As promised, the 3rd of the blog's series on the changes underway in the pricing of the major 'building block' chemicals, looks at benzene.
The chart above shows its 'spread' versus naphtha, the key dynamic from a price and margin perspective. As can be seen, this was normally in the $80/t - $200/t range until the early 2000s.
This was because considerable on-purpose capacity existed in the form of HDA (hydrodealkylation) units. And when the price of toluene dipped, or benzene's price rose, these units stabilised supply/demand balances.
But since then, refining dynamics have increasingly come to dominate benzene markets. In 2000-1, they had caused benzene to go into surplus, and the spread to dip towards zero, as European refiners extracted more benzene from gasoline to meet new regulations.
Then in 2004, the removal of MTBE in the USA led to an extreme tightness, as toluene was sucked into the US gasoline pool. On-purpose HDA became very expensive. Equally, paraxylene's growth (PX) meant more MSTDP plants (disproportionation units) were built, with an increasing bias to PX output rather than benzene.
The spread jumped to a record $700/t level, and product remained tight until 2008. But in a dramatic reversal, spreads then fell to a negative $40/t level, as petchem demand slumped at the start of the Crisis, whilst refining rates proved more robust due to refiners' need to extract benzene to meet gasoline regulations.
Similarly, recent lower refinery operating rates have reduced benzene supply from this important source, even though demand has been supported by government stimulus programmes. Spreads thus jumped again, to the $300/t level. And this increasingly volatile behaviour raises a serious issue for buyers. It demonstrates that there is really little flexibility for benzene supply to balance demand.
When benzene demand is low, this means they benefit from lower spreads. But as with propylene and butadiene, lower upstream operating rates will not increase merely because benzene demand improves. The blog therefore believes there is a clear need for consumers to examine their sourcing strategies, to cope with this potentially difficult situation.