Focus Article by Truong Mellor and Cuckoo James
a spot market characterised by no clear sense of direction
this month, players in European benzene are carefully
watching price developments in the run-up
to the March contract settlement expected later this week,
sources said on Tuesday.
Some continued length in the prompt market has kept downward pressure on February benzene prices, and in a sharp reversal of the trend in recent years since the shale gas explosion, there has been a lower range for prompt delivery several times this month.
“Usually there are issues with prompt timing and logistics for benzene, but that hasn’t been the case lately,” said one major European consumer. “All through February, we have seen plenty of offers in the market.”
A key factor in the build-up of domestic length was the healthy cracker margins seen since the start of 2015 owing to the steep drop in crude oil pricing, which has created a glut of feedstock pyrolysis gasoline (pygas) since January. Sluggish derivative demand and limited export opportunities have also weighed down on any potential pricing upturn.
“We have been waiting for some recovery since the start of the year, but nothing has happened,” said one benzene trader. “Price-wise, it has been pretty flat so far in 2015.”
Indeed, with no clear driving force behind the European market, benzene prices have generally ebbed and flowed with those of crude oil. While there had been a firm $30-40/tonne contango into March at the start of last week, March spot levels subsequently eased off after trading as high as $640/tonne on Monday 16 February.
The spot market opened this week with March bids and offers at $590-610/tonne CIF (cost, insurance and freight) ARA (Amsterdam-Rotterdam-Antwerp) before several deals were done at $600/tonne. This morning saw another March deal done at $600/tonne.
The February European benzene contract was agreed in US dollar terms at $590/tonne FOB NWE.
Elsewhere, European benzene players had been watching for an arbitrage window into the US. Several vessels had been fixed for export across the Atlantic for late March and April arrival. While the margin remains slim to non-existent for March, there is a growing export arbitrage for April emerging out of Europe into the US Gulf region.
An estimated 35,000-40,000 tonnes has been fixed for shipment, sources said. However, with close to 10,000 tonnes arriving into the US Gulf last week and the scheduled arrival of more material next month, this has started to pull US benzene back below the $2.00/gal mark this week, which would force European prices lower in order to keep exports out of the region viable.
European naphtha prices have also been on an upward trend due to export demand and crude oil gains since mid-February, which has narrowed the benzene/naphtha spread to below $100/tonne (see chart). With the margin at its lowest since late 2011, some players feel that this would push benzene prices up into March and the second quarter of 2015.
Naphtha cracking is healthy in Europe despite cargo prices rising above $500/tonne CIF NWE recently. Naphtha traders maintain this is driven by expectations of a recovery in cracker margins in March. There is therefore little incentive to drastically cut back on petrochemical production for the time being.
European contract and spot cracker margins have fallen further in the week to 20 February on the back of increased naphtha and LPG (liquefied petroleum gas) feedstock values, extending the downwards trend which began mid-January, according to ICIS margin analysis.
Naphtha is the main cracker feedstock in Europe, but can be replaced by propane to a limited extent. However, a minimum price spread between the two is required to motivate crackers to move to propane.
Tight propane supply in Europe is also forcing many petrochemical producers to stick with naphtha, but this could change in March with more propane availability, but only as long as the price spread between the two stays at recent levels of $100-110/tonne.