OUTLOOK ’13: Asian benzene to stay stable-to-firm on tight supply

24 December 2012 03:45  [Source: ICIS news]

By Jasmine Khoo

Asia benzene to stay firm through to early Nov on tight supplySINGAPORE (ICIS)--Asia’s benzene spot prices are poised to remain stable-to-firm next quarter on the back of persistently tight supply, higher bids from traders seeking cargoes on short positions and expectations of stronger demand from downstream sectors.

Asia benzene prices assessed on a FOB(free on board) Korea basis rose significantly from $1,160-1,170/tonne (882-889/tonne) FOB Korea on 17 August to $1,465-1,480/tonne FOB Korea on 14 December, according to ICIS data.

Prices first began to firm in mid-August when a spate of scheduled and unplanned shutdowns in China resulted in a supply deficit of approximately seven standard cargoes of benzene in China, according to market participants.

Furthermore, with major northeast Asia-based producers such as JX Nippon’s Mizushima unit shut because of technical difficulties and SK Energy’s Ulsan reformers closed for a scheduled turnaround in October, the availability of benzene has been weighed on further, said market participants.

According to northeast Asian producers, demand from downstream sectors was stable and they expect an improvement in the current demand after the year-end holiday season, as buyers would start seeking benzene cargoes to replenish their inventories.

“The market should pick up in terms of trading activity either in January or in February, after the Lunar New Year holiday is over,” said a China-based buyer in Mandarin on its expectations of market activity next year.

In the southeast Asian region, many producers also said that they do not have an excess of cargoes to offer to the market on a spot basis. The same producers also added that they do not foresee any significant increase in their spot cargo supply in the upcoming year.

“It is hard to see any possible changes to the market situation at this point…things should remain the same in the near future, unless something out of the blue happens, such as crude prices plunging,” said a southeast Asia-based producer.

Turning to the downstream sectors, a spate of new start-up plans in China in 2013 for phenol, the second largest downstream consumer of benzene after styrene monomer (SM), also contributed to the expectations of an increase in demand for benzene in the upcoming year, said market participants.

However, because of the limited availability of spot cargoes within the market at the moment, competition for benzene cargoes is expected to increase and this would mean that there is room for prices to firm further.

“It is really difficult to procure benzene spot cargoes now for January and February,” said a benzene buyer based in the northeast Asian region, who is a SM maker.

“The current price levels are too high. It is very risky to buy benzene now,” the buyer added.

As a result of the higher benzene prices, downstream products such as SM and phenol also faced tremendous upward pressure on their prices.

According to ICIS data, SM prices were at $1,425-1,435/tonne CFR (cost and freight) NE Asia on 10 August, before rising steadily on the back of firm feedstock benzene prices and the critically tight SM supply situation.

According to market players, the tight supply situation for SM was brought about by prolonged periods of low operating rates at approximately 70% capacity as firm feedstock benzene prices were deemed too high to be workable for the SM makers’ profit margins. As a result, the supply of SM spot cargoes tightened and prices rose amid speculative trading activity by traders seeking cargoes on short-covering positions.

Asia’s phenol prices also rose from $1,400-1,450/tonne CFR China Main Port (CMP) on 10 August to $1,500-1,575/tonne CFR CMP on 14 December on the back of higher feedstock benzene prices.

Some market participants added that the higher prices of the downstream products have resulted in a vicious cycle with feedstock benzene prices, where both upstream and downstream products exert upward pressure on each other’s prices.

Looking forward, with the persistently tight supply situation, expected increase in demand from the downstream sectors, and expectations of further price increases by market participants, Asia’s benzene prices are poised to remain stable-to-firm for the first quarter of 2013.

($1 = €0.76)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Jasmine Khoo
+65 6780 4359

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