FocusNorthwest Europe Oct benzene likely to fall, styrene less clear

27 September 2012 15:09  [Source: ICIS news]

LONDON (ICIS)--A drop in European benzene spot prices ahead of the October contract settlement is likely to be reflected in a monthly decrease, but it remains unclear how this will be reflected in the styrene (SM) barge contract for October.

“I suspect consumers will want a drop due to benzene spot, producers will want and increase due to spot values and we will end up somewhere close to this month's €1,410/tonne [$1,808/tonne],” said one European styrene supplier.

Following on from the losses posted towards the end of the week owing to falling crude and energy numbers, European benzene spot prices saw further downward movement this week.

Nevertheless, a steady premium for the first half of October was seen throughout the week, suggesting that some tightness for prompt cargo will carry over into next month.

Offers for October material opened the week on 24 September at $1,320/tonne CIF (cost, insurance and freight) ARA (Amsterdam-Rotterdam-Antwerp), but gradually edged downward as buyers kept to the sidelines.

Price ideas for the forward month moved back below $1,300/tonne as the week progressed, although the first half of October remained higher with offers still at $1,325-1,330/tonne.

“Fundamentally, not a lot has changed,” said one benzene trader. “Availability will remain tight. Some short covering earlier in the month pushed prices up to $1,500/tonne, and these numbers obviously aren’t sustainable.”

By Thursday 27 September, October was valued at $1,270-1,280/tonne, just below the September contract settlement of $1,287/tonne FOB (free on board) NWE (northwest Europe).

A key driver of the downward movement on benzene has been a drop in oil prices since last week, when Brent futures fell by up to $3/bbl on news that Saudi Arabia would take action to curb oil price inflation.

While prices have started to recover some ground since then, the oil market has not seen the usual reversal of losses that normally accompanies such a sudden sentiment-driven plunge, so there is some speculation that energy numbers could structurally weaken.

In the styrene market, buyers have been carefully watching feedstock movements ahead of the October barge settlement.

“We could see a decrease for ethylene,” said one source in the distribution market. “Benzene will either rollover or come down as well. Styrene contract talks will be tough.”

Spot numbers in the styrene market have also gradually moved down over the past week, although a wide gap between the front end of October and the rest of the month has emerged.

October was trading at $1,725/tonne FOB Rotterdam earlier in the week, and offers remained firm for the front end of the month, but bids for the second half of October came down to $1,600/tonne by Thursday 27 September.

“It’s coming off now for October,” said one trader. “I think imports will be arriving very soon.”

Nevertheless, prompt pricing has stayed firm. With propylene oxide (PO) demand weakening, there was little incentive to keep PO/SM units running hard, keeping material limited.

While benzene-driven units are now running hard to meet healthy derivative demand, many are still playing catch up following months of lowered production rates owing to high feedstock costs.

One source in the distribution market said it was still struggling to obtain even smaller volumes of around 150 tonnes, although a firming euro had helped ease costs over the course of the month.

The opposing dynamics of weaker feedstocks and ongoing bullishness for spot material are likely to make October contract talks difficult.

“The recent fall in oil changes the whole ambience of styrene CP [contract price] views for October,” said one major consumer.

($1 = €0.78)

By: Truong Mellor
+44 208 652 3214

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