Benzene likely heading for price decline - consultant

15 January 2010 03:31  [Source: ICIS news]

By John Richardson

SINGAPORE (ICIS news)--Benzene spreads over naphtha have soared on tight supply to the point where pressure from buyers could well result in a price correction over the new few weeks, said Leonard De Guzman, Philippine-based petrochemicals consultant with DeWitt & Co.

Naphtha-benzene spreads reached $285.50/tonne (€197/tonne) on 8 January, according to ICIS pricing. This is close to the highest level achieved last year - $303.50/tonne on 17 July - and well above the minimum $180-200/tonne needed to cover costs. (See graph below)

“Speculation in oil is a big factor behind the rise in benzene prices, and it’s also the result of traders effectively talking the New Year benzene price up before Christmas,” said De Guzman.

“Major production problems have also driven up the price to what I think is unsustainable levels.”

These problems include fires at two of BASF’s European sites - Europe’s largest cracker at Antwerp in Belgium on 20 December, and at Ludwigshafen in Germany on 23 December.

BASF restarted the Antwerp cracker early in January, but the Ludwigshafen 1 cracker was not expected  to be back online until late January/early February, according to an earlier article on ICIS news.

Cold weather has resulted in delays in the shipment to Asia of around 500,000 tonnes of European naphtha from January into February, ICIS news has also reported.

Delayed naphtha shipments, less naphtha exports from India and a drop in the availability of full-range naphtha from the Middle East have combined to reduce pygas availability and reformer operating rates, added De Guzman.

India’s naphtha exports fell in 2009 despite increased gas availability from Reliance Industries’ KG basin.

“High natural-gas prices have led to increasing use of naphtha domestically for power and fertiliser production,” said De Guzman.

The dip in Middle East full-range exports is the result of last year’s start-ups of reformers in Oman and Kuwait.

The benzene cost-push has resulted in styrene rising from $1,205/tonne FOB Korea on 18 December to $1,300/tonne FOB Korea on 8 January, said ICIS pricing.

“This has reduced the spreads between styrene and general-purpose polystyrene (GPPS) to as little as $40-50/tonne when a minimum of $80/tonne is needed to cover costs,” De Guzman added.

“At the moment, end-users are not badly affected by high styrene because they can largely afford to sit on the sidelines as this is a quiet demand season.

“But come April if this current trend were to continue, we would be in the peak production season for the end-users – and also in the middle of the Asian styrene turnaround season which runs from March until June.”

PS and expandable PS (EPS) resins were easily substitutable, he added.

For example, concrete can be used in road construction instead of EPS and polypropylene (PP) in food containers instead of PS.

So De Guzman said he believed that something would have to give.

“An indication is that hydro-alkylation (HDA) and toluene disportionation (TDP) producers in Northeast Asia are showing no signs of re-starting.”

The HDA and TDP operators, who produce benzene, had cut rates or shut down in December when toluene, benzene and mixed xylenes (MX) prices were at virtual parity, he said.

($1 = €0.67)

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By: John Richardson
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