Europe aromatics market perplexed by benzene bullishness
Truong Mellor
19-Apr-2013
By Truong Mellor
LONDON (ICIS)–European aromatics players continue to
struggle with the bullishness on benzene, sources said on
Friday, with many unclear on what is driving the upward
trend.
While benzene prices have gradually moved
up this week, with confirmed April business as high as
$1,320/tonne CIF (cost, insurance, freight) ARA
(Amsterdam-Rotterdam-Antwerp) and offers reaching
$1,350/tonne, styrene values have eroded, with a deal done
for April delivery late on Thursday April 18 at
$1,517.50/tonne FOB (free on board) Rotterdam.
“The recent benzene rise has many people
perplexed,” said one styrene player. “The magnitude of change
against previous expectations is making people question their
plans. The spread between benzene and
styrene has come down from over $400/tonne earlier
this year to less than $200/tonne now. The question is: do we
keep operating at these levels?”
The received wisdom earlier this year was
that styrene was set to tighten over the
turnaround season from March to May, while output reductions
for styrene as well as phenol during this time meant that
benzene would start to pool.
However, a raft of styrene imports from
the US combined with weaker-than-expected derivative demand
has actually seen some length creep into the European market,
pulling prices down with it.
Players have been watching the
construction industry struggle with poor demand, initially
due to cold weather conditions. However, there appears to be
no noticeable upturn as the second quarter unfolds and the
weather improves.
While there had always been a sense among
some players that the potential tightness and volatility
predicted by many was overstated, what has surprised the
market is the firming of benzene prices over the last week,
especially when viewed in light of the sharp drop in crude and energy
numbers.
“That has been the main issue people were
not prepared for,” said one benzene supplier, who felt that
there is an expectation that the market would improve
following months of low demand.
“Derivative production is starting to come
back up while benzene availability has been lower. People
have been coming into the market for May.”
One European styrene unit is said to have
come back online following a turnaround that began in March,
while another is expected to begin the restart process by the
end of April.
With the spread between benzene and
naphtha fast approaching $600/tonne, with naphtha moving down
by 10% in the last two weeks, several downstream players have
questioned whether the current benzene numbers above
$1,300/tonne are sustainable.
So what is driving the current upturn on
benzene? Sources have posited various theories, none of which
seem to explain the bullishness as a whole.
The US market, the key driver for Europe earlier in
2013, saw an upturn early in the week.
However, this was largely thought to be a result of the
higher domestic numbers, which was borne out by the
subsequent dip in pricing following continued energy
losses.
There has also been talk of cracker
turnarounds limiting availability and even speculation of an
aromatics outage in Europe, although traders and
suppliers both refuted this, adding that the
steady contango seen into May and June would not have emerged
if there was a production problem limiting prompt
supply.
“There’s no market activity to suggest an
outage,” explained one producer. “Nobody is stepping in to
cover something like that.”
One trader argued that the upturn is down
to a general lack of supply rather than any short term
availability problem, combined with the expectation among
players that demand will return.
“There are a lot of buyers sniffing around
for May, but no deals done yet,” the trader said. “Benzene
production has been limited for nine months as a reaction to
lower demand, so there is a sense that it can’t get any
worse.”
Indeed, another source said that the story
among suppliers is that there is not a lot of material
available at the moment, due to lower production rates in
2013 and a growing number of enquiries for material for
the upcoming weeks following a first quarter when many
players went short on benzene.
So while feedstocks lose ground and
derivative demand struggles amid the wider economic malaise,
this may not necessarily hold back the upward movement on
benzene.
“We saw the market get tight at the end of
2012 and that spread with naphtha really move up,” said one producer.
“We’re not there yet but it’s getting close.”
($1 = €0.77)
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