FocusAsia benzene oversupply persists, US arb window still closed

29 November 2010 07:44  [Source: ICIS news]

Asia benzene oversupply persists, US arb window still closedBy Mahua Chakravarty

SINGAPORE (ICIS)--Asia is expected to remain in oversupply of benzene in the weeks ahead, given limited opportunities open to sellers to ship materials to the US, market players said on Monday.

The window for arbitrage trade to the US is currently closed, they said, with the price difference between US and Asian material pegged at only $36-39/tonne (€27-29/tonne), lower than the estimated $50/tonne cost of shipping benzene from South Korea to the US.

Asian spot prices were at $920-935/tonne FOB (free on board) Korea last Friday, while US benzene prices were at $3.20-3.26/gal or $956-974/tonne FOB Barges last Wednesday, according to ICIS.

The US market was closed on Thursday and Friday for the Thanksgiving holidays.

Market players said they were finding it difficult to find other outlets for the strong benzene output from the region, where crackers and reformers were running at almost full steam.

Asia is a major exporter of benzene to the US, with the estimated monthly shipments on contract and spot basis at about 40,000-50,000 tonnes.

A recent increase in freight rates for westbound cargoes from Asia had also contributed to the difficulties of shipping out benzene, said a key regional trader.

But demand from US players for Asian November-loading cargoes had been weak, as these players were intent on keeping a low year-end inventory that will be subject to tax, in accordance with the US policy, market players said.

In the meantime, market conditions in the key downstream styrene monomer (SM) were weak, affecting sentiment in the Asian benzene market, traders said.

Demand for SM from the styrenics sector in China usually declines with the onset of the winter season, they added.

But benzene prices were being supported by naphtha.

“The naphtha-benzene price gap is smaller, so it’s difficult for benzene to decrease below $900/tonne,” said a Japanese trader.

Current spreads are currently lower than the $140-150/tonne required by Asia benzene producers to break even, market players.

Naphtha prices were hovering at $805-808/tonne CFR (cost and freight) Japan on Monday, $125-137/tonne lower than benzene spot prices at $930-945/tonne FOB Korea, according to ICIS.

($1 = €0.75)

With additional reporting by Lester Teo

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
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By: Mahua Chakravarty
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