INSIGHT: Competition increases among US aromatics brokers

18 June 2013 17:17  [Source: ICIS news]

By Brian Balboa

HOUSTON (ICIS)--With the arrival of chemical brokerages Accord Petrochemical this year and West End Energy last year, the US aromatics market has become more competitive, specifically with regards to benzene.

However, US aromatics trade participants have been divided on how additional brokers could impact the market.

Some trade sources have said more brokers could open up the aromatics market leading to more competition, while others have said it could mean less clarity rather than more transparency.

In the past two years, petrochemical and energy brokers have sought to move into more active markets where there might be room for competition. US benzene, which is a key feedstock for downstream derivatives, has served as a prime example according to some trade sources.

Many brokerages, large and small, may also look to venture into other markets as a source of additional revenue or merely to survive.

One example of this was last year, when the lack of trading in the US fuel ethanol sector caused many brokers to branch out into other markets or disappear entirely.

Before the arrival of Accord and West End, there were only a small handful of brokers in the benzene market: Fusion Brokerage, Blue Ocean and Houston Mercantile Exchange (HMX).

Like Fusion and Blue Ocean, Accord and West End have live brokers, while HMX employs an online exchange platform.

The majority of US aromatics participants agree that since it began in 2008, Fusion has been the preferred broker within the benzene sector, establishing a strong foothold in the market. 

“I think the activity is still 90% with one broker,” said a US aromatics trader. “People are still shy and nobody wants to take risk [with another broker].”

The trader added that it was surprised that the market seems to be staying with one broker in Fusion, but noted that their position is strong.

“Fusion has had a lot of support from good relationships,” said a US benzene trader. It’s a relationship business.”

More brokers may mean more options and transparency, but some market sources cautioned that some buyers and sellers may not necessarily welcome it. That was one of the biggest challenges that online exchange window Chemconnect faced before it was acquired by Intercontinental Exchange (ICE) in 2007.

Since the acquisition, the ICE exchange window for benzene, toluene and mixed xylenes (MX) has gradually disappeared, leaving HMX as the sole exchange in the US aromatics market.

An online exchange window is transparent and has its limits on what types of options if can offer, said one energy exchange manager. 

“Transparency makes it more difficult for a brokerage do business with a company that wants to be more discreet, an aromatics trader said.

Accord has already had success and its supporters in the heavily brokered olefins market since 2011, which some trade sources said could help it establish a foothold in the aromatics market.

But, it’s not the first time another broker has attempted to move into the US benzene market.

Just two years ago, Netherlands/US-based Excalibur Brokerage Group was looking to establish a foothold in the North American benzene and styrene markets and found little success.

Although Accord and West End primarily concentrate on benzene, it would not be unusual for them to eventually move into the toluene or mixed xylenes market.

And just as with the benzene market, they would still be competing with Blue Ocean and another strong brokerage in Maximus, which is a strong broker on toluene and MX.

Overall though, market participants were in agreement that it would be difficult for any new brokerage to compete in the aromatics market.

By: Brian Balboa
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