INSIGHT: US ABS dodges sharp benzene price increases – for now

26 November 2012 18:54  [Source: ICIS news]

By Wesley Busch

HOUSTON (ICIS)--US acrylonitrile-butadiene-styrene (ABS) market players should be giving thanks that the shift in the price spread between West Texas Intermediate (WTI) crude and benzene that revealed itself earlier in the year, has not been the only disconnect in the business in 2012.

Since benzene quit taking its cues from WTI and took its own direction, ABS, styrene and other producers have been wondering how they can pass on cost increases to customers in times when demand does not merit higher prices.

Fortunately for the ABS market, the rocketing trajectory of the benzene contract price has not translated into a similar path for the price of styrene, although that is not to say that styrene costs have not increased.

The costs for styrene, which is about 60% of the ABS chemical composition, have increased but not nearly at the rate of upstream benzene.

Styrene costs through the October contract have gone up seven months in 2012, while moving down twice and remaining flat once.

Benzene also increased seven times during the first 10 months of the year, while falling three times.

In the first 10 months of 2012, the average styrene contract price moved from 68 cents/lb to the current average of 78 cents, an increase of almost 15%.

The increase for benzene, though, was much higher, at 32%. From the January price of $3.70/gal, the skyward path has taken the contract price in October to $4.40/gal. (The monetary amount seems much higher because benzene is traded in gallons.)

At this point, we can’t discuss the November styrene contract price as it will not be settled until after the December benzene contract has been determined, which typically will take place early in the month. The styrene contract price falls a month behind the benzene contract price.

Looking at the cost of ABS, the ICIS-assessed domestic price for ABS high impact injection material in bulk has increased by 3.4% in 2012.

That increase is the result of up and down movements of ABS prices.

ABS producers have initiated several price increase proposals in 2012, amounting to net gains of 2.5, 7 and 6 cents/lb, while prices have been assessed down twice, by 5 cents/lb each.

The producers cited increased demand and higher feedstock costs for their price initiatives.

As the year has progressed, though, demand has waned and the price pressure has been downward as imported material has competed for buyers.

The net gain for the producers has been an increase of 4.5 cents/lb.

During the past few months, ABS producers and buyers have kept a wary eye on the price of benzene, seeing it move up by 79 cents/gal since June. Spot price discussions for benzene have reached record-high levels.

Contract prices, which had not been above $4/gal until this year, continued to increase, with the November contract price hitting $4.90/gal, an increase of more than 55% since the November 2011.

ABS producers were contemplating price increases as they saw benzene hit record highs and rising styrene costs.

However, as the year nears its end, this is the time when demand diminishes as buyers aim to cut inventories.

ABS producers would have preferred to increase prices earlier because benzene contract prices have risen by 70 cents/gal since the September, but they probably realised that with demand on the downside, it was not practical.

Styrene producers who had to pay the increased benzene price have not shared those cost increases at the level at which they arrived.

However, with the New Year just around the corner, do not be surprised when January rolls around that ABS producers begin to propose price increases in an attempt to recover lost margins and their added costs.

US benzene to ABS in 2012

By: Wesley Busch
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