INSIGHT: Confusion reigns supreme for Europe August aromatics

22 August 2011 16:16  [Source: ICIS news]

By Truong Mellor

LONDON (ICIS)--Anyone expecting a calm and subdued August in the European aromatics sector, as players absent themselves from the market during the traditional summer holiday period, will have been surprised this year, as upstream volatility and growing supply concerns have pushed and pulled prices throughout the month.

Despite a significant drop in crude values this month, European benzene values have stayed surprisingly resilient in the face of this downwards pressure. While several traders were expecting values to drop to $1,150/tonne (€805/tonne) as NYMEX light sweet crude fell by more than $5/bbl, a balanced-to-tight environment in western Europe kept prices as high as $1,200–1,260/tonne CIF (cost, freight and insurance) ARA (Amsterdam, Rotterdam, Antwerp) last week.

“August belongs to benzene,” said one supplier last week. “The past ten days have been a bit crazy, so everyone is waiting to see what the long-term effects are, but fundamentally the market is solid.”

As crude values dropped in mid-August, this was initially reflected in lower benzene numbers. However, with no imports scheduled to arrive in Europe in August and several producers down or running at curtailed rates, the downwards movement was tempered by restricted availability.

“Demand is alright for August,” said one trader. “Obviously the market is slower but this was expected. What we’ve seen is that low stock levels have helped support the numbers this month.”

Downstream, European styrene values have also been subject to the volatility in oil prices, as well as wider economic uncertainty in light of US and European debt issues.

“Confusion reigns supreme,” said one buyer, adding that despite some softer pricing, a slowdown in propylene oxide (PO) demand has helped keep styrene supply balanced in a quieter August, due to less output from propylene oxide styrene monomer (POSM) units.

While benzene prices have been able to resist most of the downwards pressure due to restricted availability for August, styrene has not been as firm, and the spread with benzene has been thin throughout the month.

However, many players are predicting a strong September and October, due to several planned turnarounds and the expectation of robust demand as players return to the market.

Both months have been trading at a contango to August since the beginning of the month, with deals for October already concluded at a $40–50/tonne premium to August.

“When you see players already buying for two months from now, this is really driven by optimism more than anything else,” said one source. “We are already seeing a lot of bullishness for September and October due to the planned shutdowns during this period.”

Is this optimism justified? Certainly, the market trend in past years has been for September to be a strong month for sales after the summer lull, as players replenish empty stocks and buyers return en masse.

With several key styrene players shutting down during this period, supply could very well be limited, which would boost price levels in a period of strong demand.

However, widespread uncertainty surrounding the ongoing global economic downturn, as well as fears of a double-dip recession, may keep buying activity muted in coming weeks.

There has been a lot of faith in September being a strong month for sales, and while this seems a logical progression following a quiet August, the macroeconomic situation is difficult to predict. This may keep some buyers reluctant to pay these high numbers if they sense a downwards slide on the horizon.

“We’ve seen industry buying in August to cover themselves for the shutdowns,” said one source. “The predicted tightness may not be as significant as some players are hoping.”

While the benzene market this month has been at a steady $20–30/tonne backwardation into September, styrene prices for both September and October have held a contango of $40/tonne or more consistently throughout August, although this is starting to wane as the month draws to a close.

Whether this bullishness is warranted remains uncertain, and is something that only time will tell.

($1 = €0.70)

For more on benzene, styrene and PO visit ICIS chemical intelligence

By: Truong Mellor
+44 208 652 3214

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