Europe benzene poised for large December reduction

Truong Mellor

27-Nov-2014

Focus article by Truong Mellor

Europe benzene poised for large December reductionLONDON (ICIS)–Players in the European benzene market are braced for a significant decrease on the December monthly contract settlement expected later this week, with a sharp drop in spot pricing seen over the course of November amid ample regional availability, weaker upstream oil and energy fundamentals and limited demand from derivative markets due to year-end inventory destocking.

Midweek spot pricing for December was at $950-970/tonne CIF ARA following deals done on Tuesday 25 November at $965/tonne and $970/tonne, with some losses in the US market and an uncertain macroeconomic outlook also weighing down on European sentiment. Deals were seen later in the day at $950/tonne.

By this morning, December benzene numbers were at $930-960/tonne, while January was in contango with offers at $990/tonne, amid expectations that the new year would see some inventory building and renewed demand levels.

The November benzene contract was agreed at a US dollar concept of $1,178/tonne FOB NWE.

After trading as low as $910/tonne in mid-November, European spot numbers saw a nascent recovery last week in line with steadying crude oil and naphtha pricing. December traded as high as $995/tonne on Friday 21 November.

With styrene production in the US coming back online this month following a period of outages, some believed that this would support global benzene pricing as offtake in the region improved and supply tightened.

Nevertheless, several players at the time felt that the upturn for benzene in Europe was symptomatic of a ‘dead cat bounce’, where a falling bear market shows initial signs of recovery before further losses.

Certainly, the outlook for demand across key downstream sectors such as styrene is overwhelmingly bearish as end users look to clear inventory ahead of year-end, with requirements adequately met by structural imports.

At the other end of the spectrum, sentiment in the crude oil markets is increasingly skittish ahead of the OPEC meeting in Vienna which starts today.

Despite the recent slump in pricing, with Brent futures losing 30% of their value since June 2014, many expect that production levels will not be cut. Increased US production coupled with softening global demand have weighed down on the oil market in recent months.

Improved benzene supply levels following the start-up of several Asian aromatics units have helped to redress the structural tightness in the global market, gradually pushing European prices down during the second half of 2014 (see graph).

Meanwhile, imports of benzene into the EU have remained steady in recent months, while export levels have dropped, according to Eurostat figures, as weak global pricing has limited any arbitrage opportunities for European players.

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