By Malini Hariharan
Asian aromatics markets are getting increasingly hard to read not merely because of volatile crude prices.
Demand, usually strong at this time of the year, has so far failed to materialise. The US gasoline season has started on a slow note. In Asia, benzene demand has been hit by maintenance shutdowns and operating troubles at styrene plants. And Chinese refiners have preferred to use MTBE instead of toluene for gasoline blending.
On the supply side, operating rates at reformers and pygas-based units have been kept high in anticipation of demand. And even now, producers are hesitating to cut output as they do not want to be caught with low stocks once demand kicks in.
"Though the market is long now, the volumes can be easily consumed when demand comes," says Leonard de Guzman of Dewitt & Co.
But when that will happen is still uncertain. The US is said to be awash with gasoline and summer driving is predicted to remain much lower than what it was two years ago.
The US Energy Information Administration's (EIA) Gasoline Summer Consumption and Supply report predicted an increase of just 0.9% in gasoline consumption this summer, but gasoline stocks were about 7m bbl (3%) higher than the start of the 2009 driving season.
The net result is an oversupplied market that pushed benzene prices down by 18% in May and toluene by 17%.
Prices rose last week on stronger crude prices but fell again in the last few days.
Producers are struggling with high stocks. It is estimated that Sinopec is holding a benzene inventory of around 40,000 tonnes, double the normal level.
De Guzman predicts that Asian benzene will be slow to recover as the global inventory situation has still to be resolved.
The key, he says, is operating rates at reformers - will they be cut or will producers keep them running in expectation of the summer gasoline demand and also a recovery in styrene demand.