EPCA '10: Supply dynamics, volatility to weigh on Europe aromatics

03 October 2010 09:51  [Source: ICIS news]

By Truong Mellor and Julia Meehan

LONDON (ICIS)--Players in the European aromatics sector will be focusing on volatile price movements, import/export dynamics and expected availability restrictions owing to planned turnarounds in the fourth quarter, as they gather at the 44th annual European Petrochemical Association (EPCA) meeting this weekend.

Although the October benzene contract fell by €36/tonne ($50/tonne), in line with current spot values, talk of planned turnarounds in the fourth quarter as well as firming demand and a lack of imports arriving into Europe meant the market would tighten towards the end of the month.

“The ARA region is still well supplied for prompt material, but stronger demand will see these stocks consumed at a good rate,” said one seller.

While October spot levels were currently hovering round the $910-920/tonne CIF (cost, insurance and freight) ARA (Amsterdam, Rotterdam, Antwerp) mark, one trader felt the numbers should already be closer to $950/tonne in line with reduced availability later in the month and increased buyer interest from derivative markets.

The trader added: “Right now, the weakening US dollar is also having an upward effect on spot values.”

Another producer felt that while demand would remain strong through October and November, towards the end of the year players would start to think about inventory management.

“We are certainly seeing a better situation now than in September,” the producer said. “Demand will stay strong for Q4, so the main issue is the planned turnarounds and the fewer imports arriving in Europe and how this will affect availability. People that are running are running hard.”

Styrene values in Europe have also started to slowly creep back up as October approached, largely on the back of better demand and a buoyant Asian market.

However, sources still described the European market as long, owing to a raft of US imports arriving throughout September and strong propylene oxide (PO) demand leading to a glut of material from POSM plants. An initial October contract settled down €20/tonne at €1,013/tonne.

A second barge contract was agreed late on Friday afternoon between another pair of settlers at €997/tonne FD (free delivered) NWE (northwest Europe), down €9/tonne from the previous month. While a decrease was largely expected due to a well supplied prompt market, a rallying of prices in the spot market on the back of a strong Asian styrene sector tempered the size of the drop.

October spot cargo was currently valued around the $1,135-1,140/tonne FOB (free on board) Rotterdam mark.

“Asia is the driver at the moment,” said one trader, pointing out that the market was currently trading around $85/tonne higher than Europe.

With Asia now the destination of choice for styrene exports, several European players felt that this could help balance the domestic market. Additionally, European sellers may start shipping material to Asia to help further balance the overhang.

“With the current CFR [cost and freight] China numbers, it would make sense to export,” said one styrene consumer.

“But they better hurry up. The strong demand is largely being driven by pre-Christmas production for toys and gifts, so the cut-off for these volumes would be late November.”

There was also ongoing talk of export opportunities to South America, although no firm business had been confirmed yet.

The European toluene market has seen strong contractual demand throughout 2010, although a thin spot market that some players feel is increasingly disconnected from energy price movements has made it difficult to peg values.

“The market seems well balanced,” said one seller. “But we have not seen many people showing spot volumes.”

Another producer said that while the major news amongst toluene players at EPCA last year was the withdrawal of Exxon from the market, most are now looking at the “rogue” nitration grade cargoes that have intermittently appeared from the Mediterranean region, and their effect on ARA spot values.

“It has been more of a buyer’s market in 2010,” the producer said.

Supply and demand for 2011 would also be a major talking point between paraxylene (PX) market players, with Asia continuing to be a key driver in price developments, sources agreed.

“The polyester chain remains strong and the polyester majors are bullish, but margins are not good,” said a PX market participant.

This was because the Asia market was oversupplied, which was keeping downward pressure on prices. However, the European market was in short supply because of various planned and unplanned production issues.

Paraxylene producers had cut reduction at a time when demand is strong, which in turn was keeping the market tight, but doing very little for producer margins.

“The market is getting ready for EPCA and discussions for the PX and OX contracts will spills into the coming days,” said a contract settled on the selling side.

No hints were given as to market expectation from contract settlers on the selling side on either PX or OX.

Downstream, PX observers spoke about increases ranging between a rollover to a €50/tonne increase from September to October and a possible rollover on OX.

In relation to the PX contract, a major buyer said: “It can’t go up. It’s got to be a rollover because of exchange rates. The price will barely move”.

($1 = €0.73)

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By: Truong Mellor
+44 208 652 3214

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