Downstream concerns for Feb as Europe benzene hits $1,300/tonne

25 January 2012 11:11  [Source: ICIS news]

LONDON (ICIS)--Restricted feedstock availability and continued bullishness on crude futures have pushed February benzene prices above $1,300/tonne (€1,001/tonne) this week, with downstream players concerned about another sizeable increase for the contract settlement next month, sources said on Wednesday.

With January business largely concluded, benzene players have focused on February cargoes this week. Several deals were seen at $1,285/tonne CIF (cost, insurance & freight) ARA (Amsterdam, Rotterdam, Antwerp) and the market continued to push upward, with February deals as high as $1,310/tonne done.

The monthly benzene contract for January was agreed at $1,108–1,115/tonne FOB (free on board) NWE (northwest Europe), the first time in several years that a range has been widely confirmed in the market. The key reason for the upward momentum on spot pricing is that there is simply no product in the market, several players said.

With crackers currently favouring lighter feedstocks such as propane over naphtha, this means there is less pyrolysis gas (pygas) available, which is keeping benzene production limited.

“There are a lot of benzene nominations being heard but producers seem reluctant or even unwilling to commit,” said one aromatics trader.

Some key European producers have even been active in the market this week, aggressively purchasing benzene instead of pygas.

Reports of several production problems both in the UK and the Mediterranean this month has led to some material leaving the ARA region. This has also helped keep availability on the tight side.

Many players are said to be building stock in anticipation of several cumene shutdowns planned for March and April, which is also pulling on February benzene volumes.

“Crude numbers and a strong Asian market are also helping,” said another benzene trader.

However, one seller was quick to point out that the current upturn appears more dramatic simply because benzene was coming from a 14-month low at the end of 2011.

“Prices were far too low,” the seller said. “If you look at the spread with naphtha at the end of last year it was basically non-existent. Now with a spread closer to $350/tonne, the market looks a lot healthier.”

A benzene-naphtha spread of $150–200/tonne is considered to be the breakeven point for benzene producers, with integrated producers requiring a smaller margin.

So far, the downstream reaction to rallying benzene prices has mostly been concern and confusion.

The styrene market, which initially struggled with slow demand for January, has seen prices move up since last week on the back of upward pressure from crude and benzene, with February trading as high as $1,480/tonne this week.

However, styrene sellers felt that with benzene trading above $1,300/tonne, there was still room for the styrene market to move up.

“I don’t know when this is going to stop,” said one styrene trader. “We could see numbers as high as $1,550/tonne by late February.”

While some traders speculated that demand from several key styrenics sectors is picking up, thus justifying the stronger prices, others felt that the market was simply chasing benzene upwards.

There was talk of possible production issues adding some upward momentum. Players felt that with a bullish benzene market, styrene suppliers are cutting back operating rates as February approaches, with spot volumes being bought to cover as it would prove cheaper than producing styrene because of rising benzene costs.

Continued benzene increases are also raising concerns in other downstream markets, where further price hikes will prove to be a bitter pill to swallow in many cases.

“Raw materials are going up like it’s a booming economy,” a major producer of nylon 6 (polyamide 6) and nylon 6,6 said. “The [nylon] market can’t afford to have such hikes because margins are already being squeezed.”

One source from the styrene butadiene rubber (SBR) market was far more direct on the outlook for February: “If there is another increase for styrene and butadiene and SBR prices don’t follow, there will be a bloodbath in the SBR industry.”

Benzene vs Naphtha Q4

($1 = €0.77)

Additional reporting by Julia Meehan and Janos Gal

For more on benzene and styrene visit ICIS chemical intelligence

Follow Truong Mellor on Twitter for daily tweets on the aromatics markets

By: Truong Mellor
+44 208 652 3214

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