Europe Feb benzene to fall on weak sentiment, lower Asia spot

28 January 2010 13:17  [Source: ICIS news]

By Madelon Ten Cate

LONDON (ICIS news)--The European February benzene contract is likely to go down by $70-100/tonne (€50-71/tonne) as spot prices have suddenly tumbled in line with lower levels in Asia and a weaker domestic sentiment, players said on Thursday.

“It is difficult to predict - yesterday I would have guessed [the benzene contract price] would settle at $1,020/tonne, but today it is already a lot lower,” a trader said.

Most of January had seen stable spot trading and the majority of deals were done close to the January contract price of $1,095/tonne.

On Wednesday, however, prices suddenly dropped more than $50/tonne within a day, and Thursday morning saw early trades at $1,000-1,015/tonne CIF (cost, insurance, freight) ARA (Amsterdam, Rotterdam, Antwerp), which was $80-95/tonne below the January contract price.

Players explained that weakening numbers in Asia ahead of the Lunar New Year and subsequent holidays in the region, combined with lower energy levels and a generally bearish sentiment in Europe, meant that it was inevitable for European spot prices to come down sharply.

Asked why benzene spot levels were so weak, another trader explained: “Benzene was up $200/tonne four weeks ago, so now it is time to go back down.”

Indeed, all through December, spot prices had gained ground as domestic supply issues and exporting opportunities had kept the European market tight.

This month, players were not only cautious about predicting a contract price, there was also debate about the method used to agree a monthly contract price.

Traditionally, the European benzene contract price is based on deals done on the penultimate trading day of the month.

This often frustrates market players, who say that a range of one day is not always representative of the month to come, while it is also said that traders, who are not involved in the contract negotiations, should not have such a big impact on benzene pricing for the next month.

This is why several players involved in the negotiations have proposed different methods in order to come to an agreement this month.

“There is nothing in our contracts which states we have to go with the trading window of the penultimate day of the month. Our aim should be to make sure that the contract price [for the whole month] is as accurate as possible,” a consumer involved in the talks said.

“So for February I proposed to my suppliers a different method - we can make the window bigger, but also take into account market fundamentals like supply and demand, forecasting, and export opportunities,” the buyer continued.

The source said that all of his suppliers had responded positively to his proposal.

Indeed, one seller said: “With the right arguments, I am happy to listen to all input.”

Other consumers had previously already stated their concern, and reconfirmed they would be happy to take more arguments to the table for the next negotiations.

However, what impact this would have on the February contract was still unclear. “Maybe this month it will not be so interesting, but let’s wait and see what March and April will bring – this is an ongoing problem,” one of the consumers said.

The February benzene contract price was expected to settle on Friday, 29 January.

($1 = €0.71)

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By: Madelon Ten Cate
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