Asia benzene surges on increased US arbitrage opportunities

Author: Clive Ong

2019/07/10

SINGAPORE (ICIS)--The Asia benzene market remained firm with a potential increase in cargo movements to the US, as the arbitrage window widened on demand uptick in the West.

(Source: Photo by Franck Robichon/EPA-EFE/REX/Shutterstock)

The shutdown of Philadelphia Energy Solutions’ refinery in Pennsylvannia in the second half of June after an explosion at a nearby unit stoked concerns of a tighter availability of cumene, which it supplies in good quantity to local users.

The tighter supply of cumene could potentially curb exports or fuel an increase in domestic production from other cumene suppliers. In case of the latter, demand for benzene, the feedstock for cumene, could see increased demand.

With the US importing regularly from Asia countries like South Korea and Japan, demand for benzene in Asia should see continued support in the near term. This would also alleviate the supply overhang condition in Asia.

Benzene is used to produce a number of intermediates that are used to create polymers, solvents and detergents.

Spot benzene price scaled new heights in July, with the FOB (free on board) Korea market moving to $680/tonne for August cargoes.

Meanwhile, the September US market topped $2.50/gal this week, approximately $750/tonne, keeping the East-West arbitrage continually open since April.

With its strong performance since the second half of June, the spread between benzene and its feedstock naphtha has improved in recent weeks, lifting profitability of benzene makers.

On the demand side, sentiment of buyers has improved since the G20 summit in Japan in late June, where a trade truce was announced between the US and China.

Buying interest among Chinese users for import cargoes was rekindled in recent weeks, following the increase in domestic prices as well as the decline in shore tank stocks to under 200,000 tonnes.

Buying impetus in Taiwan was also firm with users picking up several August lots. Firmer bids were also seen as buyers were in competition for cargoes that could be shipped to the US.

Meanwhile, the start-up of two new benzene facilities in southeast Asia with commercial products has been slated for the latter part of the third quarter.

Feedstock Spread - Naphtha and Benzene in Asia

ICIS Editorial Chart goes here

Focus article by Clive Ong