FocusPoor demand, ample supply to cap Asia benzene upside

14 June 2013 07:26  [Source: ICIS news]

By Ong Sheau Ling

Poor demand, ample supply to cap Asia benzene upsideSINGAPORE (ICIS)--Spot benzene prices in Asia are likely to move sideways or even soften in the near-term, weighed down by a lack of physical demand while regional supply is building up, market players said on Friday.

Spot enquiries from China and the US – the two largest outlets for Asian benzene – were notably lacking this week amid a closed arbitrage window, they said.

On 13 June, benzene prices closed at an 11-week low of $1,275-1,277/tonne (€956-958/tonne) FOB (free on board) Korea for June and July cargoes; $1,265-1,270/tonne FOB Korea for August parcels; and $1,265/tonne for September lots, according to ICIS data.

The price spread between FOB Korea basis and equivalent import parity in China swung into negative territory from early March, with the gap widening into May.

Chinese petrochemical major Sinopec cut its benzene list prices by a total of yuan (CNY) 600/tonne ($98/tonne) in May, representing a much steeper decline compared with spot values in the international markets, industry players said.

High benzene stocks, coupled with slow lifting of imported cargoes from the Chinese ports due to cheaper coal-based benzene, and reduced run rates at downstream facilities, prompted Sinopec to cut its toluene list prices, they said.

Imports into China this month are expected to remain minimal at around 20,000 tonnes – the same level as in May – mainly representing contract volumes. In  March and April, the country’s benzene imports totalled 83,000 tonnes and 101,000 tonnes, respectively, they said.

“It is impossible to export to China. The gap is close to $50/tonne discount to FOB quotes but by right, imports should command premiums of $15-20/tonne,” a South Korean exporter said.

Meanwhile, spot discussions to the US market have been waning since end-February, when US-Asia benzene price spread narrowed to less than $50/tonne, which was insufficient to cover freight rates of $55/tonne for a 15,000-tonne vessel,  market sources said.

This resulted in a sharp decline of South Korea’s benzene exports to the US in April and May to barely above 20,000 tonnes from more than 40,000 tonnes in the previous months, market sources said.

South Korea’s two largest benzene producers have resorted to buying cargoes within the US market to serve their customers in that country.

“It’s way cheaper to buy in US than for us to ship over,” one of the two benzene makers said.

Japan, which the second biggest Asian benzene exporter to the US, has been shipping out less volumes since March.

An estimated volume of 18,000 tonnes of Japanese cargoes are heading to the US this month, down by a third from May and lower than April’s 48,000 tonnes, traders said.

In Taiwan, benzene end-users are continuing to delay procuring term volumes on the back of mounting stock levels in Kaohsiung, and ahead of scheduled turnarounds at two local styrene monomer (SM) facilities in the island, market players said.

Formosa Chemicals & Fibres Corp (FCFC) plans to shut two of its SM units in August for maintenance. The 250,000 tonne/year No 1 and 350,000 tonne/year No 2 units in Mailiao are expected to be down for around 40 days.

“There is no more room at the Kaohsiung port, especially CPC has restarted its third line,” one of the Taiwanese SM makers said.

State-owned CPC Corp’s No 3 aromatics plant in Linyuan – with a benzene nameplate capacity of 36,000 tonnes/year; toluene capacity of 115,000 tonnes/year; and mixed xylene capacity of 135,000 tonnes/year – was restarted in early May.

Spot benzene demand from southeast Asia, on the other hand, has died down in end-May after a buying frenzy that ensued because of some mechanical problems at benzene production at a Singapore-based aromatics facility. Southeast Asia does not usually buy spot cargoes, with its requirement covered by term supplies.

Moreover, lower operating rates of a Thai aromatics unit and an outage at a Thai reformer in May curtailed the spot supply condition regionally, they added.

“We did receive quite a few enquiries for second-half June cargoes in end May, but for now, buyers are not as urgent to book end-June and early July parcels,” a southeast Asian benzene maker said.

Within the domestic market of Japan, benzene demand has shrunk this month amid low run rates and scheduled turnarounds at downstream units, market sources said, adding that this will mean that more volume for exports will be available.

In South Korea, on the other hand, domestic demand slightly improved on the back of  improved operating rates at downstream units, easing the long supply conditions in Asia’s biggest exporter of benzene.

“It turns out that the supply for July loading doesn’t look as long anymore,” a South Korean producer said.

A few traders were heard to have oversold for July loading and were seeking cargoes to cover the shortfall but faced difficulties, market players said.

“My inventories are low as well,” another major South Korean maker said.

Spot benzene supply in the whole of Asia, however, is still on the longer side given a general weakening in demand, market sources said.

A number of downstream expansions in China have been delayed from first-half of the year to second-half or even to 2014.

“The actual increase in demand in China is in fact much less than expected,” a Singapore-based producer said.

Regional supply, on the other hand, will grow, with a long-idled aromatics facility in Indonesia coming back on line in the third quarter, and with ExxonMobil’s new cracker in Singapore starting operations.

“There is not much glimpse of hope that prices will gain. [Benzene] prices are just supported by the [firm] SM prices currently,” a Singapore-based trader said.

SM prices are currently priced more than $350/tonne higher than benzene. On 13 June, spot SM prices were  assessed as $1,700-1,730/tonne CFR China, according to ICIS.

“If SM begins to decrease, it’s [a] freefall for benzene,” a South Korean trader said.

($1 = €0.75 / $1 = CNY6.13)

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

Author: Ong Sheau Ling

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