25 November 2009 12:12 [Source: ICIS news]
AMSTERDAM (ICIS news)--The European benzene market is more volatile and unpredictable than at any stage in the past and is set to remain so, said a key producer on Wednesday.
Whereas the average month-on-month price change in the European spot market was around $20/tonne in the early 1990s and $60-80/tonne in the mid-2000s, it was now around $100-120/tonne or 15%, said Jonathan Forbes-Lane, Shell Chemicals’ general manager aromatics, Europe, in his keynote address to the ICIS Aromatics & Derivatives Conference.
The volatility was greater than that on Brent crude, which had been below 10% in 2009.
The margin of benzene over naphtha had also been exceptionally volatile in 2009, particularly because first benzene demand had fallen faster than reformate and pygas supply, and then benzene demand had recovered while feedstock supply had been limited. Prices would stay volatile and unpredictable because they were being pulled in opposing directions by fluctuations in consumer demand and feedstock supply, Forbes-Lane said.
Suppliers and consumers had driven down inventories, and increased liquidity in the benzene market had created greater transparency, so any new information about supply/demand balances had a major effect on spot pricing, Forbes-Lane added.
Shell had responded to the increased volatility by taking a creative approach to managing its customers’ credit risk to sustain their business for the longer term, according to Forbes-Lane. In some cases this had meant agreeing shorter payment terms, linking buying and selling contracts, or allowing customers to move from contract to spot pricing.
Customers had changed their negotiating tactics during the downturn, Forbes-Lane said. One big buyer had switched to an auction process to buy its benzene.
The partnership of Shell Chemicals with Shell Trading had also helped the company to manage risk in volatile markets.
Responding to a question from the floor about whether there was a conflict of interests between managing the assets and taking advantage of trading the spot market, Forbes-Lane said that spot trading was one of Shell’s core competences and so could be used to make a profit.
Market perceptions were a strong factor in driving spot price volatility. Regarding hedging as a solution, he said: “Hedging is not for free. Those companies that go into it are very nearly always disappointed.”
The 8th European Aromatics & Derivatives Conference, jointly organised by ICIS and International e-Chem, takes place from Wednesday 25 November to Thursday 26 November 2009.
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