INSIGHT: Matching benzene supply with derivatives demand growth

24 November 2010 18:20  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--The world will need it, but where will it come from? 

Benzene is a building-bloc chemical that finds wide use downstream in the production of important industrial chemicals, polymers and consumer products. Its supply is an issue.

Producers and others claim there is a need for on-purpose benzene supply for some product chains in some parts of the world.

Cracker production slates have changed with feedstock dynamics. Swing hydrodealkylation (HDA) capacity has been closed. Intense pressure on refining is pinching benzene supply.

“Doing nothing is not a good option,” said consultant Paul Hodges on the sidelines of this year’s ICIS European Aromatics and Derivatives conference, which closed on Wednesday. (Hodges, who is chairman of International e-Chem, writes the Chemicals and the Economy blog for ICIS.)

“Uncertainty over supply and margins is negative for business,” he said.

Consumers and suppliers need to address the issue either jointly or separately, he suggested, adding that the (benzene) industry needs reinvigorating.

But is demand coming to the rescue? Certainly from the producer point of view it is.

“There is a groundswell of opinion throughout the industry that better times are coming,” said Sven Royall, Shell Chemicals' vice president for global intermediates at the conference.

Clearly, such times need to come, as important end-use markets for products derived from benzene collapsed during the recession.

“Since late 2008, two key C6 end-use markets  automotive manufacturing and construction  have been in a deep trough. But it is in these two key end-use markets, which are now slowly recovering, where much of the future growth in C6 value chain demand is likely to emerge,” said Royall.

“There are significant opportunities for future growth if the supply chain remains flexible, competitive and creative.”

The road back has been difficult. End-use markets are recovering, possibly making the question of supply that much more acute. However, global styrene operating rates are still averaging around 82%, according to Royall. Phenol capacity utilisation globally, although better, is still only about 72%.

Over the 2011-2014 period, global benzene demand could grow by 3.9% per year, Shell and consultants CMAI suggest. Underpinning that would be 3.6% per year demand growth for styrene and strong growth for cumene/phenol.

Yet producers seem to be speaking one language and certain market commentators and analysts another.

Hodges kept pointing out at the conference that demand couldn’t be strong given the actual numbers on housing, autos and retail sales.

The outlook certainly is not strong when considering the current round of spending cuts being imposed on economies worldwide.

The run-up in demand could be the result of stockpiling, particularly given the sharp increase in the oil price in recent months, Hodges suggested.

Shell's Royall said the jury is still out on on-purpose benzene supply.

New benzene capacity has come on stream but only as part of other process plant additions. “Wherever there’s an integrated refinery and petrochemicals complex, there’s always an option for more aromatics,” he said.

But if current growth rates for derivates are to be believed, benzene demand could be as high as 3% per year while benzene capacity may only rise by 2%.

The shortfall, if ultimately there is one, will only add to price volatility in an already difficult market.

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

By: Nigel Davis
+44 20 8652 3214

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