Europe spot benzene bullish ahead of August

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LONDON (ICIS)–Tightening regional availability and strong derivative demand has seen European benzene spot numbers shoot higher as July draws to a close, sources said on Tuesday.

After opening last week around the $680-700/tonne mark, spot prices for July and August gradually edged higher. This week has so far seen August trading as high as $715/tonne, and bids closed as high as $735-745/tonne on Monday 25 July with no firm corresponding offers.

August saw bids at $720/tonne this morning, but there were no firm offers. The first half of the month was stronger, with bids at $740/tonne. Some slight downward movement in the US overnight has tempered the upward momentum slightly, but a squeeze on prompt availability is keeping the market bullish overall.

The July Europe benzene settlement was agreed at $649/tonne in US dollar terms, so players are braced for a significant increase based on current spot indications.

The current squeeze on European availability was due to several factors. Imports have been diverted to Spain and the Mediterranean region due to the Petkim cracker outage, while European production has been adversely affected by the warmer weather.

One benzene unit in Europe was down for around a week in July, while sources said that other producers have also been struggling with lower output. The narrowing benzene/naphtha spread in June also led to lower extraction rates for benzene.

According to one trader, there were also some short positions in the market for July that had to be covered. The resilience of benzene spot numbers despite the drop in crude oil values had not been anticipated by many market players.

Derivative demand has also held up this month, and order books for August also look healthy given the time of year. Offtake from the styrene and cumene sectors has been strong, and while the narrowing benzene/styrene spread could lead to demand for benzene from the styrenics chain easing off, this has so far not been seen.

“Initially it was the stronger US benzene market that was leading things,” said one benzene trader. “But that was anticipated. It looks like the US market is the only region with any inventory now. Asia is low and Europe is very low, so we could see US material coming to Europe. But that will only be for arrival in the second half of August.”

The wider benzene/toluene spread that had emerged will also make the economics of HDA (hydrodealkylation) production more viable. If the bullishness on benzene holds into September, European producers may opt to switch on HDA units to convert toluene into benzene, but the initial sense of a steeply backwardated forward market could counteract this.