Price and market trends: Asia benzene players juggle supply and demand

Asia benzene players will be seeking pockets of opportunities in 2017 as the market juggles between new capacities as well as maintenance turnarounds at upstream and downstream plants to balance out long supply conditions amid higher demand.

An unexpected strong performance in the benzene spot market in Q4 2016 has led players to reassess their outlook for 2017.

The market was shocked by the aggressive bids seen during free on board (FOB) contract negotiations in the last quarter.

Initial 2017 term ideas exchanged in October were stable-to-soft against 2016 term prices as market players believe that there would be more downward pressure as the structurally long Asia market will face new capacities coming up in 2017.

However, as end-year spot prices were supported by tight supply on strong China demand, contract prices between producers and traders were mostly concluded at a sharp increase instead.

Despite attempts from end-users to delay term negotiations to start from February, the impact could not be negated as CFR China/Taiwan/SE Asia based contracts were either concluded or discussed at higher levels.

Earlier keen interest on import contract cargoes for many Chinese end-users was dampened as term offers rose further.

With negotiations deadlocked into late December and buy-sell indications proving difficult, there were lesser than initial expected contractual volumes fixed for the China market for 2017.

With greater demand expected from downstream expansions, lesser contractual volumes fixed indicates greater spot activities for the CFR China market in 2017.

“We were surprised as well with the term results, but nonetheless it is good news,” said a producer. In 2016, prices were supported mainly because of a heavy maintenance schedule from South Korea and strong demand from China amid heavy styrene monomer (SM) capacity expansions.

In addition, the calculated increase in consumption outweighed the increase in supply in 2016 because of multiple delays in start-ups from the Middle East and India, and low benzene output from the Hyundai Chemical plant after its start-up, which was estimated at 60-65% of nameplate capacity.

START-UP/SHUTDOWN IMPACT

There continues to be uncertainty in the start-up period of new benzene plants in 2017, shifting the impact of these new capacities later.

“Impact from new supply on the market is likely to be towards H2 2017 rather than H1 2017 as we have to wait until new plants stabilise their productions and it will take time,” said a southeast Asia-based trader.

Market players are also cautious about overestimating actual production output from the new plants as the bigger plants might not run at full capacity after starting up due to technical reasons or market conditions.

Saudi Arabia’s Petro Rabigh and Sadara downstream integrated units are expected to reduce the benzene surplus in the spot market. Sadara Chemical will have an integrated methyl di-p-phenylene isocyanate (MDI) unit which on paper will likely consume all of its benzene production.

Petro Rabigh II also has a phenol plant, which is likely to consume half of its benzene output.

The first half of 2017 will also see several turnarounds, though fewer as compared to the same period of 2016. Hanwha Total will be shutting its 420,000 tonnes/year benzene unit for debottlenecking in May for 50 days, which will add 80,000 tonnes/year additional production when it is brought back on line.

Korea Petrochemical Industry Co (KPIC) will be shutting its 160,000 tonnes/year benzene unit for debottlenecking during April/May which will increase its production by around 80,000 tonnes/year. SK Global Chemical (SKGC) pygas units in Ulsan with 230,000 tonnes/year combined capacity will be shut in the second half of March for 40 days.

South Korea’s S-oil will also be having a turnaround at its 300,000 tonnes/year Onsan unit in the second quarter of 2017 for around 45 days, according to market sources.

DOWNSTREAM SHUTDOWNS

On the other hand, several downstream SM units will also be shut for maintenance and thus will not need feedstock benzene.

South Korea’s production loss of SM is estimated to be at 250,000 tonnes for March, 350,000 tonnes for April and 865,000 tonnes for May as Lotte Chemical, LG Petrochemical, Hanwha Total and YNCC shut their units for maintenance.

There are no turnarounds for phenol units in Korea planned in the first half of the year. However, the longer benzene supply from Korea could be offset by a lower net surplus of benzene in Japan in Q2.

“It looks particularly tight during second quarter for Japan with excess benzene balance hovering at around 30,000 tonnes,” said a Japan-based trader.

In Q2, there are many benzene units scheduled for maintenance in Japan, outweighing the downstream turnarounds from SM, phenol and cyclohexane units.

Market players say downstream conditions are unlikely to differ largely from 2016 and that run rates for downstream units in 2017 – outside of turnaround periods – are likely to stay stable or to improve. SM and MDI margins are expected to maintain well above breakeven spreads and caprolactam spreads are likely to improve with supply consolidation, but phenol spreads against benzene are likely to stay marginal.

CHINA DEMAND

New capacities could also establish liquidity in trade routes.

With strong Chinese demand, outflow of southeast Asia cargoes to China could become the norm in 2017 as well, similar to the situation in the second half of 2016, resulting in a balanced-to-tight market for the structurally long southeast Asia region.In 2017, the benzene market is expected to remain robust with producers, traders and buyers having to remain creative in their ways to diversify risks, expend profits and increase their influence on the market.