FocusFeedstock highs test Europe aromatics chain

16 May 2008 13:00  [Source: ICIS news]

By Peter Salisbury

LONDON (ICIS news)--Record high crude oil prices, a strengthening dollar and weak end-user markets are putting the European aromatics chain under strain, market participants said on Friday, with the short-term future uncertain.

As crude hit new records last week, toluene, gasoline and benzene were also traded at new all-time highs. Downstream, styrene was heard traded within $20/tonne of a record.

Less than a week later, INEOS Phenol said it had to cut back production of benzene derivatives phenol and acetone in Germany and Belgium because of a lack of export opportunities.

The high cost of material in Europe had contributed to the decision, alongside what was perceived as an oversupplied market, a company source said.

Styrene players, meanwhile, described a market increasingly crippled by high prices, weak margins and diminishing demand for end-use products within the wider scenario of slowing global economy.

“[Styrene] prices are extremely high because of benzene,” said one unsaturated polyester resins (UPR) producer. “Benzene is not that expensive relative to the feedstock price of crude oil or naphtha, but the chain is not strong, especially at the end.”

The source said that UPR was in relatively strong demand, but that the value of styrene, 30-50% of production costs, was now becoming prohibitively high.

“Our only hope is that high prices will not cut growth. This could become quite an issue in gasoline driving season,” he said.

Other styrene-based sectors provided an even gloomier outlook.

Polystyrene (PS) and, to a lesser extent, expandable polystyrene (EPS) producers, were feeling the squeeze from feedstock prices.

End-users were not buying material beyond their minimum requirements, players said, and were strongly resisting potential hikes for May contracts.

Tensions within the market were further exacerbated by the lack of clarity on where energy and euro/US dollar dynamics would take the market in the near term.

“A lot of it is up in the air,” said on EPS producer. “Anything could happen. We were looking for June to be softer but now it looks like it could be up thirty or forty euros.”

The producer also said that the effects of global economic slowdown were now making themselves felt throughout the market, and that this would be a further problematic factor.

“Consumer products on EPS will slow down on the credit squeeze or whatever you want to call it,” he said. “Demand has definitely come off. We’re OK for now, but the concern is what will happen at the end of the year.”

Market consensus was that spot and contract values were no longer driven by supply and demand dynamics but by energy fluctuations. With crude finding new records every week, spot markets were being driven up despite lacklustre demand.

The Spanish major Repsol declared force majeure on styrene supplies from its Tarragona production facility in late April. Alongside this, LyondellBasell, Bayer, and BASF had all seen outages planned and unplanned during the past two months.

Players had been surprised by that halted production's lack of effect on benzene and styrene.

“With phenol an issue, and Repsol in particular not using benzene for the time being, the expectation would be that benzene would fall in value, because there would be this oversupply,” a trader source explained. “But conversely, although the styrene market went up, it is clear that it is long.”

A fall in energy complex values could see a slump in aromatics values, many market participants said, although given current market volatility it was unlikely that the situation would become any clearer any time soon.

“I have been in this business for 20 years, and it used to be that you could forecast trends 12 months in advance,” said the EPS producer. “But now things are so volatile, it is difficult to say what is going to happen in one or two months.”

($1 = €0.65)

For more on benzene, styrene, toluene, phenol and acetone visit ICIS chemical intelligence
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By: Peter Salisbury
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