OUTLOOK ‘14: Europe aromatics face continued volatility, weak demand
Truong Mellor
24-Dec-2013
By Truong Mellor
LONDON
(ICIS)–Following on from an unpredictable environment this
year, the aromatics market is expected to see further volatility in 2014,
with the twin pressures of bearish downstream sentiment and
upward pressure on BTX (benzene, toluene, xylenes) prices
from the continued growth of shale oil and gas production
keeping it a tough market to operate in.
At the end of 2012, a year that culminated in record high
pricing across the globe, the upward trend on aromatics was
expected to continue throughout 2013. This was evidenced by
the record high January benzene settlement at $1,529/tonne FOB (free on
board) NWE (northwest Europe).
However, European BTX prices have seen an overall decline
over the course of the year, which many feel is a combination
of high prices killing derivative demand and the continued
economic malaise and austerity measures (both public and
private) limiting activity in key end use markets.
Despite this, the year was not without some sharp spikes and
drops across the aromatics sector. It is also worth
highlighting that BTX prices in Europe have been consistently
at high levels both historically and structurally.
European benzene prices were in perpetual decline during
the first half of the year, with only a short-lived upward
swing in April driven by several production problems and low
inventories at the time.
Demand from key downstream chains such as
styrenics and phenol has remained sluggish throughout 2013,
with the wider economic picture limiting construction and
automotive offtake. Phenol in particular has been “disastrous”, according to players in that
sector.
Crucially, the market has failed to react in ways that
players had predicted. The cracker turnaround season from
October 2013 onwards did not help support any sustainable
price increase on feedstock tightness, as had been expected
ahead of the fourth quarter.
However, the second half of the year did see continued
highs and lows on European pricing, aided by firmer US market
and speculation-driven bullishness
following several production outages both in Europe and the
US.
Speaking at the
12th ICIS World Aromatics and Derivatives
conference earlier this year, Christian Buhse, head of
procurement at Bayer MaterialScience, highlighted the fact
that while crude oil prices have remained relatively stable
for the last two years, benzene has still seen pronounced
volatility over the same period.
European toluene numbers have generally
followed the same downward trajectory as benzene over the
course of 2013, although the volatility has been less
pronounced.
Looking ahead to 2014, some downstream
toluene di-isocyanate (TDI) start-ups could keep European
availability balanced-to-tight, although some players
dispute the impact that any new downstream capacities are
likely to have within the next 12 months.
The US market, the key global driver for
toluene, will face continued pressure from increased shale
production, and this is likely to keep upward pressure on
pricing and pull European material.
Increasingly a thinly traded product chain in Europe, the
xylenes sector still faces structural tightness and upward price
pressure from the growing influence of the shale oil
revolution, most notably in the US.
European mixed xylenes (MX) prices saw a sharp drop early in 2013, but since
then have generally held steady around the $1,150-1,200/tonne
FOB Rotterdam mark even as the year has drawn to a close.
This is despite continued poor demand from the domestic
paraxylene (PX) and polyester sectors all year, with the
purified terephthalic acid (PTA) market plagued by
closures, bankruptcies and the spectre of
rationalisation.
“PX in Europe remains very slow,” said one
trader. “That has kept any real interest in MX limited, as there is only really any PX
activity when the arbitrage window into Asia is open or the
spread with MX is healthy.”
With no clear driving force behind them,
European MX prices are likely to ebb and flow with the
fortunes of the US and Asian markets in 2014. The increasing
structural tightness for global BTX production will keep
upward pressure on pricing, which will impede any sustainable
demand recovery in Europe.
Similarly, the European orthoxylene (OX) market has remained
quiet outside of contractual business this year. With an
increasingly smaller pool of players in Europe, production
has been finely tuned to meet structural demand, and there is
rarely additional cargo seen on the spot market.
Likewise, there is very little domestic demand for spot OX,
although some players have noted a growing interest in
material from markets such as India and Brazil.
There are two factors that could impact on OX pricing in
2014. Firstly, the closure of Arkema’s downstream
phthalic anhydride (PA) plant in Chauny,
France by March 2014 could see the shortfall in PA being met by imported
volumes, although most sources believe the market in Europe
is oversupplied at present.
However, a more balanced PA market could
help keep a floor on OX pricing in Europe next year, although
any longer term structural impact is unlikely to become
apparent as early as 2014.
Additionally, there has been growing concern in Asia among OX
players about PA producers installing catalysts in
their plants to enable them to use naphthalene as an
alternate feedstock, amid poor downstream plasticiser demand
and upstream production being more focused on co-product
paraxylene (PX), which has been more profitable.
However, the PX landscape in Asia is due for a
radical change beginning in 2014, with numerous units coming
online. There is approximately 9m tonnes of PX capacity
scheduled to come onstream within the next five years,
and while nameplate capacities are unlikely to be met, this
is still expected to have a significant impact on Asian PX
pricing and the global supply/demand balance.
European producers have managed to create what one consumer
termed “the semblance of balance” throughout 2013 by
exporting material abroad, which is evidenced by the Eurostat
export figures this year.
“Asia should be well supplied with all the new units
coming online,” said the consumer, speaking on the sidelines
of the 47th annual European Petrochemical Association (EPCA)
meeting in October this year. “ European
pricing has been too high for buyers,” the consumer
explained. “Europe needs more PX/PTA conversion.”
The growth in PX and expanding TDP
(toluene disproportionation) capacity will also
fuel the Asian benzene market next year and
beyond, as TDP converts toluene to benzene and xylenes,
while selective toluene disproportionation (STDP) produces a
PX-rich stream.
However, the impact of this on the European benzene
dynamic is unclear. One trader speaking on the sidelines of
the European Petrochemical Luncheon (EPL) in Brussels,
Belgium last week, believed that any surplus benzene would be
diverted to the Middle East rather than Europe or even the
US, traditionally the export destination for Asian benzene
producers.
The trader added that it expects 2014 to
be another year of unpredictability and price volatility for
benzene and the aromatics complex in general, largely
determined by global trade flows and production issues.
“We will see a year made up of moments,”
the trader said, “and they will be tough to predict.”
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