27 July 2012 00:00 [Source: ICB]
Bullishness: US benzene upturn is the result of three factors
Continued bullishness in the European benzene market, driven by firm global prices and limited domestic availability, is keeping downstream activity subdued and leaving players frustrated.
"Benzene is not to be trusted," one trader said, adding that he believed the market would eventually see a sharp fall and some minor recoveries before a return to more normal conditions.
The trader said: "The spread [with styrene] is still below $100/tonne (€81/tonne) for August. Laughable, really."
A styrene consumer said: "The issue of benzene just won't go away I expect the August barge contract will go up again."
July had started to see a slight easing in benzene prices, as several hydrodealkylation (HDA) units came on line and imports arrived from other regions.
But the market saw another sharp upturn as the month progressed, with July trading at $1,235/tonne on July 9 but deals as high as $1,400/tonne once again being reported by July 13.
Many styrene players said they are unsure of the way in which the next few weeks will shape up and, as a result, are opting to stay on the sidelines until a clearer picture becomes evident.
Offers for July benzene stayed at $1,400/tonne and above last week, virtually level with current styrene prices. The backwardation on benzene into August has also narrowed, with deals done last week at $1,345/tonne, which potentially indicates that the market's current dynamics could continue into next month.
Furthermore, players agree that it is only the high cost of benzene that has been keeping styrene at such elevated levels; demand from all key derivatives sectors remains slower than expected for this time of year. The most recent cause of the continued bullishness for benzene is the upturn seen in the US, which is the result of three major factors - low run rates on toluene disproportionation (TDP) units because of poor margins, a raft of other production problems and their associated short-covering, and the perception of product tightness in the EU and Asia adding to the uncertainty.
With prices in the US Gulf comfortably above $5.00/gal ($1,500/tonne), several European traders have been led to fix vessels from the ARA (Amsterdam-Rotterdam-Antwerp) region. One trader said he believed that the refinery shutdown at JX Nippon's Mizushima B facility in Japan will also curtail availability throughout Asia, where some concerns about supply have already become evident. European benzene prices have been consistently firm since April, when production cutbacks and diverted imports led to availability restrictions and a sharp rise in pricing. With only some short and brief exceptions because of lower oil pricing and production restarts, prompt benzene numbers have hovered around $1,350-1,400/tonne CIF (cost, insurance, freight) ARA, which is where July is now valued.
There have been confirmed deals as high as $1,440/tonne and even widespread talk of trades at $1,500/tonne since the bullishness began in May, in what one trader called a "bloodbath".
The present situation is also having an impact on other downstream areas of activity such as adipic acid and polyamides chains, which continue to struggle with poor end-use demand.
For many downstream players, the benzene market looks increasingly divorced from reality with its spreads of $500/tonne or more over naphtha, a situation not helped by Brent crude futures still lingering in triple figures.
"It's not getting easier, especially if you look at benzene," a caprolactam buyer said. "There's no reason for it."
Additional reporting by Mark Victory in London
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