Benzene is used to produce several intermediates, including styrene, phenol, maleic anhydride (MA), alkylbenzenes and chlorobenzenes. It is also used to make anthraquinone and hydroquinone, benzene sulfonic acid and other products in drugs, dyes, insecticides and plastics.
Spot supply cargoes from Asia were still abundant in Q4 2013, as the arbitrage window to the US was still closed. This was evident from the declines in export quantities from South Korea to the US at an average of 15,000 tonnes each. In addition, delayed shipments from Japan for August and September loading to October saturated the US market, curtailing the spot appetite for South Korean benzene in Q4 2013.
Besides tepid demand from the US, spot enquiries from China were muted from last December as Sinopec started to cut list prices. At the same time the US and Middle East arbitrage windows reopened.
The Asia-US price gap widened to more than $100/tonne, while hiccups at benzene plants in Saudi Arabia since December 2013 to date absorbed much southeast Asian and South Korean spot parcels. Consequently, the supply-demand conditions turned more balanced in last December into January 2014.
By the second half of January, overall spot demand in many Asian countries – which celebrated the Lunar New Year in end January – decreased, but more South Korean and Japanese lots were arranged to head to the US as the arbitrage window was still widely open. In January, close to 50,000 tonnes of South Korea origin and 24,000 tonnes of Japan lots have shipped to the US.
More quantities were fixed for February loading to the US, as Sinopec reduced the list prices further, shutting the Chinese import window firmly. More than 50,000 tonnes of South Korean cargoes and 36,000 tonnes of Japanese lots will move to the US.
Persistent price declines in China was a result of the poor margins of benzene derivatives, while the demand from the key downstream styrene monomer (SM) was weakened as Chinese inventories hit 300,000 tonnes in mid-February, more than six times the traditional stock levels.
In late 2013, an Indonesian benzene unit that was idle for more than a year restarted. Nevertheless, glitches at this unit, together with opportunistic demand from the Middle East, eased the potential supply overhang in southeast Asia.
Some southeast Asia cargoes were sold to China in February as well. Traders reiterated that China is still a viable export destination, but margins are squeezed.
Spot prices were hovering at $1,210-1,250/tonne FOB Korea in October 2013. Entering November-December 2013, prices were on an uptrend, tracking the US and European price rally amid tighter spot Asia availability as Asia parcels exited the region to the US and Middle East. By mid-January, spot prices hit a 10-month high at around $1,370/tonne FOB Korea.
Spot prices slipped in the second-half of January on the Lunar New Year period. Prices then recovered in February in the first-half buoyed by higher US numbers, but persistent price declines in SM, coupled with news of Sinopec planning to cut prices by the end of February, weighed on benzene.
Benzene can be produced from pyrolysis gasoline (pygas) in the steam cracking of 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. A third, albeit high cost, route is the hydrodealkylation (HDA) of toluene. In Asia, HDA plants are mostly not running this year because of expensive hydrogen feedstock and the supply glut in benzene.
In the short term up to early March, spot prices are unlikely to plunge because of the support from the US during monthly contract negotiation period and shipment delays from Asia to the US from end February to early March, boosting the prompt demand in the US. Also, a recovery seen in the downstream phenol market will lend support to prices. However, phenol and SM turnarounds in Asia in Q2 will reduce the spot appetite for benzene lots. Prices in Asia will only continue to be supported if sellers are able to find outlets outside of Asia, since China demand will remain muted.