INSIGHT: US to continue as key market for Asian benzene

20 January 2010 16:36  [Source: ICIS news]

By Malini Hariharan

The US is likely to remain a major importer of benzene for the next few years providing a home for Asian surpluses.

It was not too long ago that projections were being made of a benzene surplus in the US from January 2011 when Mobile Source Air Toxins (MSAT) II regulations come into force.

The new regulation requires an annual benzene average of 0.62% by volume in a refiner’s system wide gasoline pool. Small refiners have time until 1 January 2015 to meet this requirement.

The size of the US gasoline market is such that the regulation could have resulted in huge volumes of excess benzene. The country’s environmental protection agency (EPA) had estimated that the new regulations would require as much as 1.5m tonnes of benzene to be removed from gasoline by various means.

But Dewitt & Co in a recently concluded study questions whether the effect would be as great as that foreseen by the EPA and other analysts.

“The experience in Europe in 2000 had shown that refiners found other ways [to reduce benzene in gasoline],” points out Andy Nicholson, vice president aromatics and derivatives at the consultancy.

“A refiner can precut naphtha to eliminate the precursors of benzene. There are also other things; hydrogen is cheap in the US because of low gas prices. So refiners can saturate it to make cyclohexane which is a good gasoline component. Or they can optimise to other products,” Nicholson says.

The US is estimated to have imported around 1m tonnes of benzene last year as production fell sharply due to cuts in refinery operating rates on weak gasoline demand and poor economics.

Poor gasoline demand resulted in decreased demand for octane and therefore for reformate, which is the leading source of benzene in North America. DeWitt does not expect a recovery even when the economy improves. Octane demand is likely to lag as Americans increase their use of renewables, such as ethanol, or drive more fuel-efficient vehicles.

“We estimate that US benzene production was less than 6m tonnes in 2009. In 2007 it was over 7m and ten years ago it was more than 8m,” says Nicholson.

A previous study done by the consultancy in 2007 had predicted that the impact of the MSAT II regulations would be much less than estimates by most commentators. And the main message from the new study is that the US will continue to be a significant importer of benzene.

But import volumes will depend on operating rates at US styrene plants and demand from Asia.

DeWitt estimates that the US exported more than 40% of its styrene production last year, much higher then previous years.

“This was because domestic demand declined and also because of competitive ethylene,” points out Nicholson. Natural gas-based ethylene economics in the US improved significantly last year following a softening in the prices of ethane.

“So even if benzene prices are higher, the ethylene advantage will allow the US to compete,” he adds. But the US ethylene price is still higher than the Middle East. And producers in that region are making significant additions to ethylene and styrene capacities.

US styrene producers have struggled in the last few years with poor profitability and weak demand growth for key derivatives. The industry has seen considerable rationalisation of capacity, but more plant closures and alliances are possible as producers fear thin margins and sluggish demand recovery in 2010.

“Further rationalisation of styrene capacity in the US would depend on the export market potential; but we certainly think there is potential for one more [plant] rationalisation,” says Nicholson.

While Dewitt’s study makes an assessment of US benzene balances in the coming years, Nicholson stresses that the analysis is not straightforward.

“If the US remains a big importer then it would be the highest priced market and would be setting prices globally,” he says.

He also points out that the 2007 Dewitt study had forecast that the US would import mainly from Canada and South America.

“That view has changed; there will be continuous imports from outside the region. Asia will export to the US and volumes will depend on price and end-use markets,” says Nicholson.

And within Asia, South Korea would remain the main exporter to the US followed by India.

Read John Richardson’ & Malini Hariharan's Asian Chemical Connections blog
For more on benzene visit ICIS chemical intelligence 
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By: Malini Hariharan
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