Crude oil price crash hits solvent markets

Focus article by Chris Barker

LONDON (ICIS)–The crash in crude oil seen since mid-2014 has had a considerable impact on the prices of many solvents due to its direct effect on feedstock markets, according to market sources and ICIS pricing data.

White spirit, solvent naphtha and hexane have all seen decreases of more than 20% from late July pricing levels, mainly due to lower upstream prices. These price drops were based on a combination of notional information from feedstocks and market feedback.

Crude oil has been on a long-term downward trend since the summer of 2014, falling to a four-year low of $69.2/bbl on the Brent index on 5 December due to a combination of oversupply, lower than expected demand and OPEC’s decision not to cut production targets from 30m bbl/day during a meeting in November.

As a result of this downward trend in upstream prices, rates in major solvent feedstock markets such as gasoline, jet kerosene and naphtha have seen precipitous drops since late June 2014. For example, naphtha prices have decreased by 43% to $552-554/tonne free on board (FOB) Antwerp, Rotterdam and Amsterdam (ARA) as of 4 December, having been at $970-972/tonne FOB ARA on 20 June. Naphtha is an upstream product for hexane.

Hexane has seen a similar trend of price decreases despite relatively good downstream demand from the glues, adhesives and olive-oil harvesting sectors, with the product falling by nearly 30% on an FOB Rotterdam basis since late July, from $1,000-1,030/tonne FOB Rotterdam to $677-690/tonne FOB Rotterdam.

One buyer noted in mid-November that its spot prices fell by €120/tonne NWE (northwest Europe) since the previous month, adding: “It will carry on dropping depending on how naphtha is doing.” 

Meanwhile, white spirit has seen a few temporary stabilisations in price over the past few months but the overall trend is a strong decline, with average FOB Rotterdam prices falling from $1,030-1,045/tonne FOB Rotterdam in mid-July to $811-812/tonne FOB Rotterdam this week, an average decrease of nearly 22%.

The product has also had to cope with low demand levels due to weak activity in sectors such as paints and coatings over the winter and consumers waiting to purchase material in anticipation of prices dropping still further.

One producer described buying activity as ‘hand to mouth’ due to customers being uncertain about which direction feedstocks will move in the future.  

Finally, naphtha solvent has fallen from $1,070-1,080/tonne FOB Rotterdam in late July to $795-797/tonne FOB Rotterdam this week, a total decrease of more than 25%. This drop has been driven by low prices in upstream gasoline, although the market is seen as being fairly level in terms of supply and demand.

Players anticipate that prices will continue to fall on lower feedstocks, particularly if crude continues to slide into the mid-$60s/bbl. One distributor said that it does not know when crude will stabilise due to a lack of any real brake on the market. 

However, it also noted that if the product sees any uptick in demand in January it could lead to difficulties for some buyers, stating: “[I] can see problems in the first week of January- everyone could be left wanting the product if [there is any] buoyancy.”  

These solvent products have a variety of uses including as paint strippers, in the decorative gloss market and in industrial cleaning. Hexane is also used in many glues and adhesives and to extract cooking oils.

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