FocusEurope benzene falls 50% in three months

16 October 2008 16:03  [Source: ICIS news]

By Peter Salisbury

Benzene going cheap in ARALONDON (ICIS news)--Spot European benzene values tumbled a further $100/tonne (€74/tonne) on Thursday to a 31-month low in line with Asia, as crude oil and naphtha also fell and concerns grew over forward demand.

“It’s energy, but I think what we saw in Asia and with the stock market [pushing things down] and reducing the spread between benzene and naphtha,” said an industry source, explaining the fall.

Spot benzene was widely rumoured to have traded at $720/tonne CIF (cost, insurance and freight) ARA (Amsterdam, Rotterdam, Antwerp), down $100/tonne from a deal the previous day, and $220/tonne, or 24%, lower than business conducted at $940/tonne CIF ARA on Monday.

With the spot market valued at $710-730/tonne CIF ARA by global chemical market intelligence service ICIS pricing, the market had found its lowest levels since a trade at $715/tonne CIF ARA in March 2006.

The 31-month low was in synch with the Asian market, which had seen trading fall into the $600s/tonne earlier in the day.

Benzene had traded at $1,170/tonne CIF ARA on 23 September, some $450/tonne, or 39%, higher.

On 11 July, benzene had traded at a record high of $1,445/tonne CIF ARA, meaning values had dropped 50% in just over three months.

Players cited falling demand on fears over the global economy, further exacerbated by a traditional lack of consumption in the fourth quarter in Europe, as a driving factor.

Tumbling energy prices, with Brent crude into the $60s/bbl, pushing naphtha values below $500/tonne and stock market losses earlier in the day were also seen as reasons for the steep falls, worsening already poor sentiment over the chance of market recovery.

The spread between spot naphtha and benzene was also a wide talking point.

Where earlier in the week the differential between the two had been $300/tonne plus, even with naphtha talked as low as $490/tonne CIF NWE (northwest Europe) a spread of $230/tonne showed a significant fall in buying sentiment.

This, however, was customary, players said.

“For Q4 (the fourth quarter), $300/tonne was a bit overdone,” said one industry trader. “Demand is poor anyway and the spread typically crunches in Q4.”

Added another trader: “In early December last year, the benzene-naphtha spread was $100/tonne. And crude oil was $90/bbl then!”

European players were unsure where their domestic market might bottom out.

“The longer it falls, the closer we get,” said the same trader. “With naphtha prices falling, it is still profitable to produce, though, and production would have to be reduced to see benzene hold.”

Added another trader: “It depends on crude. If we hit $50/bbl, it could be $520/tonne benzene. “If crude holds at $73/bbl, the bottom is here.

"Players have started to question why such a big collapse.”

When asked when the collapse might abate, another trader said “I have absolutely no clue”.

($1 = €0.74)

For more on benzene visit ICIS chemical intelligence

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By: Peter Salisbury
+44 20 8652 3214

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