EPCA '08: Unsettled outlook for Europe aromatics

27 September 2008 17:00  [Source: ICIS news]

By Peter Salisbury

LONDON (ICIS news)--Falling downstream demand coupled with illiquid and volatile spot markets are expected to be the main topics of conversation for players in co-related benzene and styrene heading to the annual European Petrochemical Association (EPCA) meeting in Monaco this weekend.

Economic and financial market turmoil were not the only storms causing consternation, with the impact of Hurricane Ike on US Gulf aromatics and derivatives production still hard to assess.

The US market was seen as a potential sponge for excess material from both Europe and Asia, with spot values high but near-term demand difficult to determine before further details were known on downstream demand.

“It could go either way,” said one industry source. “If the derivative production comes on first, the US will be tight, but if benzene or [co-related, potential feedstock] toluene come on first, then we will see a long upstream market.”

These concerns were simply part of a wider uncertainty, however, as the volatility of crude oil, predicated on recent financial market upheaval, meant that energy complex values, a key driver for benzene and styrene, were decidedly opaque.

“The banks are screwed,” said one trader on Wednesday, discussing the takeover of a major Danish bank. “This isn’t a healthy economy. It’s going to be really volatile, a real rollercoaster ride.”

The status of local demand was clearer than in the US, if no less gloomy. 

Downstream polystyrene offtake was believed to be down 9% in the year to date, with production in Europe reduced by as much 25%. 

Phenol, heavily linked to the faltering global automotive industry, also saw weakening demand and players were not hopeful that 2008 would see much improvement.

“The second part of 2008 will not be too much fun,” said a source at another benzene producer, who thought that current demand destruction could be ongoing well into 2009.

“No-one knows where US supply and demand will go, and the market is globally long. We never thought values in Asia would stay up so long, but producers are now cutting back production wherever they can,” he continued.

A styrene trader, meanwhile, summed up his key topics for conversation as he headed to EPCA: “Crude oil values, end user demand concerns and illiquidity mean you have to have some kind of risk strategy.”

Spot values had been on a downtrend since record highs seen in July, when benzene traded at $1,450/tonne CIF (cost, insurance and freight) ARA (Amsterdam, Rotterdam, Antwerp) and styrene at $1,860/tonne FOB (free on board) Rotterdam.

On Friday morning, global chemical market intelligence service ICIS pricing valued spot benzene with October loading at $1,170-1,180/tonne CIF ARA and spot styrene with October loading at $1,480-1,500/tonne FOB Rotterdam.

Market participants were keen to see October contract settlements for both products before and during EPCA, with benzene settling early to accommodate for meetings. Initial benzene contracts settled down €74/tonne on Friday.

Styrene players expected decreases of €100/tonne plus on the basis of a fall of around €70/tonne on benzene and the completed fourth quarter ethylene contract down €108/tonne.

($1 = €0.68)

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By: Peter Salisbury
+44 20 8652 3214

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