Benzene is one of the most widely used, and widely traded, chemicals. It is therefore an excellent leading indicator of chemical industry supply/demand balances, and profitability.
• A year ago, the blog noted that benzene prices had "hit a ceiling", suggesting that industry profitability was close to a peak.
• Then in October, when they fell to naphtha levels, benzene provided a first indication of "just how dire market conditions" were to become.
• By November, benzene prices were anticipating crude prices of $16/bbl, indicating that producers were "selling on a firesale base" and that profitability was "getting close to the floor".
Since then, benzene prices have indeed risen from December's $258/t low. But, as the chart shows (based on ICIS pricing), benzene has still not recovered its normal premium versus naphtha. Prices have averaged just $332/t so far in 2009, versus an average naphtha price of $378/t. Such an extended period of discount has never happened before.
Unfortunately, this suggests that, unless Q2 brings a swift improvement, the outlook for 2009 industry profitability remains fairly dire.