A roar or a whimper?
Source of picture: http://break4fun.zarke.net
By John Richardson
THE ASIAN aromatics market has had "both its legs chopped off below the knees, and has also had its proverbial hands broken," said an Asian-based petrochemicals consultant today.
"As a result, we are crawling in a great deal of pain towards what should be a better outlook for supply and demand after the Chinese New Year (CNY) holidays."
The holidays officially this Friday, but buyers are not expected to return in big numbers to any petrochemicals market until the first week of March.
"In benzene, it's largely about China (surprise, surprise), which went from being a major net exporter in September and October to being on the verge of balanced in November and December," the consultant added.
"In September and October exports were 40,000-55,000 tonnes for each of these monthd. This swung to exports of only 7,000-8,000 tonnes in November and the same quantity in December."
Ahead of this steep decline, RMB prices increased by enough above US dollar values to open arbitrage - leading to a ramp-up in reformer and cracker-based production elsewhere in Asia.
But now with RMB and dollar prices at parity, China could soon swing back to big export volumes.
High inventory levels also point to this happening. Sinopec, for example, had 24,000-25,000 tonnes in storage compared with the usual 17,000-21,000 tonne with stocks likely to be at elevated levels elsewhere in China, the consultant added.
"Benzene inventories are a bit worrying, but toluene is positively scary. Normal total stocks in China are approximately 70,000 tonnes, but know there is around 150,000 tonnes in the tanks," he said.
Mixed xylenes (MX) inventories in China totalled around 100,000 tonnes this month as against the normal 50,000 tonnes, he added.
Toluene and MX production peaked at the same time as benzene - in November and December last year, he said.
"The good news for toluene is that when seasonal gasoline demand picks up, this surplus should easily be absorbed for blending.
"But there's a great deal of uncertainty around the strength of post-CNY demand for benzene derivatives and down the fibres chain."
Overproduction of BTX in general was the result of the market paying too much attention to a bullish macroeconomic outlook and strong crude, with oil prices reflecting this outlook, he continued.
An aromatics trader added: "OK, accepted that benzene also faced production problems on weather-related delays to naphtha shipments in November-December and naphtha-benzene spreads were excellent, but this still didn't justify levels of production.
"This was a time of weak end-user demand, which everyone realised. Too much attention was being paid to the forward curves, with traders easily able to take positions because of ample bank lending in China."
As with polyolefins, therefore, the strength of real post-CNY demand will be critical to whether these high stock levels will be easily absorbed.
An awful lot is going to hinge on the effects of recent credit tightening.