Styrene: Analysis of the Logic and Valuation of the Current Rise from the Perspective of Industry

Core Points

The short-term fluctuation rhythm of EB is greatly affected by the will of funds, but from the perspective of the industry, the real factor that cooperates with it is the hot ABS market, not the decline of inventory. From the valuation point of view, short-term EB does have a super rise of 150-200 yuan/ton. But if the ABS and other markets under the end point of industrial finished goods stocking continue to be hot, the downstream does not rule out continuing to make profits to upstream styrene and cause short-term changes in EB. Based on the historical profit fluctuation range of spot since the listing of EB, EB may still have an upside of 600 yuan/ton at that time. It is recommended to pay close attention to the downstream market situation of styrene end point.

Risk warning

Macro risks still exist, or the price of the energy sector is abnormal; the disk has less precipitation funds and is vulnerable to large amounts of funds.

Quotes Review

On October 14th, the main contract of styrene futures, EB2101, experienced a sharp rise, rising by more than 7% in a short period of time, and the intraday price once hit a new high of 6310 yuan/ton since the outbreak of the epidemic. As of the end of the afternoon, the closing price of EB2101 was 6171 yuan/ton, and the cumulative increase after the National Day has reached 575 yuan/ton, and the cumulative increase calculated by the closing price is as high as 10.28%. In addition, in the process of this round of soaring, the volume and position of EB2101 on the 14th were 468,000 and 148,000 hands respectively, which increased significantly compared with the previous long-term transactions and positions near the 80,000 hand.

Inventory pressure has indeed eased, but the time window may be more critical

At present, the loudest voice in the market is that one explanation is the positive impact of the decline in inventory at the spot end. We think this explanation is too far-fetched. Because even if the dewarehousing during the National Day is better than market expectations, neither the extent of dewarehousing nor the level of inventory after dewarehousing can cause a shortage of supply in the cash market. From the actual cash market research, due to the arrival of cargo in October is indeed slightly less than expected, the supply of cash market has tightened to a certain extent recently, but even after the start of the market is far from the degree of shortage. What's more, the market on the 9th of this month has fully digested the benefits that the National Day dewarehousing is not as good as expected, and the market did not break out until the 13th and 14th. The most important point is that in the process of the whole market outbreak, the overall structure of styrene futures stabilized, and its basis difference on the 13th even weakened slightly throughout the day, which is also the biggest logical vulnerability of "spot destocking creates this round of skyrocketing market".

ABS skyrocketing really provides room for EB to rise in this round

In addition to the benefits of destocking and the time window, another benefit of styrene fundamentals lies in the profit transfer brought about by the recent hot market of downstream ABS, which we believe is more likely to provide upside space for EB's current surge. Due to the recovery of downstream home appliances and automobile production since the third quarter at the end point, ABS prices have continued to strengthen sharply against the season since August. Since the National Day, the actual price of ABS (0215A), which has entered the seasonal peak consumption season, has risen unilaterally by as much as 1700 yuan/ton. In just three or four days, the increase has exceeded 12%, and the gross profit margin has exceeded 100%. This has completely created room for making profits to upstream styrene.

Discussion on short-term pullback amplitude and long-term upside

Summary

Overall, we believe that the short-term fluctuation rhythm of EB is greatly affected by the will of funds, but from an industrial perspective, the real fundamental factor that cooperates with it is the hot ABS market, not the decline in inventory. From the valuation point of view, short-term EB does have a super rise of 150-200 yuan/ton. However, if the ABS, EPS and other markets under the end point of industrial finished product stocking continue to be hot, the downstream does not rule out continuing to make profits to upstream styrene and cause short-term changes in EB. Based on the historical profit fluctuation range of spot since EB's listing, if the downstream is hot enough, EB may have an upside of 600 yuan/ton at that time. It is recommended to pay close attention to the downstream market situation of styrene end point.