Market outlook: Europe needs benzene, but where from?

The switch to lighter feedstocks and cuts to European refining capacity mean that a structural shortage of benzene could develop

Europe’s benzene market remains volatile, with tight availability creating price spikes. Meanwhile, production is structurally decreasing, as global gas economics make naphtha cracking in Europe less competitive.

Asian PX projects due onstream this year may produce benzene as a by-product for export Photo: © Rex Features

“European benzene production will decline, due to C2 [ethylene] demand [the switch to lighter feedstocks] and refinery economics [rising diesel volumes and lower gasoline exports],” said Peter Johansen, product manager at Integra, speaking at the ICIS Phenol and Acetone conference in Prague in June.

The question that then needs to be asked is where will Europe’s benzene come from in future? Europe’s dependence on imports has grown over the past 10 years, according to data from statistics agency Eurostat.

But according to Johansen, these imports are not without problems; “Europe was not built to import benzene. The US was built to import benzene,” he said. He believes that Europe needs to change to cope with a future reliance on imports.

“It’s a mentality, with working capital concerns and price concerns. Benzene has historically been a relatively stable molecule in Europe.”

Johansen also pointed to the backwardation of the pricing curve as a factor preventing free flow of product into Europe.

With global cracker economics continuing to favour ethane crackers and the US likely to continue to be short of benzene, which capacity increases in which region might supply the excess?

One answer in the near-term might be Asia and its increased paraxylene (PX) production. More than 4m tonnes of new PX capacity is due to come on-stream in northeast Asia in the third quarter, with a large proportion of that capacity in South Korea.

Historically, South Korean units are based on naphtha feedstock, and so have benzene as a by-product. As much as 2m tonnes of additional benzene could come to global markets in the space of months, as a result, equivalent to around 5% of global demand.

However, the market doubts whether these new starts up, will actually lead to as large an increase in capacity as expected. As Samuel Wong, ICIS’s Asia PX price editor explains, “Older plants are already running at a lower operating rate [in anticipation of the capacity increases]. … The market is going to look the same as before, with manufacturers reducing overall capacity at old units.”

In addition, the new capacity may not yield the same amount of benzene as the older units.

“The latest paraxylene plants in NEA [northeast Asia] /Middle East yield less benzene per tonne of PX produced than average existing capacity. Hence the anticipated benzene production increase can be adversely affected,” Johansen said.

The reason for this is that the feedstock
for some of the plants is condensate, not naphtha, which tends to yield less aromatics like benzene.

And even if the new units do come on stream as planned and produce substantial amounts of benzene, sources believe very little is likely to reach the European market given transport and logistics costs.

The US is the main export market for product from South Korea. However, improved balance in the US could mean less exports and better balance for Europe. According to Eurostat, 173,000 tonnes of benzene left Europe in 2013, bound for the US.

India is the most important import partner for Europe and should continue to be so with a new PX plant due to come on stream in September.

In total, Johansen estimates that more than 200,000 tonnes of news benzene capacity is coming on stream in India this year.

In the mid-term the Middle-East is seen as a likely source of European product. According to Jose Alberich, a partner at consultants AT Kearney, “In the case of middle-eastern players, feedstock shifts go in the opposite direction, with a migration towards liquid cracking.” According to Alberich this shift will give the Middle East access to more derivatives chains, including aromatics.

However, will a lot of that product come to Europe? Not according to Rob Peacock, aromatics consultant at ICIS. “There will not be that much product from the Middle East. Most Middle Eastern benzene will go to [produce] styrene and cyclohexane, which will then be exported to Asia and Europe.”

Turkey and Israel have been the major trade suppliers of benzene in Europe, together responsible for more than 40% of European imports in 2013, according to Eurostat. This trade should continue and even grow as Johansen points out: Turkey is adding a refinery and aromatics unit.”

However, according to Peacock this product is very much focused on the Mediterranean. “Shipping Middle East to ARA [the Amsterdam, Rotterdam, Antwerp area] is
not cheap but shipping into the Mediterranean is better – you get a lot better netback,” he said.

So where is northwest Europe’s benzene going to come from?

Most believe that increased Middle East and Indian production will find its way to the European market. However, Peacock does not see more supply as the main solution, but instead sees less demand providing the balance as downstream consolidation accelerates.

“Western Europe styrene has had some rationalisation. There is going to be further consolidation, older units in northwest Europe are not so economical. Feedstocks have declined and there is no impetus to produce more styrene and phenol.”

EUROPE JULY BENZENE CONTRACT CONFIRMED UP €99/TONNE AT €1,076/TONNE

by Truong Mellor, London

The July European benzene contract was agreed at €1,076/tonne, up €99/tonne from the previous month, as an initial settlement received further support from players on 2 July.

The July settlement was agreed at a US dollar concept of $1,466/tonne FOB (free on board) NWE (northwest Europe) and converted to the euro price at the agreed exchange rate of €1:$1.36245.

A sizable increase had been expected for the July contract, given the gains in spot pricing over the course of June in tandem with rising US numbers and exports from Europe for both benzene, as well as pygas tightening the front end of the market in particular.

While benzene prices in the US have soared recently, several players in Europe are uncertain whether they are sustainable at current levels without corresponding support from downstream markets.

Similarly, the key downstream styrene market in Europe has failed to keep pace with the gains seen for benzene, amid subdued derivative offtake and healthy regional availability.

Several styrene market players felt that it would be difficult for the European market to absorb the higher cost of raw materials this month. The July European styrene customer reference price (CRP) settled at €1,450/tonne, up €82/tonne from the previous month’s settlement, a producer involved confirmed on 4 July.

The €82/tonne increase was up in line with the barge contract for July settled earlier this week at €1,442/tonne, with higher raw material costs the key upward driver.

The styrene CRP was agreed on a free carrier (FCA) Rotterdam basis.