Weaker yuan widens styrene monomer price gap for domestic China/CFR China cargoes

admin publish 2015/8/19 14:22:00

China's yuan devaluation has exacerbated the spread between domestic China styrene monomer prices and CFR China cargoes, widening it to $39.60/mt Friday, compared with $33.92/mt Wednesday.

Domestic China SM was assessed Friday at Yuan 8,980/mt, or $1,163.10 on an import-parity basis, and CFR China SM was at $1,123.50/mt.

China's central bank devalued the currency three times last week.

The weaker yuan leaves Chinese petrochemical buyers with smaller purchasing power when it comes to imports and increases their incentive to buy domestic cargoes.

Domestic China cargoes have been more expensive on an import-parity basis than CFR China cargoes since mid-April, mainly due to thinner liquidity and credit risks aggravated by bankruptcies in the SM market.

The spread hit a multi-year high of $110.97/mt on July 8.

Previously, CFR China was typically at a $30/mt premium to domestic cargoes on an import-parity basis.

A trader based in Seoul said it has become much riskier to import dollar-denominated cargoes and resell them in the domestic China market because of the current steep backwardation -- with the prompt domestic market and forward import market.

Another source said demand for imported cargoes has fallen because the yuan volatility exposes Chinese buyers to higher currency risks, especially when buying on 90-day letter of credit basis.