OUTLOOK ’18: Europe aromatics players optimistic for 2018, key challenges lie ahead

LONDON (ICIS)–Following what has been described as a good year, despite its difficuties, European aromatics players are optimistic about 2018.

The new year may be a challenging start for some though, mainly in terms of supply.

Material availability is the key topic in the domestic styrene market which is preparing for a heavy schedule of planned maintenance shutdowns from February till middle of the year.

Four to five units in Europe will undergo a turnaround during that period and another two to three in the US. A smaller unit in Saudi Arabia will also be down towards the end of the first quarter, according to market estimates.

Several sources agree there will be no issues with availability in January and February, but March and April will be more difficult months.

Even if all the discussed shutdowns are scheduled, which by default should limit their impact on the market’s supply, a small delay in the restart of any of these plants would be enough to cause a major disruption.

US material, during those months, will unlikey be arriving into Europe while most European producers will be short of inventory.

Based on the above, styrene pricing will purely depend on the progress of the supply and demand balance while extensive pre-buying took place during December ahead of speculation of higher pricing in the short-term.

Another topic that tops the agenda of the styrene market is the on-going antidumping duties investigation in China for imports coming from the US, South Korea and Taiwan, which was first heard back in June 2017.

European producers are confident little will change in the supply and demand balance but trade flows will certainly be impacted and may affect profitability of some trading companies.

Still, the issue has raised concerns for the global market and quite recently the European market witnessed an increase of US shipping quotes since a preliminary tax could be announced as early as in February 2018.

In anticipation of changes the antidumping tax could bring, some players, new to the European market, are trying to assess if it could be feasible to bring their styrene surplus from the US into the region and sell it here.

European sources feel this could be another game changer that would most likely pressure domestic prices.

Meanwhile, on demand, volumes in the first quarter of the year are expected to remain good, despite colder weather conditions that do not normally help construction. Players will be building their stock ahead of the second quarter when the high season of the European expandable polystyrene (EPS) will be slowly starting.

Although the beginning of 2017 was difficult for the styrenics markets, players saw evident optimism from May and this sentiment seems to prevail until now, mainly in the European expandable polystyrene (EPS) market.

In the European benzene market, although there is strong expectation that the start of the year will bring softer pricing, levels have been firm towards the end of December following recent production issues in the US. Firmer crude oil values have also added pressure onto pricing.

The upcoming styrene turnaround schedule in the first quarter of the year will be one of the reasons that benzene will come down to a more sustainable level as more material will be released in the market.

Still, although consumption from benzene’s key outlet market will be lower in the coming months, the planned maintenance turnarounds of several crackers in the region will also mean that not so much benzene will be produced.

In terms of demand, volumes next year from the phenol, cumene and MDI side are expected to remain largely stable to this year with growth in line with European GDP projections as players stress that the good performance of the economy enhances further their business.

During the first quarter of the year and especially during the Chinese New Year the market should show the usual softer signs but interest will pick up as soon the Chinese holiday period will be over.

On the energy side, benzene but also toluene players feel that the currently high crude oil levels are mostly driven by ongoing geopolitical tensions in the Middle East, Venezuela and also North Korea, but not by the supply/demand balance of the market.

Energy levels should not move higher than where they are now and a level of around $55/bbl next year would me much more justifiable and comfortable for business decisions, but any prediction would be quite unrealistic at this stage.

Looking closer to the toluene market, players are confident demand will be boosted in 2018 as soon as Germany’s BASF ramps up production at its 300,000 tonnes toluene diisocyanate (TDI) plant in Ludwigshafen.

Once this plant is fully operational, there is expectation that toluene prices might increase and could probably stop tracking Eurobob gasoline values exclusively.

According to estimates, BASF’s TDI plant should become fully operational sometime in the second quarter of 2018 but, according to some sources in the market, this could be happening during the first months of the year.

When it comes to the outlook of the European mixed xylenes (MX) market in 2018, no drastic changes are expected in demand but rather a stable situation, although sources also stressed their concerns about the evolution of energy costs.

Some MX distributors, who are currently in the process of finalising next year’s contracts, underlined that they had to agree on higher freight rates due to the structural shortage of truck drivers that had caused significant transport disruption recently.

Pictured: Shell Chemical at Deer Park, Texas, which produces lower olefins, aromatics and phenol/acetone.
Photo Source: Shell Chemical