OUTLOOK '10: Europe aromatics market faces uncertainties

28 December 2009 15:00  [Source: ICIS news]

By Madelon Ten Cate and Truong Mellor

LONDON (ICIS news)--The only certainty heard in recent discussions surrounding the outlook for the European aromatics market in 2010 is uncertainty.

Sources largely agreed that the market would continue to improve following the unrest of 2009, but that the sector would still be marked by fluctuations in oil prices and new capacities coming on stream in the Middle East.

After witnessing a 10% drop in crude values over the course of a week in early December, many in the industry felt that the market was still showing signs of volatility, which would continue to exert influence on the entire aromatics value chain.

Several traders said that benzene and styrene spot markets would begin to rally on the back of positive news, but cautioned that values could just as easily come off should crude plummet in the first quarter of 2010. In either case, the market would react sharply, they said.

Opinions on how volatile crude prices would be in the new year were also mixed, with some players believing that $65-70/bbl was the bottom end, while others were less sure.

This uncertainty was already being felt among buyers in the aromatics sector, with many 2010 contracts still under discussion in December. One source commented that in previous years these talks were often completed around the time of the annual European Petrochemical Association (EPCA) conference in early October, a sign that neither buyers nor sellers held too much confidence looking to the year ahead.

One major European supplier remained confident regarding the outlook for the first quarter of 2010, as many consumers were buying ahead of expected price hikes in January, but conceded that many players continued to employ a short-term approach to purchasing and inventory. One player in the benzene market also expected January numbers to be higher, as consumers began to restock for 2010.

However, the rest of the year was difficult to predict. “If anything, 2010 will be more even more volatile than 2009,” said one benzene trader. “We started 2009 around $300/tonne (€231/tonne) [for spot benzene], so the only movement was up. 2010 will open in the mid $850s/tonne, and which direction it will go, nobody knows.”

Another source added that while it had seen tank utilisation rates moving up over the past month, everyone in the market had been operating with low inventory levels since July 2009. The source added that it expected this hand-to-mouth approach to continue into the new year, making any attempts at accurate forecasting difficult.

Something else that could drive market activity in 2010 might be the continued exporting between different regions, sources said. Benzene values already managed to hold firm in the fourth quarter due to export opportunities to Asia and the US.

“Europe will greatly depend on where Asia is,” said one trader. “The market there has been strong recently, but if it goes down in the first quarter this will dampen the mood in Europe.”

Supply concerns were also prevalent among aromatics players when examining the market for 2010, with many unsure of how new Middle Eastern capacities would affect the European sector.

Several sources felt that an influx of ethylene and its derivatives from the region into Europe would keep domestic cracker rates reduced, and one trader felt that this could limit benzene supply by approximately 20-25%. Increased tightness could see prices trend upwards in the same way values came down in 2009, and several players felt that type of volatility would destabilise the market.

New paraxylene (PX) capacities in the Middle East and Asia will also put significant pressure on European producers in 2010. The domestic PX spot market has struggled this year, only showing signs of life when a buoyant textile sector in Asia has opened up export opportunities to the region.

However, inefficient European PX capacities working from a toluene or mixed xylenes (MX) base would have difficulties surviving in 2010, said one source, citing the example of European plants that were dependent on MX coming from the US and questioning the sustainability of such business models and their margins.

Within the styrenics market, several sources expected domestic supply to remain long, especially considering the number of downstream shutdowns in the polystyrene (PS) sector. This could add considerable pressure to European producers’ margins, a buyer said, and could possibly lead to lower domestic operating rates or even shutdowns.

Another matter of concern within the styrenics chain was the need for a new set of contract partners within the styrene contract negotiations. Traditionally, there used to be three sets of partners agreeing to a domestic barge contract price. However, due to mergers and acquisitions, this was reduced to only one set of partners for the majority of 2009.

Players said this had often led to frustration and confusion in the market, arguing that the current contract price did not always reflect true market sentiment. Whether another set of partners would be able to agree to publish a public contract price in the near future was yet another uncertainty, however.

($1 = €0.69)

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


By: Truong Mellor
+44 208 652 3214



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