14 May 2004 18:32 [Source: ICIS news]
LONDON (CNI)--One of the world's biggest benzene buyers has urged petrochemical suppliers to set up a benzene futures market to help ease the problems caused to downstream industries by price volatility.
Rhodia's group vice president of purchasing, Patrick Koller, has written to suppliers detailing the disruptive effects of benzene's massive price instability over the past five quarters.
Contract prices for benzene were agreed at the beginning of April at about Euro560/tonne - about Euro150/tonne higher than the January 2004 level and nearly Euro250/tonne up on last July. Meanwhile, spot prices have veered wildly, rising from $460/tonne in January to $580/tonne in March, before a series of plant outages sent them zooming to $970/tonne in early April as buyers fought to get hold of scarce product.
Outages included Dow's Terneuzen plant in the Netherlands, Shell's Wesseling plant in Germany and BP’s Texas City, US site.
Although prices did not remain at above $900/tonne for long, spot offers are still well over $700, according to ICIS-LOR*, the global price reporting and market intelligence service.
In his letter last week to suppliers, Koller said: "Benzene volatility has doubled that of Brent [crude oil] over the last two years, [it] has sky-rocketed to highs not seen in over 20 years. A climb in benzene price of 60-100% in the past two quarters is too far and too fast to be recovered by downstream markets where prices are extensively fixed from one quarter to one year."
To accommodate suppliers, said Koller, benzene consumers have recently accepted a new system of monthly contracts. But he argued that the industry now needs to give a higher priority to downstream price constraints, pointing out that "drastic swings in prices" tend to discourage downstream investment because buyers cannot be sure of passing on price increases.
What is needed, he said, is for the petrochemicals industry to promote futures trading in benzene, by offering some of their output at a fixed price for several months at a time. So far, producers have been reluctant to offer enough of their output on this basis to make a futures market work properly, added Koller.
Alternatively, he said, they could price their benzene output by a formula linked to the naphtha price plus a processing margin.
But something must be done, he insisted. "The recent extraordinary series of unplanned production outages is choking off demand and driving prices well beyond acceptable levels," he wrote. "We ask that benzene producers take immediate and urgent action."
*ICIS-LOR is part of Reed Business Information (RBI), publisher of CNI.
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