A view of the future from ICIS Forecasting

Volatility in the European benzene market makes it difficult for companies to make accurate predictions. A new ICIS price forecast report provides the tools to make more confident decisions

The European benzene market has been on a roller-coaster ride over the past 12 months. Spot prices last October slipped under $1,200/tonne (€925/tonne), an average low for 2013, having started the year above $1,500/tonne.

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Towards the end of 2013, prices started rising, gaining on average well over $200/tonne by the end of January 2014. Now prices are again on a downwards trajectory, albeit starting from an August contract price that was some $200/tonne, or €146/tonne, higher than that in August 2013. This time last year, soft demand after the summer and plentiful availability pulled prices downwards during October and November. This year, the demand picture for quarters three and four is expected to be slightly better with less derivative capacity unoperational.

Downstream demand from the phenol chain looked like it had a better start to the year and the methyl di-p-phenylene isocyanate (MDI) chain has seen higher operating rates so far. But the apparent length in the styrene market makes it seem unlikely that overall downstream demand is really any stronger. Also, economic markers do not point to any significant further recovery during the rest of 2014.

Whether the high benzene prices this year have caused any further domestic demand destruction remains to be seen, but derivatives producers see recent pricing levels as unsustainable and as having consequences downstream.

In the next couple of months, benzene supply is not expected to be significantly affected by the autumn turnaround season, and not to the extent that shutdowns, planned or otherwise, affected the market in the first half of the year.

Known cracker turnarounds should be limited in the effect they have on the availability of pyrolysis gasoline (pygas). One cracker in the Mediterranean that has been down for much of the year is not now expected back up until early 2015, but another cracker in the region with associated benzene production is expected to restart later in the third quarter. Most crackers that can will have been running on light feedstocks, restraining pygas availability anyhow.

In terms of the global supply situation, exports from northeast Asia to the US have been at good levels in August and September. A number of benzene units in the US are expected to be shut for maintenance in the autumn. However, these turnarounds should be counteracted by shutdowns at derivative plants, including at least one styrene unit that was taken down temporarily for economic reasons in late August.

This points to further downwards pressure on prices over the course of 2014. In the past two years, December has seen price increases, something not usually seen until January when demand picks up from traditional restocking activity and supports prices.

It remains to be seen whether or not the US market finds itself in short supply again this winter, but if prompt demand is met again with illiquid supply, prices are likely to make up any ground they lose during the second half of the year.

Rob Peacock, aromatics consultant, is the author of ICIS Consulting’s new monthly Europe benzene price forecast report. The report, to launch on 23 October, will provide a rolling monthly forecast of the European benzene contract price as well as commentary and forecasts on raw materials, margins, and trade and a quarterly supply/demand balance. Also featured will be ICIS Consulting’s monthly Sentiment Index survey, which will reflect the view from the market. Contact rob.peacock@icis.com

ASIA POLYETHYLENE PUZZLES INDUSTRY
China has seen extraordinary growth in both local polyethylene (PE) production and imports so far this year. The data shows that:

■ Despite a slowing overall economy, China’s PE production grew by 10% in January-August of this year over the same period in 2013, according to ICIS data. In volume terms, production rose to 8.37m tonnes from 7.63m tonnes.

■ In January-July of this year compared with the same period in 2013, imports also rose by no less than 15%, according to China Customs data. Again in volume terms, this meant an increase to 5.5m tonnes from 4.8m tonnes.

Any inventory imbalances in China’s PE market matter hugely for the rest of the Asian industry – and also for the global industry. Why? Because China’s consumption dwarfs all the other Asian countries. In the case of high-density polyethylene (HDPE), for instance, China’s real consumption totalled 9.7m tonnes in 2012; its nearest rival, India, consumed just 1.6m tonnes, according to ICIS Consulting. Real consumption is consumption adjusted for inventories.

Possible reasons for this growth include:

■ “Catch-up” growth is much stronger in China’s western, less-
developed provinces than the average nationwide GDP growth might indicate. This is the result of government efforts to narrow the economic gap between western and eastern China.

■ Distributors and traders are said to have increased their speculation in the shadow banking system, with PE used as collateral to raise the necessary finance.

“The key China market has always been like this – lacking in transparency,” people might well say.

This is true, of course, but greater understanding of what is happening on the ground in China is of even more importance today than it has perhaps ever been.

Radical changes are taking place in China’s economy as its new leaders introduce a vitally needed new growth model. This will result in many other data anomalies similar to those we have seen in PE.

John Richardson, ICIS consultant, is author of the new monthly Asia PE price forecast report, which will provide an objective and comprehensive look at all the available market intelligence to give an intuitive, as well as a data-driven, view of where the industry is heading. This analysis will be distilled into price and margin forecasts 12 months out, and value-added market commentary

FORECAST EXPLAINED:
The recognition of changes in the supply and demand pattern is key to determining how prices for any particular chemical will change into the future. However, this is not based upon a simple mathematical model.

While information such as plant shutdowns are publicly available, the vital element in forecasting prices is to examine how prices might change for all the raw materials involved and how market sentiment is poised to move over the next 12 months.

Our experts actively contact all participants in a market – producers, consumers, end-users, traders – to consider which issues will impact prices most in the immediate future. These discussions reveal the unknown levers that drive prices in a geographical region, and how and when they will affect other importing or exporting regions: an in-depth knowledge of trade flows and arbitrage is, therefore, a prerequisite.

Price forecasts are published monthly. A continual update of market information forms an essential part of the process. Where the expertise of ICIS Consulting becomes paramount is to evaluate the future behaviour of buyers and sellers. Price volatility is ever-present and inventory control is a must. The ICIS price forecast reports represent the most accurate view from our experts who know the industry intimately.

■ Six ICIS price forecast reports are currently available: Europe polypropylene (PP), Europe polyethylene (PE), US PP, US PE, Asia PP and Asia PE.

■ The Europe benzene report will launch on 23 October 2014.

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