AFPM: Aromatics uncertainty

24 March 2014 00:00 Source:ICIS Chemical Business

With the first quarter of 2014 coming to a close, market expectations for US benzene and styrene have been mixed so far. A large majority of US aromatics trade participants had predicted the benzene market would be long for much of 2014, while the styrene market was expected to see supply remain tight alongside moderate growth in some consumer areas.

This outlook for benzene was a sharp contrast to what trade sources had expected for 2013. A large majority of participants had expected the US benzene market to be strong in 2013, citing tight supply availability and the global financial situation heading into the year.

However, benzene supply was mostly long, leading to declining spot prices for much of last year. US benzene spot values started 2013 above $5.00/gal (€3.63/gal) but gradually declined soon after.

Benzene spot prices never again surpassed $5.00/gal for 2013, as weak demand, lacklustre energy futures and ample supply led spot prices to establish yearly lows around $4.00/gal in mid-July and again in late October.

The benzene price direction for 2014, however, has been stronger on the back of short-cover positions. Benzene spot prices have been on a gradual increase since early November 2013 on the back of some short-lived production issues, tighter supply and short-cover positions. The short-cover positions led the benzene spot market to trade at all-time highs of $5.50/gal in mid-January, surpassing the previous high of $5.35/gal in October 2012.

Benzene styrene spikes

Prices have come down from January’s record spot deals, but trade sources expect some short cover to continue in the early part of 2014 although they believe it will be short-lived in comparison to the rest of the year.

One major benzene consumer also expects ample supply for the majority of 2014 as capacity in Asia is supposed to be coming back on line. In addition to start-ups expected in Asia, new capacity is scheduled to come online in the region.

South Korea’s SK Global Chemical (SKGC) is expected to start up two new aromatics projects in July, in Ulsan and Incheon. Each project includes a benzene facility. SKGC also has a stake in the Singapore-based Jurong Aromatics Corp (JAC) aromatics project. JAC’s new aromatics facility is on track to start up in June 2014.

US market participants say that as production came back on line in the first quarter, global supply should be long again. However, a decrease in Asian benzene volumes heading to the US was expected for March lifting because of the widespread uncertainty among sellers of the US price trend in May.

An estimated 83,000 tonnes of benzene – 35,000 tonnes from South Korea, 36,000 tonnes from Japan and 12,000 tonnes from India – were expected be shipped in March to the US. This volume was down from the February liftings from Asia of close to 100,000 tonnes.

Meanwhile, for the US styrene sector, market developments thus far have been in line with expectations. Heading into 2014, trade participants anticipated supplies to remain tight alongside moderate growth in some consumer areas. In addition, some suppliers expect to see more of a disconnect between the styrene market and feedstock benzene costs.

STYRENE SOARS

US styrene spot prices in 2013 peaked at a yearly high of 78 cents/lb ($1,720/tonne) in February on the back of stronger feedstock benzene prices. After moving down in the second quarter, spot prices rebounded to 77 cents/lb in late July, where it remained for 10 weeks.

The late summer spike in styrene spot prices was also in line with seasonal demand, which typically emerges in September ahead of the winter retail holiday shopping season. After falling again in October and November, styrene prices moved back up in December on the back of tight supplies and stronger ­benzene prices.

For 2014, the tight market expectations are not just for North America but globally, say sources. Currently, a few North American suppliers had production issues that continued into the first quarter of 2014.

Shell Chemicals declared force majeure on styrene out of its facility in Alberta, Canada, from November through late February. Styrolution’s Texas City, Texas, facility was also on a 65-day shutdown, which began in November.

The tight market in the first quarter has kept upward pressure on styrene spot prices, in addition to some market growth alongside global GDP growth. The 2014 record highs in the US benzene spot market have pushed downstream styrene spot prices to all-time highs as well, according to trade sources.

US styrene spot prices were discussed at 80 cents/lb in late January, because of the tight supply, high feedstock fundamentals.

The spike in styrene spot prices has also been supported by tight supply globally, especially in the US. In addition to tight styrene supply expectations, trade sources note that they expect to see styrene demand growth from the unsaturated polyester resins (UPR) industry, especially out of Latin America.

Suppliers and consumers agree that the styrene industry may see more of a disconnect between feedstock costs, as the industry will be more tied to market conditions. US styrene market participants add that they expect more contracts being tied to market conditions rather than raw material costs.

By Brian Balboa