The fundamental supply/demand issue for benzene remains the reduction in pyrolysis gasoline (pygas) availability for BTX production. Crackers increasingly utilising lighter feedstocks will keep pygas supply restricted and mean that European supply will remain structurally balanced to tight.
While styrene saw record high pricing towards the end of 2013, this was due to production problems and availability limitations rather than strong derivative offtake.
European production for styrene monomer has been curtailed due to numerous shutdowns over the last five years. This saw styrene numbers maintain a healthy spread over benzene for much of 2013, even as benzene remained structurally high, although this was not supported by demand levels along the styrenics chain.
For many downstream players, the structurally high pricing of benzene is a key impediment to any recovery in demand. The phenol market has struggled to pass on the numerous price increases for benzene over the last 12 months.
Although crude oil prices have remained fairly stable, benzene has still seen pronounced volatility over the same period. The push and pull of global trade flows, unplanned outages and the structural tightness of the US market have been driving benzene pricing developments in Europe.
As key derivative markets across Europe continue to struggle with demand recovery, supply remains the key factor in price movements.
European spot numbers reached record highs in January 2014, with healthy restocking and soaring US numbers pulling material out of the ARA region helping support price levels.
In Europe, the main source of benzene is from pyrolysis gasoline (pygas) co-produced by steam cracking naphtha, gasoil or condensates to make olefins. Another source is the selective disproportionation of toluene (TDP) where benzene is co-produced in a paraxylene (PX)-rich xylenes stream. The gasoline pool is also an increasing source as stricter regulations limit the content of benzene/aromatics in gasoline.
The expectation for the European benzene market is continued price volatility, making it impossible to anticipate and accordingly plan for. Pricing will remain both historically and structurally high due to the continued global developments in shale oil and gas production keeping pressure on overall aromatics availability.
The US market will continue to drive global price trends, as Asia remains a key exporter of benzene to the region.
However, demand from the key Chinese market will play a factor in overall regional balances in Asia, having a domino effect on US exports and global pricing as a whole. With several downstream shutdowns planned for later in 2014, this could see more material move to the US and help temper the structural shortness in the market.
In Europe, many expect that spot numbers will see more record highs as prices react to US market developments. Supply rather than demand will dictate the direction of the market, and short covering among traders will be the likely driver of sharp and sudden upward movements.