23 August 2004 00:01 [Source: ICB]
Benzene’s primary consumption is in ethylbenzene/styrene, followed by cumene/phenol, and then cyclohexane, chlorobenzene/nitrobenzene and alkylbenzene. It is also used in maleic anhydride production and as a chemical intermediate to make anthraquinone, hydroquinone, benzene hexachloride, benzene sulphonic acid, and other products used in drugs, dyes, insecticides and plastics.
Demand in Europe has improved this year and consumers have been lifting maximum contract volumes. Players say consumption into styrene/polystyrene and phenol is strong while cyclohexane is steady. But, because of the continuing high price of benzene, some suppliers have reduced polymer output and further cuts downstream may be made in the second half if benzene’s escalation continues and derivatives margins do not improve.
The market is tightly balanced following outages in July. Supply is expected to ease in September when several styrene plants have planned shutdowns. Players believe any excess benzene will be soaked up by the US, where supply is short and demand healthy.
Prices have reached record highs this year. European monthly contracts hit €895/tonne in August, while spot levels have soared with August business being done mid-month at $1130-1140/tonne, and September prices tracking $10/tonne lower. The monthly settlement is now regarded as the reference price within the industry. Increasing interest is being shown in a futures market to enable players to hedge against pricing volatility.
The delta over naphtha, historically at $100-200/tonne, has also reached unprecedented levels. With naphtha at $415-420/tonne in mid-August, the premium has widened to well over $400/tonne.
The main source of benzene production in Europe is from pyrolysis gasoline (pygas) co-produced in the steam cracking of naphtha, gasoil or condensates to make olefins. Another source is the selective disproportionation of toluene where benzene is co-produced in the manufacture of a paraxylene-rich xylenes stream. Hydrodealkylation of toluene is a third process and units are usually run to maintain the supply balance, but it is a high-cost route and benzene prices need to be high enough to encourage production. Benzene is also co-produced in BP/UOP’s Cyclar process that converts butanes and propanes to aromatics. To date, only one plant in Saudi Arabia uses the technology.
Benzene is a clear, highly flammable liquid. Flashback is a hazard because of its heavy vapours. It is acutely toxic and vapour can be absorbed through the lungs or skin. It is a cumulative poison that builds up in the blood and tissues and it is suspected to be carcinogenic.
Demand for benzene, of around 4%/year globally, is growing faster than supply. Despite several new projects, mostly in Asia, there could be a 4m tonne/year world deficit by 2010, ensuring that prices will remain high for some years.
In Europe, where demand grows around 2%/year, no new capacity has been officially announced. Although the European Union’s 2005 aromatics legislation will prompt extra supply, more will be needed. However, there is limited scope for new investment. Refineries are unlikely to invest and pygas supply is trailing demand as new (Middle East) crackers are based on ethane. Players believe new extraction capacity will be added, but companies need to be confident first that prices will remain high enough to justify investing.
WEST EUROPEAN BENZENE CAPACITY, ’000 TONNE/YEAR
|AP Feyzin||Feyzin, France||110|
|Dow Chemical||Böhlen, Germany||320|
|FinaAntwerp Olefins||Antwerp, Belgium||170|
|Galp Chemical||Oporto, Portugal||80|
|Holborn Europa Raffinerie||Hamburg, Germany||65|
|Polimeri Europa||Porto Marghera, Italy||110|
|Repsol YPF||Puertollano, Spain||125|
|Sabic Euro-Petrochemicals||Geleen, Netherlands||350|
|Shell & DEA Oil||Heide, Germany||120|
|Syndial||Porto Torres, Italy||190|
|VFT Belgium||Zelzate, Belgium||90|
|SOURCE: ECN/CNI||* Atofina/BP|
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