Europe benzene-naphtha spread falls 70%

22 October 2008 15:30  [Source: ICIS news]

LONDON (ICIS news)--The spread between European benzene and naphtha has shrunk from $400/tonne (€304/tonne) to nearly $100/tonne on weak demand due to fears of a global economic downturn, players said on Wednesday.

Benzene was talked within a $575-590/tonne CIF ARA range against naphtha at $449-459/tonne CIF NWE, at a differential of $126-131/tonne.

On 23 July, benzene had traded near record highs, at $1,435/tonne CIF (cost, insurance and freight) ARA (Amsterdam, Rotterdam, Antwerp), according to global chemical market intelligence service ICIS pricing.

At the same time, naphtha traded within a $995-1,005/tonne CIF NWE (northwest Europe) range, with a spread of $430-440/tonne seen between the two.

That means the spread had diminished 70-71% over the course of four months.

“I think we can see the spread fall to $100/tonne if the market continues to go down,” said one trader on Wednesday. Spot benzene in Europe has shed 50% of market value since the settlement of October contracts at €797/tonne.

The previous day, a benzene producer had said that such levels were “not sustainable” but agreed that demand was incredibly weak throughout the petrochemical chain.

Players attributed the fall in values and in the naphtha spread to failing demand in line with fears over the global economic outlook.

Demand for downstream polystyrene alone was down more than 10%, players said, with producers now running at 20-30% of capacity.

Hopes voiced the previous week that government intervention in financial markets could improve end-user demand had been dashed on wider recessionary fears, players said.

“People are not scared by the financial crisis now,” said a downstream producer. “They are scared by the economic situation, which was there before the most recent crisis.”

The spread between naphtha and benzene is widely seen as ain indicator of both the profitability of benzene and the level of demand for the product, according to market participants.

In times of high benzene demand, the spread between the two will grow, allowing a greater profit margin in production.

In Europe, benzene is obtained primarily from pyrolysis gasoline co-produced in the steam cracking of naphtha, gasoil or condensates to make olefins, according to ICIS chemical intelligence.

The amount of aromatics produced can be increased by employing heavier feedstocks, such as naphtha.

($1 = €0.76)

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By: Peter Salisbury
+44 20 8652 3214

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