Europe benzene direction unclear in thin market

21 July 2014 10:54 Source:ICIS News

Focus article by Truong Mellor

Direction unclearLONDON (ICIS)--Tight regional supply and firming numbers in both Asia and the US have helped push European benzene prices back up towards $1,500/tonne CIF (cost, insurance and freight) ARA (Amsterdam-Rotterdam-Antwerp), sources said on Monday.

However, with trading activity thin overall due to seasonal holidays, many are uncertain of market direction as the third quarter unfolds.

“The US went down earlier in July, so Europe initially followed a bit,” said one trader.

“Then they started to recover. Demand is robust, but not necessarily at these levels. Anything could happen.”

Bids for July cargo opened last week as low as $1,445/tonne, but the market gradually moved higher, with deals for the current month done at $1,470-1,480/tonne.

August was steeply backwardated at the start of the week by around $50/tonne, but this gap eventually narrowed by Friday 18 July, with July bids and offers at $1,480-1,500/tonne, while August was valued at $1,450-1,480/tonne.

This morning saw July bids and offers relatively steady at $1,485-1,500/tonne, while August was offered at $1,470/tonne.

There is a sense that the US would remain the key driver for Europe, and this could see ARA pricing move down in the coming weeks as the US market sees some downward correction following the sharp spike seen in June.

For some, naphtha pricing is key, with the spread between the two products now hovering around the $550/tonne level. However, many feel that this is the current ceiling for the naphtha/benzene margin.

However, low inventory levels means the European benzene market is still susceptible to sharp volatility and price swings should there be any disruption in the production pipeline.

“The threat is that everyone has gone short expecting prices to move down with the US,” one source said.

“This creates the steep backwardation that we’ve seen between July and August. Traders can roll forward their short position, but this cannot go on indefinitely.”

By Truong Mellor