15 July 2008 17:52 [Source: ICIS news]
By Peter Salisbury
LONDON (ICIS news)--As much as 100,000 tonnes of benzene and styrene could make their way into Europe from the US in August as values in the former region continued to rocket in a tight supply scenario, market participants said on Tuesday.
Buyers, sellers and traders gave estimated imports of benzene at 15,000-30,000 tonnes and styrene of 40,000-80,000 tonnes as producers in particular scrambled for material in an open arbitrage window.
“It’s not easy to find the exact volumes, but the arb is definitely there,” said a trader who estimated an influx of 20,000-30,000 tonnes of benzene in late July and early August.
“It’s workable, but it depends on freight rates, and the volume coming across doesn’t help with this. But both traders and producers are working it.”
Other traders said that they had seen only 15,000-20,000 tonnes booked for August, which was not seen as a remarkable volume but they thought it was likely that further shipments would be made.
“We are looking into it,” said one trader. “A broker has been offering 5,000 tonnes although I am not sure if that has been booked.”
A producer, meanwhile, said that offers of 15,000 tonnes had been made from the ?xml:namespace>
Benzene values had rocketed in the week ending 11 July as two major producers appeared as spot buyers in a market perceived as tightening on the back of reduced cracker rates across
A new record high benzene spot trade was confirmed at $1,445/tonne (€910/tonne) CIF (cost, insurance and freight) ARA (
“To set European styrene free, given the tight market, you would need 60,000-80,000 tonnes in August,” said a source at a major styrene producer meanwhile.
“In fact, that’s the minimum that we would need, given the outages we are seeing. One or two producers would take the larger part of that.”
Other players said this number was much higher than their estimates, which fell into an average range of 30,000-45,000 tonnes of imports for August.
Dow’s decision to idle its Terneuzen styrene production in the Netherlands, cutting European capacity by 40%, and outages at Polimeri’s two Mantova production units in Italy, alongside long-term maintenance at one of BASF’s Belgian Antwerp units, had seen styrene supply tighten significantly in June and July, leading to record high spot and contract prices in the $1,800s/tonne and €1,200s/tonne respectively FOB (free on board) Rotterdam.
Importing material would be made more complex by freight costs given the sheer volume of potential imports, and the possible impact of a drop in pricing of each product on the other, players said, but current fundamentals showed a strongly viable import market.
Where global chemical market intelligence service ICIS pricing had quoted a freight rate of $52-55/tonne for 5,000 tonne shipments from the US Gulf (USG) into Rotterdam in the week ending 11 July, players were now quoting numbers up to $60/tonne.
“It does depend on shipping costs, but the money is there,” said one trader. “At $45/tonne you can make a good profit, but at $60/tonne that’s cut down, although not to nothing.
I have heard 30,000-60,000 tonnes of aromatics are on their way, and that obviously means that prompt shipping is now really tight.”
European August loading spot benzene was valued at $1,415-1,430/tonne CIF ARA by ICIS pricing on Tuesday.
The market was steeply backwardated and July valued at $1,450-1,480/tonne CIF ARA with players expecting prompt benzene numbers to remain firm for the foreseeable future on increasing industry demand and perceived tightness of supply.
At the close of business on Monday 14 July, USG benzene had been valued at $4.40-4.45/gallon FOB (free on board) for July and August, equivalent to $1,324-1,339/tonne FOB USG.
Given that material loading in July would not arrive until August, this gave a $91/tonne differential between the two markets and a paper arbitrage margin of $36-39/tonne on a shipment.
Styrene, meanwhile, was valued at $1,800-1,830/tonne for August in Europe on Tuesday whilst the
This again showed a strong paper arbitrage window, giving a differential of $125-133/tonne, and a margin of $70-78/tonne after shipping.
Whilst there was currently prompt demand for material, a source at one producer warned that such a large influx could saturate the market in the second half of August, resulting in a drop in values.
“A lot of traders are bringing in styrene arriving in August, let’s say 35,000-45,000 tonnes by my calculations,” the source said.
“Supply is tight but demand is very weak. Prices at the moment are being driven by reduced supply, and margins are not great. Prices should go down in H2 August with this much material, but then again that depends on demand. The question is, who wants to buy for August?”
Another industry source said current market volatility added significant risk to bringing in such a volume of material.
“The current price of benzene has shown the volatility of the aromatics market,” the source said. “It could slip by $100/tone, and what would happen to styrene prices then? Nobody trusts the market at the moment.”
The source added, however, that current tightness meant the traditional seasonal “summer hole” in demand was not apparent.
“We will start August with low inventories and sky high prices,” he said. “It looks like 2008 could be a nice analysis and benchmark year and hopefully we will learn our lessons from it.”
($1 = €0.63)
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