FocusEurope benzene falls on 'disastrous' market

21 October 2008 16:38  [Source: ICIS news]

By Peter Salisbury


LONDON (ICIS news)--European benzene fell $110/tonne (€83/tonne) on Tuesday as “disastrous” market and energy complex fundamentals eroded 50% of the October contract value, leading to the lowest prices since 2005, players said.


“Commodity prices are now as they were in the old times,” said a trader.


“We are closer to the bottom than we were, but that doesn’t mean that we are there yet,” added a producer source.


Many players commented on the dramatic extent to which spot prices had fallen since the settlement of October contracts, attributing much of the crash to financial market chaos.


Deals were talked at $600-630/tonne (€450-473/tonne) CIF (cost, insurance and freight) ARA (Amsterdam, Rotterdam, Antwerp) for November on Tuesday with participants pegging the market at $590-620/tonne CIF ARA.


The previous day, business had been done at $710/tonne CIF ARA, $110/tonne higher.


According to global chemical market intelligence service ICIS pricing, levels of $600/tonne and lower had not been seen since the week ending 2 December 2005 when trading had been conducted within a $575-605/tonne CIF ARA range.


The October benzene contract price had been settled at a dollar concept of $1,171/tonne FOB (free on board) NWE (northwest Europe) on 26 September on the basis of spot levels at the time. The most recent trades marked a drop of 49% from these levels.


Market values were also down 60% from record highs seen in July, with trades confirmed at $1,455/tonne CIF ARA.


The falls were largely in line with upstream naphtha, prices for which crashed from record levels of $1,161.50-1,171.50/tonne CIF NWE on 3 July to $474-484/tonne CIF NWE on 16 October. 


These in turn were the lowest naphtha prices seen in over 20 months. The crack value had slumped to -$16.20/bbl by 20 October, as spot demand for the feedstock was very weak both from gasoline blenders and from petrochemical producers.


Supply in Europe remained very long despite refinery cutbacks during the autumn turnaround season.


Where in the past such low spot values would attract buyers of both benzene and naphtha, market participants said that incredibly weak demand for end products meant bargain basement values would not attract consumers, whose inventories were already full from their contracted volumes.


Upstream again, crude oil values were hovering around $70/bbl, more than 50% down from a record high at $147.50/bbl set in July, with demand also increasingly weak. Fear over forward demand in a scenario of global recession could push values lower, players said.


“If people had demand, this would be a good situation for opening spot positions,” said a benzene consumer source. “But there simply isn’t any demand from the end of the line.”


Downstream polystyrene demand was particularly weak, with offtake down 10% plus for the year-to-date and production reduced by 25%-30% from traditional capacities.


The extent of poor benzene offtake was also marked by the differential between benzene and naphtha, now at $116-136/tonne, where it had been close to $400/tonne during a period of tightness seen earlier in the year. This was not a sustainable margin, producers said.


“It’s the same on all the products,” said a producer source. “On styrene, cumene, cyclohexane, toluene. It’s a disaster; it’s all collapsing so quickly. Demand is down and production has been cut.


"Naptha crackers have been reduced, reformers have been reduced, swing units are down. The financial markets add a whole other layer. News is so bad – even people who want to buy things can’t get credit.”


Another industry source said: “People aren’t buying new cars or houses, and they won’t for a while. I don’t know how low this can go, but if crude keeps falling we could see benzene at naphtha flat in the $400s/tonne by the end of the month.”


($1 = €0.75)


To discuss issues facing the chemical industry go to ICIS connect

By: Peter Salisbury
+44 20 8652 3214

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