21 September 2012 11:05 [Source: ICB]
European benzene prices have continued their bull run in September so far, owing to production problems curtailing supply - and the volatile market environment looks set to continue in the fourth quarter.
Production problems continue to tighten availability of benzene
Deals were done as high as $1,525/tonne for September, and there was talk of trades at levels as high as $1,540/tonne, but these were unconfirmed.
"Benzene was very tight and people had to cover shorts," said one downstream source. "Some paid desperately high numbers. An industry player stopped benzene deliveries for a while, and some traders were also caught out."
By 14 September, however, the market had edged back below $1,500/tonne, and the range for September was valued at $1,420-1,460/tonne CIF (cost, insurance and freight) ARA (Amsterdam-Rotterdam-Antwerp) on 17 September, further weakening as oil and energy numbers came off.
Nevertheless, the outlook for the coming weeks remains bullish for benzene, with a premium of at least $20/tonne for the first half of October emerging at several points already this month. An estimated 80,000 tonnes of production have been taken out of the market, while only approximately 25,000 tonnes have been imported into Europe to cover the shortfall, leading to the current imbalance.
But the main factor creating the volatile environment in Europe has been the tentative nature of many consumers, according to one trader.
With the high cost of feedstocks such as benzene amid the ongoing wider economic malaise, instead of building up inventory, many derivative producers are weighing up the financial pros and cons of keeping units switched on, opting to purchase material as and when required.
"The problem now is that benzene consumers aren't looking any further than two weeks ahead," the trader explained. "There is always a great risk in this hand-to-mouth approach."
European benzene consumers have struggled with supply volatility and sharp swings in pricing since earlier this year, when the diversion of scheduled imports - as well as declining output owing to reduced pyrolysis gasoline (pygas) availability - led to price surges for prompt cargo.
With crackers increasingly utilising lighter feedstocks, this will keep pygas supply restricted and mean that European benzene will remain structurally balanced to tight in the coming weeks.
While the closure of Switzerland-headquartered producer INEOS's polystyrene (PS) units in Marl, Germany could help redress the balance by easing some domestic demand for benzene, many in the market are sceptical of this as a solution to the current problem, as PS output has already been running at reduced rates for some time amid weakening demand.
However, stronger than expected demand from styrenics derivatives in September has also helped support the higher benzene prices, with expandable polystyrene (EPS) units in particular said to be running hard following the traditional slowdown over August, which many sources found surprising, given the close to record-high contract price this month.
September styrene traded as high as $1,820/tonne FOB (free on board) Rotterdam in the week ended September 14, and while the market appeared to be easing off by that Friday with offers as low as $1,750/tonne, two deals were done at $1,800/tonne on 17 September amid severely restricted availability for prompt volumes.
"[The] industry is bone dry," said one trader. "Producers are running on fumes. I know it is the end of a quarter but this is ridiculous."
While styrene producers are now ramping up output to meet demand, previous ethylene restrictions and technical problems with reformers limiting benzene production means that some units are playing catch-up in a fast moving market.
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