OUTLOOK '12: Europe aromatics to remain unstable

27 December 2011 09:59  [Source: ICIS news]

By Truong Mellor

LONDON (ICIS)--Following on from an erratic 12 months, 2012 is expected to contain more uncertainty for European aromatics players.

With many unwilling to commit to building stocks in a precarious economic environment, the sharp pricing peaks and troughs seen in 2011 look set to be an ongoing feature of the landscape next year.

Looking back at benzene price developments across 2011, the key trend appears to have been unforeseen production issues or even capsized vessels in the Rhine pushing up numbers, quickly followed by upstream volatility and wavering demand driving the market back down.

“In this market it is either feast or famine,” said one source earlier this year.

And while January looks to be a firmer month for both benzene and styrene – the former in particular – many sources are guarded about predictions for anything beyond that.

“It is very unclear,” one trader said, speaking on the sidelines of the European Petrochemical Luncheon (EPL) in Brussels, Belgium, earlier this month. “We used to have people giving us their forecasts for the upcoming quarter. Now most players are talking in terms of the next two weeks.”

With benzene currently trading at more than $100/tonne above the December contract price, a number many felt was unusually low, a sharp correction is expected in the new year as the market begins to replenish empty tanks.

Despite this, many observers remain less than sanguine about how the market will shape up as the first quarter progresses.

An earlier-than-usual Lunar New Year in 2012 will see the Asian markets slow down as February approaches, and beyond that will largely depend on external factors.

While benzene has always been closely linked to the health of the wider global economy, next year this will be even more pronounced than usual.

There are mixed opinions about how crude prices will develop, with some pundits suggesting a sharp drop from the current $100-plus/bbl levels seen, while others expect that volatility in the Middle East may push prices up even further.

The only thing players feel certain about is more uncertainty.

One trader said: “We’ve seen 5% swings on crude and energy numbers within 24 hours this month. That will continue in the new year. Then we have the eurozone problems, which seem far from over.”

Other players agreed with this somewhat sobering assessment, adding that the growing concerns about Chinese chemical demand and the tightening of credit lines there is simply more grist for the mill of doubt surrounding the global economy.

While there were some kernels of optimism heard in the downstream styrene sector ahead of the new year, there was an overriding sense that the fortunes of the market would be closely linked to that of benzene.

Speaking at the EPL in December, a source from one major styrene net producer said that the start-up of new downstream facilities in Egypt, Saudi Arabia and Turkey next year would mean that an additional 10% of demand for the monomer would be created, calling it a “good sign”.

However, the source remains “conservative” about the outlook for European styrenics as a whole, citing concerns about the Chinese economy and its potential impact on the global landscape.

And the start-up of these new polystyrene (PS) and expandable polystyrene (EPS) ventures in 2012 will in all likelihood prove to be a double-edged sword for the European market. Certainly, the increased output of PS from the export-driven Middle East will make next year challenging for domestic suppliers.

In comparison, the European toluene sector has seen increasingly less material available on the merchant market this year, due to several derivative start-ups in eastern Europe.

While demand outside of contractual business in 2011 has remained quiet for the most part, the balanced-to-tight availability has led to high prices for the occasional spot parcel bought to cover any shortness.

“Demand is not there, and reducing prices in order to tempt buyers simply won’t work,” said one trader. “The dynamic of the market now is that if you need extra material, you will have to pay for it.”

Indeed, this was seen several times in the fourth quarter when a trader had to cover some shortness for export material to India.

However, there remains a disparity between buyers and sellers in Europe, which seems likely to continue in such an illiquid market.

“It’s tough to price material,” said one producer back in August, “because without any domestic business there is really nothing to hang your hat on.”

However, one distributor feels that the lower consumption rates expected for premium unleaded gasoline will lead to more toluene and mixed xylene (MX) in the European market.

Most market sources believe that paraxylene (PX) will be structurally short in 2012, and say demand will strengthen after the start-up of Artlant’s new 700,000 tonne/year purified terephthalic acid (PTA) plant in Sines, Portugal, early in the year.

However, with concerns that the economy might dampen demand, players have adopted a wait-and-see stance.

Regarding the strength of the PX market in Europe next year, one trader said: "It will be better, but all will depend on the economic situation in good old Europe."

For more on styrene, benzene, toluene, PS, EPS, MX, PX and PTA, visit ICIS chemical intelligence

By: Truong Mellor
+44 208 652 3214

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