Market outlook: US benzene to recover slightly despite lower crude outlook

The global benzene market is slated to see steady price gains through the end of the year on greater styrene consumption. The June US benzene contract price is down by 12 cents/gal since January, to $2/gal. In contrast to the US, the June Europe benzene contract price has risen by 13 cents/gal to $2.26/gal since January. The Asia aromatics market got off to a good start, but is expected to weaken.

US BENZENE

In the first half of 2016, US benzene prices were volatile – not only from upstream crude oil markets but also from continued import activity and low consumption in downstream styrene. This resulted in climbing inventory levels. The February contract marked the first time US benzene settled below $2/gal since April 2009, and so far in 2016, benzene has settled under $2/gal twice.

ICIS Analytics & Consulting believes a price floor was reached in March 2016 when the benzene contract settled at $1.77/gal, only to be followed by a strong rebound to $2.18/gal. Prices remained over $2/gal despite losses seen in the remainder of the first half of 2016. Once the majority of the crackers return on line and styrene production resumes, there should be a strong surge in benzene prices. The West Texas Intermediate (WTI) crude oil price has remained near $50/bbl for the first time since October 2009.

ICIS sees WTI in the upper $30s/bbl to lower $40s/bbl range in Q4 2016, allowing benzene prices to stabilise despite the expected surge in consumption. Prices are expected to climb to just under $2.30/gal as styrene comes back on line and then slowly trickle back down to average around $2.20/gal for the second half of 2016.

EUROPE BENZENE

European benzene prices surged in April alongside the US and the rally in raw material costs. However, the planned global cracker outages, which hampered downstream styrene production, dampened the feedstock benzene market and prices came back down.

Brent crude oil prices averaged a little above $41/bbl in April. Prices were influenced by declines in US production; a number of outages in Kuwait, Iraq and Nigeria; and a weaker dollar. While fundamentals would still point to a long market, recent strong price gains are reflecting bullish activity from investors, speculating on rapidly tightening markets. In May, Brent was expected to average $43.50/bbl on refineries completing turnarounds, seasonal demand growth and a continued decline in US production. For 2016, Brent is forecast to average $42/bbl.

Naphtha and gasoline prices are expected to continue climbing through August but should stabilise through the end of the year, somewhat dampening the potential surge in benzene prices. ICIS Analytics & Consulting expects Europe benzene contract prices in the second half of 2016 to increase steadily through August alongside higher feedstock costs and returned downstream demand in many derivatives.

ASIA BENZENE

The June Asia benzene contract price has risen by 15 cents/gal since January. Prices surged in March, one month prior to the surge seen in the US and Europe. However, ICIS Analytics & Consulting believes that the Asia benzene price will continue to follow raw material costs despite thin demand from the other two regions resulting from the cracker shutdowns and subsequent lower styrene production. Benzene is the primary feedstock for styrene, along with ethylene.

ICIS Analytics & Consulting maintains its view that benzene will move along with crude, with healthy benzene-naphtha spreads of $240-250/tonne in Q2 2016. In the second half of the year, benzene may come under pressure depending on new supply coming from Indian producers OPaL and Reliance along with Hyundai Chemical’s new condensate splitter-based benzene production in South Korea, all adding to oversupply in Asia. However, the demand outlook is sluggish amid the economic slowdown in China. Buying momentum will partly depend on Chinese domestic prices and import negotiations, as well as demand from the import markets in America and Europe.

ICIS PRICE FORECAST REPORTS

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