FocusBleak demand seen for Asia benzene post-Lunar New Year

30 January 2014 06:05  [Source: ICIS news]

By Ong Sheau Ling

Bleak demand seen for Asia benzene post-Lunar New YearSINGAPORE (ICIS)--Uncertainty looms over the Asian benzene market after the Lunar New Year holidays as the window for arbitrage trades to the US appears to be closing down, while the key China  markets will be shut for a week, industry players said on Thursday.

Regional spot prices may then move sideways with trading activities likely to be cautious in early February, when the key Chinese market re-opens for trade, they said.

The Lunar New Year, which falls on 31 January, is observed in most parts of northeast and southeast Asia. In China, the holiday will last up to 6 February.

At midday, benzene was trading at $1,305-1,322/tonne FOB (free on board) Korea, down by $14-15/tonne from Wednesday, undermined by a softer US market overnight.

Regional sellers are worried over the limited sales outlets for physical benzene cargoes next month, market sources said.

China and the US are traditionally the key destinations for Asian benzene, market players said.

“Trades have been pretty active in mid-January, when US prices were much higher, showing more than a $200/tonne price gap between Asia and the US,” a South Korean producer said.

A widely open arbitrage window in recent weeks drove up spot benzene prices in Asia to a 45-week high – at above $1,360/tonne FOB (free on board) Korea – on 16 January, according to ICIS.

But the price gap between the US and Asian prices has narrowed to about $100/tonne, leaving Asian sellers worrying over near-term market development.

“I am not moving much February arbitrage cargoes to the US. The outlook is too unclear,” a South Korean trader said.

Close to 100,000 tonnes of Japanese and South Korean parcels are initially estimated to head to the US in February, traders said.

“US benzene appetite may dwindle because of news that derivatives units may cut operating rates,” a Japanese trader said.

A closed arbitrage window for trades for benzene key derivative – styrene monomer –  from the US to Asia may lead to lower SM production in the US, traders said.

“Asia SM has been coming off fast,” a second South Korean trader said.

Growing fears that the Asia-US arbitrage window for benzene may close soon has been prompted Asian producers to try to sell to China – the region’s largest importer, market players said.

Chinese importers, on the other hand, are not very interested as cheaper benzene is available in the domestic market, they said.

“It is just not feasible for us to import,” a Chinese trader said.

The price discrepancy between CFR (cost and freight) China and FOB Korea quotes widened further after the Chinese major – Sinopec cut its list price across the country by yuan (CNY) 200/tonne to 9,300/tonne ex-tank in the east.

This has an import parity of $1,288/tonne CFR China for cargoes subject to 2% import duty, considering an exchange rate of CNY6.05 against $1, according to ICIS.

“Even if FOB Korea prices are dropping, Chinese cargoes are still cheaper,” a second Chinese trader said.

Appetite for spot cargo into China weakened further because of the Lunar New Year holidays.

“This is in spite a relatively low stock levels [at east China],” a second South Korean producer said.

As of 24 January, inventories were at 31,000 tonnes in Jiangsu, east China, excluding Ningbo, ICIS reported.

“Downstream end-users are facing depleted margins [except SM], and hence, most end-users are not keen to build stocks,” a second Japanese trader said.

Benzene derivatives such as phenol and caprolactam are experiencing squeezed margins, with producers inclined to reduce plant run rates in near future amid lacklustre downstream demand, industry sources said.

Poor economic data out of China, including a January flash Purchasing Managers' Index (PMI) by HSBC at a six-month low of 49.6, further hurt the local industry players’ confidence, they said.

“If Chinese [importers] are not going to buy after the Lunar New Year, Asia [benzene] supply will turn long,” a third South Korean producer said.

“All in all, FOB Korea prices should come down to re-open the selling opportunities into China. We can’t just depend on the US,” a second South Korean trader said.

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

Author: Ong Sheau Ling

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