Benzene Braces for Capacity Onslaught

17 January 2000 00:00  [Source: ICB Americas]

By Karl Greenberg

A snug supply-demand balance and the anticipation of numerous refinery turnarounds during this quarter have helped push January benzene contracts to $1.20 per gallon--15 cents above December contracts and their highest level since February 1997.

But analysts and market participants caution that the currently strong pricing may be merely the calm before the storm. Later this year, new aromatics capacity should lengthen inventories and put downward pressure on pricing. Nevertheless, "inventories have been drawn down, and turnarounds this quarter will keep the market snug at least through January and February," says a producer.

An analyst says that producers planning first-quarter refinery turnarounds include BP Amoco, Chevron, Hess's refinery in St. Croix, Mobil's Beaumont, Tex., facility, and Koch's refinery in Corpus Christi, Tex. "Frankly," he says, "it's easier to count those that don't have turnarounds planned for this quarter."

Fina took down its Port Arthur, Tex., refinery and petrochemical operations two weeks ago for month-long maintenance, according to a market participant. An analyst says the site will stay down until the first week of February, sidelining all aromatics production there for a month. The company will not confirm the turnaround.

"Everyone pushed their plants this [past] year," the analyst says. "This [past] year, demand was high and people ran at very high rates, doing maintenance catch-as-catch-can."

Manufacturers of products derived from benzene say the fluctuating benzene prices--up one month and down another--have wreaked havoc with their own businesses.

"If the benzene price is $1.05 one month, $1.20 another month and $1.10 the next, we know we can't recoup that," says a product buyer for BASF. "By the time you try to put it through, the downstream customer says, 'We don't know what you want. The price is back down to $1.05.'"

Yet the buyer cautions that not only new benzene capacity, but also downstream turnarounds in styrene and other derivatives, will put downward pressure on benzene this year. "Perhaps $1.20 in January is a one-month issue," the buyer says.

Dave Witte, director of polyester and polyester raw materials for Houston-based Chemical Market Associates Inc. (CMAI), says that the greatest pricing risk is between gasoline and first-line petrochemicals.

"It really depends on the product, but the variability of margins and the risk of movement for margins is most pronounced between the gasoline refiner, the LPG (liquefied petroleum gas) producer, and the first line of petrochemicals, which acts as a dampener to absorb minute-to-minute fluctuations," he says. "For example, benzene is fixed for a month, but its raw material fluctuates constantly."

A cyclohexane producer agrees. "There is risk all the way down the chemical chain, but those who sell feedstocks on a monthly basis are saddled with a significant risk of what oil will do that month," he says. "As you move down the chain, the cyclo consumers will have the risk of monthly variations in cyclo pricing. From my perspective, to the extent that buyers want me to commit to a quarterly price--well, I'll talk about a quarterly price, but there's going to be more margin in that price to cover my risk than if I go monthly."

Although benzene is at a three-year high, Mr. Witte predicts that benzene has peaked for the year. "There's just a lot of new volume coming out of the Saudi Arabian system, the Indian system, Taiwan, Europe and Japan," he says. "Once that production starts, it's going to pressure the benzene price lower."

According to Richard Sleep, an analyst with Tarrytown, N.Y.-based Chem Systems Inc., there will be about 1.47 million tons of new benzene capacity, including 470,000 tons from Formosa in Taiwan, more than 500,000 tons from BASF and TotalFina in Belgium, and 120,000 tons from ExxonMobil in the Netherlands.

By the end of 2000, subsidiaries of Saudi Basic Industries (Sabic) will have increased their benzene and xylenes capacities to 500,000 metric tons per year and 375,000 metric tons per year, respectively, according to P.J. Juvekar, an analyst with Salomon Smith Barney.

During December 1999, a vigorous export market led to higher prices for mixed xylenes, with spot deals in the latter part of the month and early January being conducted at $1.01 to $1.02. January contracts have settled at 99 cents per gallon, 13 cents above December contracts of 86 cents. A producer notes that last month, 100,000 metric tons were exported to both Europe and Asia, boosting spot prices and January contract nominations.

