Benzene supply/demand begins to change

C6 Dec10.pngBenzene is the blog’s favourite leading indicator for chemical demand, due to its widespread use in the industry. Its recent price movements versus its naphtha feedstock, may therefore be telling us something quite important about changing supply/demand balances.

As the chart above shows, based on ICIS pricing, its spread versus naphtha has become very volatile in recent years. This is because, as discussed at our Conference last month, there are now no major sources of on-purpose supply to balance changes in demand. Thus although the spread used to be $80 – $200/t, it has usually either been above, or below, these levels since 2004.

Now in recent weeks it has suddenly halved, from $334/t in H1 to $169/t in Q4, to date. There appear to be two possible explanations for the change:

• Refineries have dramatically increased operating rates in Asia and Europe, due to diesel demand. In turn, this will be increasing benzene production.
• Crude oil prices have leapt to $90/bbl under the influence of the US Fed’s QE2 Lifeboat policy. History shows this is a level when major demand destruction starts to occur, as consumers cut back on discretionary spending.

Of course, it could also be that we are seeing both these effects in combination. The blog will keep a close eye on future developments.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. 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 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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