Benzene signals a market top

benzene Aug09.jpg

As regular readers will know, the blog believes benzene is a good leading indicator for chemical demand, due to its widespread use in the industry. Last November saw its price “on the floor“, indicating a major downturn, and it remained there until March, before its price began to “surge” in early April as destocking ended down the value chain.

Since then, as the chart based on ICIS pricing shows, benzene (blue line) has risen 270%, twice the oil price increase. But benzene’s main derivative, styrene (red dotted line), has only increased in line with oil prices. Thus the spread between styrene and benzene prices (dotted purple line) has been squeezed.

This suggests underlying levels of chemical demand are still weak. And my IeC colleague, John Keeley, has seen this picture before, when he ran Shell’s European aromatics business. His judgement is simple, “go short benzene now, unless you think styrene is about to tighten”.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. Paul is also an invited member of the World Economic Forum’s Global Agenda Council. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such as oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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