OUTLOOK ’13: Europe aromatics braced for a turbulent year
Truong Mellor
24-Dec-2012
By Truong Mellor
LONDON
(ICIS)–Following on from a volatile 2012, European aromatics
are braced for a continued rollercoaster on supply and
pricing next year, with benzene costs in particular
expected to continue along a bullish path.
The story of benzene in Europe in 2012 has
been one of almost uninterrupted bullishness on pricing. The
adoption of lighter feedstocks among cracker operators has
led to lower yields of pyrolisis gasoline (pygas), the key
feedstock for benzene production.
Growing supplies of
paraffinic crude grades in the US, such as Eagle Ford and
Bakken, also yield less aromatics through the refining
process, a trend that looks set to become even more
widespread throughout the industry.
The tightness on benzene is also
increasingly a global concern as 2013 approaches. With
numerous phenol and bisphenol
A (BPA) plants coming on stream in China next year, this will
pull heavily on benzene supplies in the region.
Since 2008, the downturn in the Chinese
steel industry has also led to reduced the output of
benzene-rich waste stream from coke production.
“Next year is looking horrific,” said one
player in the region. “Coal benzene [production] has slowed
down. They have to import benzene from Korea. For the first
time in my life I see prices equal to Rotterdam and the US.
If it doesn’t improve, I believe that coal-based benzene will
be more expensive than Europe [in 2013].”
Asia is already a key exporter of
benzene to the US, where prices reached record highs
this year on supply restrictions. Many have already predicted
that the US will remain tight throughout next
year.
One key European benzene consumer
expects the first half of the year to remain tight on these
dynamics, a sentiment that has been echoed by many others in
the market. After that, players are unwilling to speculate,
though most predictions favour the unpredictable.
“Benzene
will continue to behave as it did in 2012,” said
a styrene trader earlier this year at the 46th annual
European Petrochemical Association (EPCA) meeting in
Budapest. “If crude stays high, this will be reflected
in benzene
and styrene pricing.”
The European styrene market has
struggled with the soaring cost of benzene this year amid
weak demand from key sectors like polystyrene (PS) and
increasingly expandable polystyrene (EPS), previously
considered a pocket of steady growth in Europe, with the
construction downturn negatively impacting insulation
demand.
While demand may start to recover next
year, the styrene market will also face the challenge of up
to 30,000 tonnes being pulled out of Europe each month for
derivative production.
“Styrene will be a different ball game next year,” one
trader said. “Egypt will be drawing material out for
polystyrene. It will be harder to get product.”
While the arrival of imports and the
switching on of hydrodealkylation (HDA) units – using toluene
to produce benzene – have both helped alleviate the soaring
European numbers, these have proven to be only stop-gap
measures in what is now looking to be a permanent supply
dynamic for benzene going forward.
In the case of HDA
production, the problem is one of economics, as toluene
prices have also firmed throughout 2012 on restricted
supply.
“Toluene prices
follow
benzene, and for the
same reasons,” said Craig Barry, global business director,
aromatics at Dow Chemical, speaking at the 11th World
Aromatics & Derivatives Conference in Berlin, Germany in
November 2012.
Western Europe has also seen fewer
toluene imports coming from the traditional
exporting hubs of Poland and Bratislava this year, as
derivative plants continue to pull material amid steadily
growing demand for foam and urethane applications.
Free on board (FOB) deals were
done for prices as high as $1,450/tonne (€1,102/tonne) this
year, as players scrambled to cover positions in what was
described by some players as a dry market, following a
declaration of force majeure on mixed xylenes (MX) by one
producer.
One toluene supplier had
already started to cut contract volumes in 2012, and several
players expect that availability will remain a concern in
Europe next year.
While demand has steadily
dwindled for European xylenes, reduced production output and
talk of potential plant closures may keep prices volatile
next year.
Globally, paraxylene (PX)
will tighten in 2013 with the start-up of numerous purified
terephthalic acid (PTA) plants in China. Asia’s PTA capacity
is expected to reach 69m tonnes/year in 2015, a 60% increase
from 43m tonnes/year in 2011.
The impact of this on the
Asian PX market will be felt markedly in Europe, where
monthly contract talks continue to take their cues from the
far east. While Europe has fundamentally different demand
dynamics and even production economics, with Asian producers
utilising the gasoline path as opposed to naphtha, pricing
and sentiment there still drives much of what happens in
Europe.
Orthoxylene (OX) saw record highs in Europe this year on
the back of supply restraints caused by production outages,
although weak offtake from the construction sector continued
to weigh down on the market.
Upward pressure may come from
Asia, where a renewed focus on PX production this year has
recently tightened OX availability in several
markets across the region.
While this has not so far led to any real demand
uptick, as players look to minimise inventories towards
year-end, the new year could see some export opportunities
for European players.
Next year could see further
domestic supply concerns, however, with some speculation that
OX production could be taken out of Europe. However, whether
this will severely curtail domestic availability largely
depends on whether demand recovers in any meaningful
sense.
“You can’t have a tight
supply situation without reasonable demand,” said one major
consumer. “That will be the key factor next
year.”
($1 = €0.76)
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