OUTLOOK '09: Europe aromatics face volatile future on downturn

30 December 2008 12:13  [Source: ICIS news]

By Peter Salisbury

Europe aromatics face volatile future on downturnLONDON (ICIS news)--Discussions surrounding the outlook of Europe's aromatics (benzene, toluene, xylenes) markets all return to one overarching theme: the global economy.

With demand and energy complex values – key market drivers – in thrall to current turmoil within financial markets and the wider economy, the view was decidedly opaque.

Should the global economy remain in the doldrums, players said, it was likely that demand for both crude and end-use products would be depressed, forcing prices down from the top to the bottom of the chain.

A further key issue remained supply chain management, however, with current levels of destocking likely to be followed by bulk buying in the first quarter of 2009 leading to potential price bounces from recent lows, players said.

This had already been witnessed in the benzene sector, where a sharp uptick in buying interest in mid-December had pushed prices up $200/tonne (€142/tonne) plus from a record low set earlier in the month.

Intermittent price spikes followed by lengthy troughs could become a recurrent theme throughout the following year, some sources said, with players holding back from buying until prices bottomed, then buying quickly as the market moved up, leading to widespread volatility in the medium term.

Plants were down and running at reduced rates across all downstream sectors, from phthalic anhydride to polystyrene by way of nylon 6. 

Several sources in the xylenes markets said that it was possible to see an average decrease of 10% in both demand and production in the coming year compared to 2008.

One xylenes producer said they were still uncertain how much contract volumes would be taken out in January alone, making it very difficult to forecast on pricing or production rates.

All eyes were now on the new year, with many buyers hoping for a positive signal from upstream markets.

A number of sources said that crude oil, naphtha and gasoline would be the most important drivers for spot and contract prices throughout the year, since demand would likely remain so weak that it would not really have an impact on price ideas.

One producer commented that it would start rebuilding inventories in the spring to be ready for the gasoline driving season which would kick off in May. The source was hopeful that mixed xylenes (MX) demand would increase at that time as a result.

With demand for toluene and xylenes weak across the board, players said that it was likely that producers would increasingly either blend material back into gasoline, or not remove it at all, dependent on their production methods.

In the case of toluene, players said, this would also mean that the market would move in line with gasoline at a pre-determined premium, which would increase ore decrease dependent on demand.

Benzene, largely produced in concert with ethylene in Europe, was a more difficult proposition, players said, as production for both would need to continue as long as there was demand for ethylene. This could, said several traders, lead to saturation of material within the market given increasingly weak downstream demand.

For paraxylene (PX), one trader saw opportunities to export to Asia in the new year. “Demand in China is pretty good at the moment, and I expect this to remain the same in 2009”, the source said.

Arbitrage into other regions, however, remained untenable for all of the aromatics groups, with values in the US, Asia and Europe not presenting sufficiently lucrative opportunities. This in turn was hurting the liquidity of the markets, said a trader source.

($1 = €0.71)

For more on aromatics visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Peter Salisbury
+44 20 8652 3214

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