FocusLow US benzene/crude ratio blamed on Rita

11 November 2005 18:55  [Source: ICIS news]

Hurricane Rita blamed for low benzene/crude ratioHOUSTON (ICIS news)--Low styrene monomer production in the wake of Hurricane Rita and other factors have led to a low benzene-to-crude oil price ratio, market sources said on Friday.

The benzene-to-crude oil price ratio was 1:1.52 on Friday morning, well below the 1:1.70 ratio that that many market players see as a support level for benzene spot prices.

Based on average November benzene spot prices of $2.13 (Euro1.82)/gallon free on board, US Gulf and the December New York Mercantile Exchange (Nymex) crude oil futures contract settling at $58.81/bbl on Thursday, benzene was about 1.52 times the Nymex crude oil benchmark price.

Historically, benzene spot prices tend to rebound shortly after falling to or below 1.70 times crude oil prices, several traders said. Benzene prices, however, have remained well below this traditional support level since 11 October, according to historical data compiled by global price reporting and market intelligence service ICIS-LOR.

Benzene spot prices are low relative to crude mainly due to reduced consumption by styrene monomer (SM) producers in the wake of Hurricane Rita.

With all US Gulf SM plants concentrated in the upper Texas and Louisiana coastal regions, suppliers shut down plants on 21-22 September prior to Rita making landfall on 24 September. With similar shutdown measures affecting ethylene production, most SM producers remained down an average of 10 days following Rita.

Benzene and ethylene are the two major raw materials used to manufacture SM.

Some market players estimated that at least 600,000 tonne of US Gulf SM production was lost during the plants’ hurricane-related downtime. The loss in SM production resulted in an estimated 480,000 tonne fall drop in benzene consumption. Although not all of this product would have been purchased on the spot market, traders estimated that about 20,000-25,000 tonne of spot material was not consumed by SM producers because of the outages.

Relatively low operating rates at US Gulf SM plants during the past four weeks is another  reason the benzene-to-crude ratio has remained below 1:1.7, market sources said. Limited ethylene supplies have kept most US Gulf plants running below 80%, according to supplier sources.

SM producers said their main concern throughout October was sourcing enough ethylene to operate plants above 70%. Almost halfway through November, however, SM makers said that dealing with reduced downstream demand has become their primary concern.

An example of reduced SM consumption is in tyre production. Goodyear Tire & Rubber has slowed tyre production in North America by 30% because of shortages of raw materials, such as synthetic rubber and carbon black, industry sources said recently. Other tyre manufacturers have reportedly reduced tyre production due to limited raw materials.

In addition to reduced domestic consumption, there has been much less SM spot product moving from the US Gulf to Europe and Asia Pacific, making it difficult for SM producers to justify operating rates above 80% over the past month.

Some market sources say the US has not had the lowest spot prices of the three regions at all this year. This trend was illustrated during the past week as US Gulf spot numbers were in the mid 50s cents/pound FOB USG, nearly 10 cents/pound higher than European and Asian spot numbers.


By: Aaron Goetze
+1 713 525 2653



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