Major Shakeup on the Raw Materials Side: ABS Prices Surge Sharply in Early March

March 9th, news:

In early March, the Chinese ABS market experienced an epic surge, with all grades showing a significant increase in spot prices. The market atmosphere shifted directly from the post-holiday lull to a frenzy. According to the commodity price analysis system, as of March 9, the average price of ABS sample products was 14,233.33 CNY/ton, representing a 59.45% increase from the beginning of the month. Some grades even saw a weekly increase of over 3,000 CNY/ton, setting a new record for price increases in recent years.

Fundamental Analysis

Supply Level: Resumption of Operations and Maintenance Expectations Coexist

After the holiday, the Chinese ABS industry's operating rate has been adjusted upwards. In early March, companies such as Chimei in Zhenjiang increased their production capacity from a low level, with the overall industry operating rate rising by about 6% to around 70%, and the weekly average output increasing to 150,000 tons. The inventory of polymer enterprises has been reduced to 187,000 tons. However, Ineos Styrolution has a 45-day maintenance plan scheduled for mid-month, and Chimei in Zhangzhou is expected to reduce its load in March and April due to insufficient supply of upstream raw materials. Coupled with the speculative buying atmosphere in the market, the supply within the market is more inclined towards a tight balance. Overall, although the underlying supply-demand contradiction in the industry still exists, the short-term supply side provides strong support for the spot price of ABS.

Cost Factors: Geopolitical Tensions Trigger a Surge in Upstream Three Commodities, with Cost Support Unprecedentedly Strong

In early March, due to the impact of the Middle East conflict on oil and gas production and supply, the escalation of the US-Iran confrontation, and the risk of the closure of the Strait of Hormuz, it directly triggered market panic over energy and raw material supplies. As a petrochemical product, the three main raw materials for ABS were simultaneously severely affected.

Acrylonitrile: The market price of acrylonitrile has increased, driven by rising costs. Concerns over the continuous supply of raw materials have also grown among industry players. Under the pressure of losses and uncertainties in supply, there is a strong sentiment for price increases, with major suppliers significantly raising their quotes. However, in the short term, the overall supply in the market remains relatively sufficient. It is necessary to pay attention to the downstream products' profit margins and their acceptance of the raw material prices.

Butadiene: This decade, the Chinese butadiene market has experienced a strong surge, with the core driver of the increase being international crude oil. The ongoing escalation of conflicts between the US, Israel, and Iran has further fueled market panic, leading to an unprecedentedly high bullish sentiment. In terms of the downstream polybutadiene rubber market, most polybutadiene rubber facilities have maintained high operating rates, ensuring a steady rigid demand procurement for butadiene. Additionally, after the holiday, tire companies have smoothly resumed operations, with production gradually returning to normal levels. The capacity utilization rate of sample tire companies is expected to see a slight increase, indirectly driving the growth in demand for polybutadiene rubber, and thus boosting the procurement demand for butadiene.

Styrene: The styrene market also saw a notable price increase. The listed prices of pure benzene, the main raw material, from major refineries have been raised multiple times, and suppliers are reluctant to sell at low prices, indicating a strong sentiment of holding onto stocks. In the short term, the price of pure benzene is expected to continue to rise in line with the crude oil price. Additionally, in March, several styrene plants in China are undergoing maintenance. Hengli Petrochemical's 720,000-ton plant is scheduled to shut down for 10 days starting on March 15, while Gulei Petrochemical's 600,000-ton plant has already stopped operations on March 7. Zibo Junchen plans to undergo a catalyst replacement and maintenance at the end of March or early April, which will last around 40 days, leading to an expected reduction in supply. Although the resumption of downstream operations is going well, the high costs limit the increase in demand. However, in the short term, with high raw material prices and reduced supply, the styrene market is expected to see further price increases.

On the demand side: Cost transmission and inflationary concerns are dominant, while actual demand remains to be seen.

In early March, the resumption of work at downstream ABS enterprises in China was generally slow, with no significant increase in consumption from the main terminal electrical casing industry. However, the market logic has temporarily shifted from "demand-driven" to "cost-driven + fear of rising prices." Although the profitability of terminal enterprises has improved only marginally, the bullish market sentiment has strongly driven the need for inventory replenishment, and buyers' willingness to purchase has increased, leading to a phenomenon of "stockpiling" in the market. In places like Dongguan, there were even long queues for warehouse pickups. Currently, merchants' inventory levels are not high, and there is a tendency to hold back sales, causing the actual transaction prices to rise continuously. However, it should be noted that some downstream enterprises are beginning to show resistance to high-priced raw materials, and the follow-up purchasing strength is questionable.

Future Market Forecast

Recently, the price of ABS in China has increased significantly, with its driving factors shifting from a simple supply and demand relationship to a triple overlay of "geopolitical premium + cost transmission + expectation of supply tightening." Analysts believe that on a macro level, international crude oil prices have directly pushed up the costs of refining raw materials and transportation, indirectly causing a resonance in the prices of bulk commodities. Under the strong support of cost and the expectation of supply maintenance, ABS has experienced a substantial price increase, independent of the weak fundamentals.

However, after a sharp upward surge in early March, market risk is building up:

1. Bullish Factors Digestion: After a sharp rise, the prices of upstream raw materials in China need to consolidate at high levels, and the cost-driven momentum may weaken.

2. Negative Demand Feedback: The acceptance of high-priced goods by end-users in China is declining, and if transactions weaken, it will limit the upward space for spot prices.

In the short term, under the seller's market pattern, the price center of ABS has significantly increased, but the risk of further chasing highs is growing. Industry players need to be cautious of the phase of high-level digestion, as the market trend may shift from a straight rise to high-level fluctuations, and a slight correction caused by some profit-taking cannot be ruled out. In the future, it will be necessary to closely monitor international crude oil, maritime dynamics in the Middle East, and the actual acceptance of high-priced raw materials by downstream factories in China.