September 2024, the profit rebounded to 434 yuan/ton.

From a medium to long-term perspective, the trend of shrinking profits in the styrene industrial chain has not changed. From the quarterly data, starting from the third quarter of 2023, the styrene industrial chain entered a loss state, and the loss deepened further in the fourth quarter. In the first quarter of 2024, the loss amount expanded to 1,509.14 yuan/ton, and the trend of losses continued. Although the loss narrowed in the third quarter of 2024, the overall loss state is difficult to reverse quickly, even after the short-term policy boost, the downstream profits lack sustained upward momentum.

However, looking at the profit of styrene itself, since the second half of 2021, styrene has fallen into a severe loss state, and the overall situation is not optimistic. In the third quarter of 2024, styrene's quarterly profit was -190 yuan/ton.

Since 2020, the growth rate of styrene industry capacity has exceeded 20% and has continued to remain in a high-speed growth cycle. The pace of styrene capacity expansion has accelerated, and after 2020, its capacity expansion rate has significantly outpaced the raw material pure benzene, leading to a shortage of raw material supply. It is expected that by 2023, domestic styrene capacity will continue to maintain a rapid growth trend.

Although the price trend of styrene in 2023 was slightly stronger than that of pure benzene, its price was still in the loss zone. With the increase in pure benzene capacity, styrene prices have risen, but the loss situation has not yet been fundamentally improved. Looking ahead to 2024-2025, the growth rate of styrene capacity is expected to remain higher than that of pure benzene, so the profit recovery of styrene will face significant challenges.

The profits of the three downstream products (commonly referred to as the three S) began to decline after reaching a peak in the third quarter of 2020. By the first three quarters of 2024, only polystyrene (EPS) achieved a slight profit, while other products were in a loss state. However, thanks to the policy introduced at the end of August, the industrial chain achieved profitability in the third quarter, reaching 174.44 yuan/ton, an increase of 161% compared to the previous quarter, reversing the loss of 285.79 yuan/ton in the second quarter.

Since 2020, the continuous capacity expansion of the three downstream products has become a key factor affecting profit changes. As the main downstream market for the three S products, the production growth rate of the home appliance industry is significantly lower than that of the upstream three S. As the capacity expansion of enterprises in 2020 was released in 2021, the supply and demand situation of the three S began to change.

The cyclical recovery of the macroeconomy has provided support for industry profits. As the impact of the epidemic fades, China's economy gradually enters a recovery cycle, and the confidence index of the home appliance industry continues to rise, forming strong support for the upstream product market. Therefore, in the context of a warming environment, the further decline in industry profits is limited.

Despite frequent stimulus policies for the home appliance industry, due to the slow economic recovery, the policy effects are not significant. Data show that the overall performance in the first half of 2024 was average, but the data for September was quite prominent. It is expected that with the continuous advancement of the old-for-new policy, it will have a significant boost effect on the three S market. However, as time goes on, the impact of macro policies may gradually weaken.

The profits of styrene and its downstream industrial chain continue to be compressed due to the supply growth rate being too fast, insufficient downstream demand follow-up, and the continuous rise in costs. Among the three downstream products, ABS has always led in profits, but since 2023, overcapacity has led to a sharp decline in profits; while the supply growth rate of EPS is relatively low, becoming the one with the strongest profit performance among the three downstream products.

Looking ahead to 2024 and beyond, changes in the profit structure may become more pronounced. In the pure benzene-styrene industrial chain, since the capacity growth rate of pure benzene is less than that of styrene, profits may shift towards pure benzene. After the capacity expansion of ABS and PS in 2023, it is expected that in the second half of 2024, the capacity will begin to be released, at which time the supply pressure on styrene may be alleviated, and profits may also be restored. Considering that the Chinese home appliance market is already basically saturated, the growth target for home appliances such as air conditioners and refrigerators in the future will mainly be based on upgrades and replacements, and it is expected that the growth target for home appliances in 2024-2025 will be set at 5%. With the recovery of the home appliance industry, downstream product demand is expected to recover, but the excessive supply increase of ABS and PS may lead to further profit shrinkage. Supported by the fundamentals of EPS, profits will continue to be restored, but overall, they will maintain a micro-profit model.