Europe benzene sentiment sluggish as styrene soars

Author: Truong Mellor

2015/03/12

Focus article by Truong Mellor

BRUSSELS (ICIS)--Sentiment in the European benzene market remains sluggish, sources said on Thursday, amid continued length in the region and some derivative turnarounds between now and May.

Speaking on the sidelines of the European Petrochemical Luncheon (EPL) event taking place in Brussels, several players felt that there is ample availability on benzene and pygas still.

“It feels like there is plenty of benzene,” said one styrene trader.

After the March contract settlement at $611/tonne FOB (free on board) NWE (northwest Europe) earlier this month, European spot levels saw some upward movement, with both March and April cargo trading comfortably above the $700/tonne mark.

“We expected to see benzene spot levels stay at $700/tonne or above this month, but they have really come off,” said one consumer.

Strength in the Chinese benzene market in particular had been supporting higher numbers in Europe, but as spot levels in Asia have receded, European prices have subsequently followed suit.

March deals were done earlier this week around the $700/tonne mark, but crude oil losses and some downward global movement on benzene brought ARA levels down to $650-675/tonne by midweek.

European cracker rates have also picked up this month as olefin prices picked up, while several upcoming styrene turnarounds in Europe as well as unplanned outages have also limited benzene offtake, adding to the current length in the market.

Conversely, European styrene spot levels have shot up this month amid the regional tightness while benzene prices have slumped, widening the current spread between the products to a record high of over $700/tonne.

“That kind of spread is unsustainable,” said one downstream styrenics buyer this morning.

“Styrene spot levels are at $1,400/tonne. At that point it just becomes more cost-effective to buy something like EPS rather than produce it.”

Elsewhere, other sources in the styrene industry agreed. “These prices will hurt derivative markets. If you look at the €175/tonne increase for the March styrene contract compared to feedstocks this month, it is indicative of the margins. Combined with the spot levels, end users will start to look at product substitution.”

While players do not expect to see the current bull-run on styrene to last beyond April, as US imports arrive and domestic units come back online, the outlook for benzene is less clear.

The global benzene market is expected to see an upturn on pricing as downstream Chinese phenol units ramp up production in the second half of 2015.

There were players who felt that the recent upturn in Chinese benzene was being supported by some speculative buying ahead of this, but the recent easing of CFR China numbers has kept the outlook uncertain.

The other key unknown factor that hangs over the global benzene market going forward in 2015 remains is crude oil pricing. With US stock levels expected to hit new record highs, some aromatics players feel that this could spark a sell-off in the near future and drive prices lower.