Europe's ABS market faces rising cost pressure ahead of August despite weak demand

After undergoing sharp price corrections in recent months, the European ABS market is beginning to show early signs of stabilization. Although weak demand and comfortable inventory levels kept the market under pressure throughout July, the recent surge in crude oil prices along with stronger benzene and styrene markets has changed expectations for August.

Market participants had largely expected another round of price reductions next month. However, rising feedstock costs, supported by renewed geopolitical tensions and tighter upstream fundamentals, have prompted suppliers to reconsider their pricing strategy. As a result, discussions are gradually shifting from further declines toward the possibility that the prolonged downtrend may be nearing its end. Even so, fragile downstream demand continues to create uncertainty over the market's near-term direction.

Suppliers offered significant discounts during July

Throughout July, most suppliers continued to reduce prices aggressively, with transaction values falling by up to €300/ton, while even deeper discounts were reported in some cases. In many instances, the reductions exceeded the decline in raw material costs as producers attempted to stimulate buying activity and clear available volumes.

Despite these substantial price cuts and a slight improvement in customer inquiries, overall demand remained weak. Most buyers continued purchasing only for immediate production needs rather than rebuilding inventories.

Import offers also remained highly competitive during July. While many Asian suppliers kept their official prices relatively stable, several have recently started indicating firmer offers for August as higher feedstock costs and rising freight rates continue to increase export costs.

Weak demand continues to limit buying activity

Despite historically large price corrections, converters have shown little urgency to return to the market. Many buyers are still relying on inventories accumulated during the spring buying season, limiting fresh purchases to essential requirements.

Weak downstream consumption remains the biggest challenge for the ABS market. Uncertainty over future orders, combined with the ongoing summer holiday season across Europe, has discouraged buyers from increasing stock levels ahead of August.

Many buyers also remain doubtful that suppliers will be able to successfully implement price increases next month. Although they acknowledge the recent rise in feedstock costs, they believe sluggish demand will continue to restrict sellers' ability to pass higher costs through to the market.

August outlook depends on the balance between costs and demand

The market outlook for August has become far more uncertain than it appeared only a few weeks ago. Brent crude prices have climbed above $98/bbl during recent trading sessions as disruptions around the Strait of Hormuz and the Red Sea increased geopolitical risk premiums. At the same time, both benzene and styrene markets have strengthened due to tighter supply conditions, with spot styrene prices now standing around $320/ton higher than late June levels.

Additional support has come from lower styrene operating rates in Europe, limited import availability and the planned long-term mothballing of LyondellBasell's PO11 styrene unit in Rotterdam. Meanwhile, the company's force majeure at its Wesseling butadiene plant, caused by low water levels on the Rhine River, has created further uncertainty across the regional feedstock supply chain.

These developments are expected to increase ABS production costs in August, placing additional pressure on suppliers to seek price increases in order to protect margins.

However, most market participants believe that underlying market fundamentals will remain the deciding factor. Comfortable inventories, weak downstream demand and the seasonal slowdown during the European summer are likely to keep buying activity subdued, making it difficult for suppliers to fully recover rising production costs.

As a result, a strong price rebound still appears unlikely unless end-user demand improves significantly. Instead, the European ABS market is expected to remain caught between increasing cost pressure and weak consumption, making price stabilization or only modest changes a more probable outcome than either another sharp decline or a major recovery.

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