Toluene had settled from recent spot prices in the high-85-to-87-cent-per-gallon range to 84 to 86 cents toward the end of last year, but has since rebounded to 87.5 cents, climbing as high as 90 cents last week.

But a 30 cent spread between toluene and benzene, and an 11 cent spread between toluene and xylenes have made both toluene disproportionation (TDP) and hydrodealkylation (HDA) more attractive than they have been in months. "For HDA, there is a startup and shutdown cost," notes the analyst. "So you have be prepared to run them for a couple of months."

"All the dealkylation units that can run are running," says Jim Enright, an aromatics consultant with Houston-based DeWitt. "All those toluene conversion units are profitable right now. If they aren't on a turnaround, producers are running them."

Mr. Witte notes that despite a sluggish paraxylene market with contracts rolling over for the first quarter at 21 cents per pound, unchanged since October, selective TDP-to-paraxylene is more attractive now that mixed xylenes are near $1 per gallon and higher for spot material.

"Mixed xylenes, relative to PX, are strong, so if you are doing conventional disproportionation, the economics are good right now," he says.

Attempts to raise paraxylene contracts have been held back by low spot prices because of anticipated new capacity from Reliance Industries in India and subsidiaries of Sabic. "It is making contract negotiations more difficult," says a product manager. "Buyers can say, 'Look, I'll buy a larger portion of my portfolio on spot."

On January 10, Indian petrochemical giant Reliance announced the commissioning of its third 467,000-ton-per-year paraxylene line at Jamnagar, raising the company's nameplate to more than 1.4 million tons per year.

Now the third largest paraxylene producer in the world after BP Amoco and ExxonMobil, the company says that substantial PX output will be captive for its own purified terephthalic acid plants in Patalganga and Hazira, though it will also export material to Asia and Europe.

A 520,000-ton PX plant in Al Jubail, operated by Sadaf, a Sabic-Shell joint venture, is scheduled to come on stream in 2001, and Ibn Rushd, a Sabic subsidiary, will bring up new PX capacity in 2003 (CMR, 9/6/99 pg. 10). BP Amoco is also scheduled to bring 420,000-ton-per-year of PX on stream at its Geel chemicals complex in Belgium this year. Analysts say total paraxylene capacity additions within the next two years will exceed 3.5 million to 4 million tons.

Toluene's supply-demand balance may also lengthen later this year when a delay in the startup of PX production at a South Korean facility moves 450,000 tons of excess toluene onto the global market. "There's just likely to be a lot more material around this year," an analyst says.

BUTADIENE--The supply-demand balance for butadiene is tight and should remain so at least until next month. A producer says the January price is likely to be a rollover from the December price of 19c. per pound, a 1c. increase from November contracts, says an analyst, who adds that supply is tight and a Shell outage in Norco, La., has tightened it even further.

CYCLOHEXANONE--BASF has raised its prices for cyclohexanone by 3c. per pound, effective January 1.

ETHANOL--Fuel-grade ethanol prices spiked late last week and early this week, with some Nebraska terminals reporting $1.145 per gallon for ethanol, nearly 14c. above prices in early January. "Ethanol prices were starting to catch up more with the high differential between gasoline prices at Midwest terminals," says a market observer in Nebraska.

ETHYLENE--Ethylene contracts rolled over for December after settling up 0.5c. in November to 27c. per pound. An analyst says that on January 2, Shell Chemicals had an unplanned outage at its Norco, La., refinery and petrochemicals complex, which sidelined the facility's 1.75-billion-pound-per-year and 1.18-billion-pound-per-year crackers. After having dropped sharply, spot prices are around 23c. to 24c. per pound, according to the analyst.

ETHYLENE GLYCOL--Sabic has announced a February contract price for fiber-grade EG in Asia of $570 per metric ton, a $50 decrease from the December price, according to George West of Houston-based Commodity Consultants Group. He says other producers have followed.

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