A Ring of Truth?
Source of picture: http://web.pdx.edu/~nathanh/benzene/benzene2.gif
By John Richardson
TUMBLING Asian benzene prices are being blamed on weaker crude, itself a reflection of macro-economic worries over higher-than-expected US jobless figures, government debt problems in the Euro zone and tighter credit in China.
"It's not a question of whether, but when the secon dip in this duuble-dip recession occurs. We are going through a transition period of lower global growth but the financial markets don't reflect this," said a lawyer friend of mine this morning.
"So you have crude overvalued thanks to all the free government money being used for speculation, along with other unrealistic pricing of other commodities and equities."
But as we said on Wednesday, financial-market players have big incentives to feed gullible journalists with constantly shifting economic outlooks.
The muddle in newspaper headlines is quite extraordinary at the moment as only on Tuesday of this week, crude rallied on strong manufacturing data and rising manufacturers' sentiment indices.
So benzene could be back up again by Monday lunchtime.
But while the benzene traders are blaming the collapse of C6s on crude, overproduction on over-confidence in downstream chemicals demand that might not be there post-Chinese New Year has to also be a factor.
This suggest that there is a lot more to do this can merely volatile crude.
The fantastic spreads between naphtha and benzene of late must have also been a factor in higher operating rates.(click on link below with data from ICIS pricing ). Spreads were boosted in late December and early January on naphtha-delivery issues and benzene plant operating problems which tightened supply.
A separate point is that the benzene traders might have been playing their usual games - a further reason for the price declines.
"One particular trader recently sold large quantities of benzene in order to drive down the price of paraxylene (PX), as it needed to cover short positions on PX," alleged a source earlier this week.
A benzene cargo can change hands as much as six times before it's even loaded, and so it's devilishly difficult to separate the underlying fundamentals from the speculative claims.
But this gets away from the main point: The recent declines in benzene might just be an indication of the begining of the double-dip in this recession.
Mind you, I have said this many times before over the last 12 months