FocusAsia benzene fall makes producers jittery

13 August 2008 06:00  [Source: ICIS news]

By Mahua Chakravarty

SINGAPORE (ICIS news)--Some northeast Asia-based benzene producers are being forced to consider cutting operating rates, after values dropped 12% in the past two weeks and a high possibility of a further drop in the coming days, said traders and producers on Wednesday.

Some producers could be considering a cut in operating rates as they had purchased feedstock at much higher levels earlier, said a South Korean trader. No further confirmation was available.

"[Benzene] cannot have a floor with naphtha down and weakening styrene monomer [prices]," said a Singapore-based trader and added that the future market direction depended on crude.

Prices have been on a steady downtrend with a total loss of $160/tonne since the end of July and were expected to drop further due to soft crude and weak fundamentals in Asia.

The hefty drop in crude to current levels of around $113/bbl was the main factor for this downtrend, while availability of benzene had also mounted due to slow demand from the downstream segments and limited arbitrage opportunities, said traders and producers.

"Balance in Korea and Japan is high," said a South Korean trader, adding that slow demand from the downstream styrene monomer (SM) and phenol sectors had contributed to this build-up.

Additionally, the arbitrage window from Asia to the US had been closed in the past few months resulting in limited outlet for the supply here, said a South Korean producer. In June, benzene exports from South Korea to the US amounted to only 5,717 tonnes, a drop of 44,407 tonnes from the previous month, according to Korea International Trade Association (KITA).

The arbitrage window to the US was open in theory and some players had discussed shipping benzene to the US, said a South Korean seller.

But, difficulty in getting vessels and high freight costs from Asia to the US could deter the arbitrage, said another South Korean producer, adding that due to these factors the netback from shipping to the US could be low.

Hence, a cut in benzene operating rates could bring down volumes in the region, but whether that would result in a benzene recovery was not certain, said a South Korean trader.

"I’m not sure whether less supply would have an impact on the price as demand is slow," he said.

Benzene prices were notionally assessed at $1,125-1,140/tonne FOB (free on board) Korea on Wednesday, $30/tonne lower than Tuesday’s close, according to global chemical intelligence service ICIS pricing.

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By: Mahua Chakravarty
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