Benzene on the floor

benzene Mar09.jpg

Benzene is one of the most widely used, and widely traded, chemicals. It is therefore an excellent leading indicator of chemical industry supply/demand balances, and profitability.

A year ago, the blog noted that benzene prices had “hit a ceiling”, suggesting that industry profitability was close to a peak.
• Then in October, when they fell to naphtha levels, benzene provided a first indication of “just how dire market conditions” were to become.
• By November, benzene prices were anticipating crude prices of $16/bbl, indicating that producers were “selling on a firesale base” and that profitability was “getting close to the floor”.

Since then, benzene prices have indeed risen from December’s $258/t low. But, as the chart shows (based on ICIS pricing), benzene has still not recovered its normal premium versus naphtha. Prices have averaged just $332/t so far in 2009, versus an average naphtha price of $378/t. Such an extended period of discount has never happened before.

Unfortunately, this suggests that, unless Q2 brings a swift improvement, the outlook for 2009 industry profitability remains fairly dire.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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One Response to Benzene on the floor

  1. Ashok Kishore 24 March, 2009 at 11:14 am #

    It has become fashionable to make dire forecasts for all kinds of economic activity, and petchem profits should be no exception.

    However, I would contend that we take a more positive approach and try and collectively perk up people involved.

    How about: “Q1 2009 profits are expected to be better than Q4 2008.” Do a survey and see what you get. Certainly the share prices of all major chemical companies have seen a good updraft in March.

    Enough of this moping!

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