08 March 2013 09:26 [Source: ICB]
Buyers eagerly await contract price reductions as oil prices pull spot benzene prices lower
The European benzene market is braced for a fall on the March contract, sources said on 27 February, as falling global prices and a sharp drop in Brent crude futures continue to pull spot numbers down.
February was settled at $1,408/tonne FOB (free on board) NWE (northwest Europe) and converted to the euro price at the agreed exchange rate of €1:$1.3538.
The European benzene market did see a brief recovery the week ended 22 February, with spot numbers edging back above $1,400/tonne (€1,078/tonne) CIF (cost, insurance and freight) ARA (Amsterdam-Rotterdam-Antwerp) as domestic output was curtailed.
One player said that with naphtha breaching $1,000/tonne CIF NWE in February, producer margins in Europe have come under pressure, and many have elected to scale back production.
The source added that the anticipation of several styrene turnarounds during March and April and the expected reduction in offtake had also led to benzene suppliers cutting back output.
One styrene consumer said there has been some posturing about benzene coming off line over this period and there will be a reduction in cracker output, but does not expect this to offset the lack of demand from the styrene market.
Despite the initial uptrend, a midweek plunge in Brent oil futures weighed down on the benzene market, and March deals were done as low as $1,380/tonne during the week ending February 22.
March deals opened with several at $1,390/tonne on 25 February, before lower Asian numbers and further crude losses brought the market down further. March deals were done at $1,375/tonne and $1,380/tonne the next day, while April remained in contango with a deal done at $1,385/tonne.
Bids for March cargo were at $1,370/tonne on 27 February, but not met with any firm offers. April was valued at $1,380-1,405/tonne.
News of further price reductions on benzene will be welcomed by downstream players, who have struggled for months with the twin pressures of uncertain demand and soaring raw material costs.
"Prices have been crazy over the last few months," said one player in the downstream phenol market. "We need another decrease. Benzene costs have had an impact on demand. End-use production stops because it's just not worth it."
However, despite the immediate bearishness in the benzene market, several downstream sources noted that the weak euro means that even a reduction in dollar terms could still see a higher euro number.
"Even if the March contract settles at $1,380/tonne, with today's exchange rate that would still be an increase of over €20/tonne," said a source in the styrene distribution market.
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