Europe August benzene contract to firm on global bullishness

28 July 2011 15:07  [Source: ICIS news]

LONDON (ICIS)--The August European benzene contract settlement looks poised to move up significantly later this week, as firming global markets and some short covering have pushed domestic spot prices up by nearly $190/tonne (€133/tonne) over the course of July, sources said on Thursday.

The monthly benzene contract for July was settled at $1,087/tonne FOB (free on board) NWE (northwest Europe) and converted to euros at the officially agreed exchange rate of €1 to $1.4425.

Since then, the spot market has steadily climbed to breach the $1,250/tonne mark, and players agreed that August would eventually settle at around this level or possibly higher.

“We will see a big increase,” said one trader, adding that the July settlement had been on the low side. “Even if you look at the lowest deals this week around $1,240/tonne, that is still up by more than $150/tonne, but it should settle higher than that.”

Deals for August material were reported on Thursday at $1,270/tonne and $1,275/tonne.

Initially, the upturn in Europe was driven by a bullish US market, where lower production output rates as well as firming crude and energy futures have pushed numbers there well above $4.00/gal.

Sources in the US said a two-month turnaround scheduled for late July/early August at ExxonMobil’s refinery in Baytown, Texas, triggered the recent increase in benzene prices. As a result, some players are expecting the US August contract to settle as high as $4.12–4.15/gal, up from $3.69/gal in July.

Several European traders have been actively looking to fix cargoes to export to the region and sources said that at least three vessels have already been shipped this month. One source said 8,000 tonnes had been fixed, while another shipping broker said 6,000 tonnes were set for late July. Earlier, sources estimated that up to 30,000 tonnes of US-bound material could be fixed in the coming weeks.

One trader did not believe that the spike in European pricing was US-driven, but was instead the effect of a global upturn in pricing.

“Asia mirrored the US market this month, while the US had a knock-on effect in Europe,” said the trader. “Each market closed higher, which supported higher prices in the other regions.”

The upturn in Asian pricing ahead of August has already been reflected in higher contract nominations from one major producer and the bullish sentiment was also supported by buoyant crude futures.

Globally, benzene continues to look increasingly bullish for the month ahead. Talk of production problems in the Mediterranean is having an effect on European pricing, according to one trader, while poor margins for Asian hydrodealkylation (HDA) producers due to higher toluene pricing mean that they may cut back on benzene output or shut down altogether, curtailing regional supply in the near term.

Towards the end of July, European benzene numbers saw another spike as players looked to the month ahead. With all signs pointing to a bullish market in August in spite of the traditional summer holiday slowdown, several traders were actively buying in order to cover short positions, and trades for August were heard as high as $1,270/tonne.

Several sources have expressed surprise at developments this month, particularly in light of the cumene supply issues at BP Gelsenkirchen and the domino effect this has had in the phenol market, which was expected to create some length for benzene.

This global bullishness on aromatics is also having an upward effect on the European styrene market. August trades reached $1,490/tonne earlier this week, while September has already moved into a healthy contango, with several deals reported at $1,515/tonne.

“There are several shutdowns planned for August and September and this is buoying the market” said one source, who believed that prices could reach the mid-$1,500s/tonne for September.

Reduced styrene activity in light of these shutdowns should also usually have a negative effect on benzene sentiment, but so far this has not been felt in Europe.


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

By: Truong Mellor
+44 208 652 3214

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