EPCA '11: Economic uncertainty casts shadow over Europe aromatics

02 October 2011 10:10  [Source: ICIS news]

By Truong Mellor

LONDON (ICIS)--Players in the European aromatics market will be focused on the wider economic uncertainty, and how this will affect demand and sentiment over the coming months, as they gather for the annual European Petrochemical Association (EPCA) meeting in Berlin, Germany, this weekend.

Ongoing bearish sentiment and a swathe of imports moving into the ARA (Amsterdam, Rotterdam, Antwerp) region have pushed values down over the course of this month. This was reflected in the initial October benzene contract, which settled down by €118/tonne at €701/tonne.

October volumes are currently trading at $945–952/tonne CIF (cost, insurance & freight) ARA, following a steep decline last week of up to $100/tonne on the back of weak macroeconomic sentiment and a lack of end-user confidence.

While prices in both Asia and the US have started to rally, buoyed slightly by a reversal of losses on crude futures this week, this has not been replicated in Europe so far.

“I would expect a decrease of close to $200/tonne,” said one distribution market source. “We could see some rallying towards the end of the week ahead of EPCA. Certainly the slight upturn in crude supports this. But there is very little confidence in the market right now.”

Another downstream source predicted a drop of closer to €100/tonne. The initial October settlement was on Friday afternoon at €701/tonne FOB (free on board) NWE (northwest Europe). The contract was agreed at $955/tonne in dollar terms.

The impact of depressed benzene values on the downstream styrene market in Europe has been unavoidable, despite relatively steady demand.

“Demand is all right, but people are still cautious,” said one trader. “Firming crude and energy have helped push styrene up, though not so much with benzene.”

This has led to a steady $300/tonne between benzene and styrene for most of September, which has left many players surprised given the overall bearish economic environment.

“Benzene is the one flagging,” said another trader. “It’s only peanuts over naphtha right now.”

September barge contracts were agreed at €1,167–1,208/tonne FD (free delivered) NWE, down by €39/tonne on average from the previous month. With ethylene settling at a rollover for October and a significant reduction expected for benzene, a reduction for styrene barges of up to €60/tonne was predicted by some players.

While September has proven to be a bearish month following the seasonal slowdown in August, this had not been expected initially.

The first October styrene barge contract was agreed on Friday, down by €85/tonne at €1,117/tonne.

End-user demand was reasonably steady, but the overriding fear of a double-dip recession kept many buyers wary of building too much inventory ahead of a possible downturn in activity.

Another key talking point among styrene players at EPCA will be the Styrolution merger with the styrenics business of Swiss-headquartered INEOS, which comes into effect in the fourth quarter of 2011.

Notably, both companies decided to exclude their expandable polystyrene businesses (EPS) from the joint venture, which leaves INEOS Styrenics as a large net buyer of styrene in Europe.

According to INEOS Styrenics’ new procurement director Hugh Carmichael: “As a large merchant buyer INEOS Styrenics is keen to be involved in styrene contract price settlement process.

"However we prefer a process similar to the major monomers such as ethylene and so the emergence of a single monthly FOB price. We have already had tentative discussions with our suppliers on this topic which is something which we expect to continue in Berlin later this week.  This change would of course need some notice and wide consideration amongst the industry.”

Meanwhile, the European toluene sector remains plagued by a lack of clear indicators as to market direction.

A continued shutdown at a major German plant and limited imports coming into the ARA region from eastern Europe have kept availability balanced to tight. The volatility of crude and energy prices, as well as sporadic demand outside contractual business, had dampened any serious purchasing interest and kept a wide gap between buyers and sellers.

The European paraxylene (PX) sector remained quiet ahead of EPCA, though several sources are expecting that the start up of Portuguese producer Artlant’s new purified terephthalic acid (PTA) plant in the fourth quarter could tighten availability and lead to a more active domestic merchant market.

However, buyers counter that availability is not an issue in the short to medium term, given that demand remains sporadic outside contracted business. The market is expected to soften in the fourth quarter – a situation only abetted by the current macroeconomic state of play – and this would only serve to free up more spot material.

($1 = €0.75)

For more on aromatics visit ICIS chemical intelligence


By: Truong Mellor
+44 208 652 3214



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