Europe Aug benzene contract poised for a reduction

Truong Mellor

28-Jul-2015

LONDON (ICIS)–Falling spot prices in the European benzene market are likely to support a reduction in the upcoming August monthly contract settlement, sources said on Tuesday.

After the July contract was settled in US dollar terms at $882/tonne, spot pricing has proven volatile over the course of the month. Spot numbers in the US have been the key driving factor, with European numbers reacting to movement across the Atlantic rather than domestic fundamentals.

“There isn’t a lot of liquidity in Europe, so pricing moves with sentiment and some hype,” said one benzene trader last week. “It also means that prices move in bigger steps than before.”

Last week saw evidence of this, with a midweek upward surge on pricing supported by short-term gains in the US Gulf, where prices moved above the $3/gal level.

European July spot pricing moved above $900/tonne CIF (cost, insurance, freight) ARA (Amsterdam-Rotterdam-Antwerp), with a deal done at $905/tonne, while August was slightly backwardated with bids at $885/tonne before deals were done as high as $890/tonne.

However, prices in the US subsequently fell amid oil and energy losses. Sources in the region also cited the arrival of South Korean imports as having a dampening effect on pricing.

A downstream styrene outage in Canada was expected to continue into September, which is also counteracting any potential regional tightness on benzene.

This downward pressure on pricing was felt in the European benzene market by the end of last week, with August valued at $850-860/tonne CIF ARA, before a deal was done at $860/tonne on Friday July 24.

This week opened with August bids and offers at $830-850/tonne, although offers for the first half of the month were slightly firmer at $855/tonne. This morning saw August valued at $820-850/tonne, with bids for the first half of the month slightly firmer at $825-830/tonne.

However, players noted that several fundamental factors are likely to weigh down on the market in the coming weeks. The recent restart of Shell’s Moerdijk cracker will help support benzene supply in Europe, while several derivative plants will also slow down over August for the traditional summer holiday lull.

Following a drop of €85/tonne on the July styrene contract, this has helped support downstream activity this month following months of higher pricing. A further reduction on costs in August would have galvanised derivative players to run, but the market now looks set for relative stability on pricing into August, which several styrenics players feel will limit demand next month.

Gasoline blending demand has been the key global driver for the benzene market in recent months, but this is now poised to start slowing down towards the end of the summer, pulling less pygas out of the supply chain.

Chinese benzene inventory levels remain high amid sluggish downstream offtake and continued weak appetite for imports, which will see material leave Asia for the US Gulf. This will help counteract some of the recent tightness on benzene across the Atlantic.

Focus article by Truong Mellor

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