AFPM '19: US benzene demand to improve, oversupply to extend

Author: Lucas Hall

2019/03/23

HOUSTON (ICIS)--Increased downstream styrene demand and higher crude prices are likely to outstrip oversupply of US benzene and push prices higher in the second quarter, heading into this year’s International Petrochemical Conference (IPC).

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Styrene demand is expected to increase as AmSty ramps up production following a 45-day outage on one of the two lines at its 953,000 tonne/year plant in St James, Louisiana.

The outage began in late-January and ended around 11 March.

As of mid-March, the plant was operating around 95%.

Increased demand from AmSty is also expected to outweigh an upcoming turnaround at LyondellBasell Industries' styrene plant in Channelview, Texas. The plant's two units have a combined capacity of 1.27m tonnes.

The global supply overhang will nonetheless extend well into the second quarter on the back of the upcoming turnarounds as well as major global styrene turnarounds in 2018.

While benzene production levels fell during refinery maintenance season, supply was largely healthy in the first quarter and is improving as producers exit their turnarounds and prepare for increased demand in the second quarter.

Crude prices remain the primary variable, with crude values being the main factor impacting US benzene prices. Expectations that crude prices will increase will likely add to the upward pressure on US benzene as demand for downstream styrene improves in the second quarter.

The widening contango between current- and forward-month prices has added to that sentiment.

That said, oversupply is likely to maintain benzene’s discount to higher-value toluene, at least through the end of the quarter, amid rebounding demand for octane-enhancing aromatics such as toluene and mixed xylenes (MX) for use in the gasoline-blending pool during the spring and summer gasoline seasons, which officially begins in May.

US refinery operating rates are anticipated to remain high to fuel strong demand for US fuel exports, particularly from Mexico. Refiners will also keep rates high in anticipation of healthier demand for diesel as shippers prepare for the International Maritime Organization’s (IMO) 2020 regulations for bunker fuels, which will require ship operators to shift to fuels with much lower sulphur content than currently allowed.

Refineries produce benzene as a by-product of gasoline production and account for around 60% of US benzene production.

As demand for toluene and MX increases as refiners ramp up gasoline production, benzene supply is expected to expand, adding to the domestic and global supply glut.

In the chemical sector, producers are thus unlikely to focus their efforts on on-purpose benzene production via toluene disproportionation (TDP) or hydrodealkylation (HDA) over higher-margin selective-toluene disproportionation (STDP).

Utilisation rates for STDP, which emphasizes paraxylene (PX) production alongside benzene production, are likely to increase as demand for PX improves in the coming months amid seasonal uptick in the polyethylene terephthalate (PET) chain in the warmer spring and summer months.

Major producers of US benzene include ExxonMobil, Marathon Petroleum, Shell, Flint Hills Resources, Chevron, CITGO,  LyondellBasell, Valero and Total.

Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the IPC takes place on 24-26 March in San Antonio, Texas.

Focus article by Lucas Hall