INSIGHT: Japan crisis frays nerves in Europe aromatics markets

16 March 2011 17:10  [Source: ICIS news]

By Truong Mellor

LONDON (ICIS)--Despite a preliminary upturn in pricing earlier this week brought on by the disaster in Japan, players in the European benzene and styrene markets believed the overall impact would be minimal.

However, the precarious nature of the crude and energy markets at present means the prospect of further volatility in the coming weeks is considerable.

Already struggling with unpredictable movements on crude and energy prices due to unrest in the Middle East and North Africa, aromatics players agreed the initial reaction to the devastating earthquake and tsunami that struck Japan last week was one of nervousness.

In the aftermath, JX Nippon Oil & Energy Corp, Idemitsu Kosan and Cosmo Oil all announced that they had shut down their aromatics units in Chiba and Kashima, Japan, which led to a spike in benzene pricing.

“We initially saw numbers here in Europe firm slightly this week on the back of Asian gains,” said one benzene trader. "However, the market was mostly nervous. Bids and offers were nervous, with nobody really sure which way the market would go.”

Indeed, after prices rose early on Tuesday March 15 to breach the $1,300/tonne (€923/tonne) level, with deals reported at $1,300-1,310/tonne CIF (cost, insurance and freight) ARA (Amsterdam, Rotterdam, Antwerp), a $3/bbl drop on crude futures pulled the bid/offer range back down to $1,240-1,260/tonne by the end of the day.

One supplier commented: “The market in Europe is not really crude-driven at the moment. The shortness in Asia had an initial upward push on NWE [northwest Europe] prices, but there was no firm reasoning behind it to be honest. These are sentiment driven numbers right now.”

But what is the overall sentiment in the market so far? Price movements paint a somewhat opaque picture, with concerns over Japanese demand for oil and fuel pulling crude and energy numbers down, while availability issues saw a spike in aromatics values, at least initially.

Consumers in Asia snapped up April and May benzene cargoes earlier this week amid supply concerns, which pushed prices in the region up $35/tonne to $1,215/tonne FOB (free on board) Korea.

However, by Wednesday March 16, Asian benzene prices fell by $25-35/tonne to $1,165-1,190/tonne FOB Korea as crude and naphtha values fell.

It is this lack of certainty that is keeping European players unsure of which position to take, according to one trader.

The trader said: “Global developments pushed benzene up, but Rotterdam is currently long for benzene with the arrival of imports, so this is why we saw the numbers come back down.”

Similarly, the European styrene market is currently facing a push and pull of opposing influences.

With seasonal de-icer demand slowing down as the weather improves, players are expecting that this will see reductions in POSM (propylene oxide/styrene monomer) output.

However, other sources expected PO demand to stay firm into the second quarter as activity in the construction sector picked up.

The styrene spot market has been relatively rangebound this week in the low to mid $1,400s/tonne, with many players retreating to the sidelines amid uncertainty about the direction of the market.

Styrene values in Europe had begun to significantly drop towards the end of last week in a lengthening market, as an increasingly bearish sentiment took hold.

One trader commented that the situation in Japan led to an initial upturn in European pricing, but that the market fundamentals were unchanged.

“The earthquake in Japan only halted the downward slide,” said the trader. “The supply/demand situation is still the same in Europe. There is still plenty of material available in Asia too.”

With the spread between European benzene and styrene moving back towards $200/tonne, EBSM (ethyl benzene/styrene monomer) producers were running at improved rates now that the economics were healthier. With the US styrene market looking increasingly long, there did not appear to be any shortness on the horizon.

“Japan is the third largest economy in the world,” said one player, “and this disaster is weighing down on global commodity prices in a general sense. But following the initial concerns surrounding refinery capacities, the European market appears to have settled down and focused on the fundamentals.”

($1 = €0.71)

For more on benzene and styrene visit ICIS chemical intelligence
Click here for latest news on the Japan disaster

By: Truong Mellor
+44 208 652 3214

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