OUTLOOK '20: The Asian benzene conundrum set to persist on weak downstream

Author: Clive Ong

2019/12/24

SINGAPORE (ICIS)--The Asian benzene market will probably continue to find little support from its key downstream sectors in 2020 including styrene monomer (SM), which constitutes 50% of its consumption.

Benzene market in Asia has been on an uptrend until September after hitting a low of $514/tonne FOB (free on board) Korea in early January.

The opening up of the arbitrage window to the US from April helped reduce supply in Asia, as tight supply conditions in the US fueled demand for Asian lots.

This was also opportune as demand for benzene in China began to soften as the effects of the US-China trade war started to bite.

By September, however, supply conditions in the US had eased with demand for Asian parcels on the decline.

The spot market corrected sharply after hitting $751/tonne FOB Korea.

Just as some participant expected a deeper correction, the market began to turn.

The market regained its footing in November, bouncing off the support confluence area (red circle), produced by the lower median line and the trigger line of the pitchfork as well as the 61.8% Fibonacci retracement level. (please see chart below)

After moving off this level, the market rose into December with great rapidity but failed to break the top set in September.

A potential double top (see the 2 red circles) formation has now cast a bearish tone on the price chart. Also do note that prices pulled back from the median line of the pitchfork after touching it. (red circle on the right)

On the contract front, anecdotal evidence suggests that some 2020’s terms have been signed at slightly higher premiums, favouring sellers.

After all, while there will be new benzene facilities coming onstream in 2020 (2.48M tonnes), more downstream plants in volume terms (5.47M tonnes) will come online to soak up the additional benzene availability.

Should the arbitrage to the US open up again in 2020, supply conditions for benzene could again tighten.

The downstream sectors such as SM, phenol, caprolactam and adipic acid were generally trending down this year.

While benzene has bucked that trend, it will not receive much support from its struggling downstream markets.

Instead, the poor performance in the downstream sectors can soon become a drag on benzene.

The SM market has slumped below $900/tonne CFR China, after failing to hold the $1,000/tonne level which it has meandered for around 10 months until September 2019.

It has recently broken through the support zones in red and green and now sits precariously on the $852-855/tonne support line of late 2014 and early 2015.

Focus article by Clive Ong