06 September 2013 09:54 [Source: ICB]
Benzene is used to produce several intermediates, including styrene, phenol, maleic anhydride (MA), alkylbenzenes and chlorobenzenes. It is also used to make anthraquinone and hydroquinone, benzene sulfonic acid and other products in drugs, dyes, insecticides and plastics.
The supply condition from South Korea in 2013 was not tight as expected at the end of 2012 because of the lower-than-expected run rates of derivative plants, and persistent delays in start-ups at new downstream facilities. In addition, no opening of the arbitrage window to the US from Asia through 2013 further exacerbated the abundant availability in Asia.
Low US spot requirements from Asia resulted from high import volumes at the end of 2012, coupled with turnarounds at local styrene monomer (SM) units.
Export volumes from South Korea, which is the key exporter into the US, dwindled to the minimum term volumes of around 15,000-20,000 tonnes/month. And Japan, which is also an active exporter, has been exporting 20,000-30,000 tonnes/month on average to the US, comprising of mainly term volumes.
Japan saw a supply overhang as key downstream SM plants were running at reduced rates of 80-90% since the second quarter of 2013 thanks to lack of ethylene feedstock.
Reduced operations at Asia phenol units because of weakness in the phenolics chain was one of the main reasons cutting the spot requirements for benzene. Average operating rates of phenol plants were at the low level of 70-80%. Furthermore, outages of several SM plants in February and July reduced demand for benzene feedstock.
China saw higher import volumes since March at more than 60,000 tonnes/month as local SM plants ran at full rates because of lucrative margins. But this did not relieve the supply glut in northeast Asia, as southeast Asia was also supplying China.
In southeast Asia, a global major started its new aromatics unit in Singapore, although a new downstream cumene plant also started up in this May. However, the cumeme unit has been running at reduced run rates because its downstream phenol unit has yet to start-up in China because of low margins.
Spot prices reached a historical high at the end of 2012 at close to $1,500/tonne FOB Korea, but plunged in early January because of lack of strong demand. Subsequently, prices hovered in the low-$1,400s/tonne FOB Korea, supported by speculation that the supply-demand condition would improve post-Lunar New Year in February.
However, outages at SM units and lower phenol operations curtailed spot demand, yielding more spot benzene availability in Asia, coupled with an influx of Middle East cargoes late in the first quarter.
Spot prices further plummeted to mid-$1,200s/tonne FOB Korea in mid-March and hovered there for the next three months before falling at the end of June with crude oil prices.
But prices recovered shortly thereafter, on the back of gains in the US benzene and Asia SM markets. Prices have been on a gradual uptrend since early August to $1,260-1,270/tonne FOB Korea levels.
Benzene can be produced from pyrolysis gasoline (pygas) in the steam cracking of naphtha, gasoil or condensates to make olefins. Another source is the selective disproportionation of toluene (TDP) where benzene is co-produced in a paraxylene (PX)-rich xylenes stream. A third, albeit high-cost, route is the hydrodealkylation (HDA) of toluene. In Asia, HDA plants are mostly not running this year because of expensive hydrogen feedstock and supply glut in benzene.
Players are pessimistic about demand because downstream requirements will fall as export orders for finished goods to the US and Europe for Christmas have been largely completed. Plus, a few SM and phenol plants are having scheduled turnarounds, which will likely be complete by the end of October. Even if these plants restart, run rates may be kept low because of poor demand downstream. A large downward swing in price is not expected as the supply overhang may not worsen significantly towards year end, since there are also ongoing and forthcoming turnarounds at several benzene units.
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