ICIS recently launched the latest version of the China Benzene Annual Study, which covers recent market developments and plans, hot topics and a forecast of supply and demand for the year ahead.
Amid the low import prices of benzene, there was still an upward pressure on domestic benzene prices which can be attributed to the following factors: low inventory level, restocking activities and speculators' stock-building activities. What does this mean for global industry players in the benzene market place?
To give you a preview of the type of valuable information provided in the annual study, we have made the market overview of the annual study available for you to view.
China's benzene import volume surged and port inventory hit new highs
Imported cargoes were attractive as their prices were lower than domestic ones since the very beginning of 2015, leading to active discussions. Buying interest strengthened significantly. This was mainly attributed to an improvement in market confidence, boosted by the stabilisation of crude oil prices from recent declines, strong downstream demand due to low inventory level, restocking activities in response to a recovery in the overseas market, and many speculators' stock-building activities amid expectations of a price rise.
However, most of the imported cargoes were piled up in downstream producers' inventories or at ports, unable to be consumed in the near term. As a result, availability was ample in the market. This, coupled with a lack of buying activities, exerted downward pressure on domestic benzene prices in 2015.
Hydro-coking benzene prices were abnormally higher than petroleum benzene prices
Supported by high costs and low operating rates, prices for hydro-coking benzene, though as a substitute, exceeded those of petroleum benzene.
Dampened by a slower growth in the domestic steel industry and slumping crude oil prices in the global market, domestic coking producers suffered heavy losses in the first half of 2015. Many producers were forced to cut output. The coking industry was required to restrict production in the second half of the year due to environmental concerns. As a by-product of coke and a feedstock of hydro-coking benzene, crude benzene was tight in supply in response to low operating rates at coking plants. Prices for crude benzene rose amid tight supply, giving strong cost support to hydro-coking benzene prices in 2015.
However, weak demand resulted in limited sales of hydro-coking benzene, when its prices exceeded those of petroleum benzene. When the crude oil and import markets were unable to push up benzene prices, hydro-coking benzene prices fell. As a result, hydro-coking producers were running at a loss through most of 2015, and average operating rates thus dropped sharply. This, however, gave a boost to prices, which triggered off another round of price rise.
Domestic benzene prices fluctuated in narrower range
Domestic petroleum benzene prices have shown a reversed “V” trend so far in 2015. Prices were on the rise in the first five months of the year, jumping from the yuan (CNY) 4,500/tonne in April to peak at CNY6,450/tonne before edging downwards to the early-year low level. The average price in the first nine months of 2015 was at CNY5,316/tonne, down by 37.92% from the level in 2014, at CNY8,564/tonne. During the same period, crude oil prices slumped by 42-45%, while benzene prices in the US and Asia plummeted by 45% and 41% respectively. The weak crude oil market and macroeconomy, the narrowed spread between import and domestic benzene prices, as well as the lack of support from the market fundamentals resulted in limited room for domestic benzene prices to increase.
Market players are optimistic about the benzene market outlook in 2016, compared with 2015. Domestic supply is growing at a slow rate and downstream capacity additions are still on the rise. Moreover, downstream styrene monomer (SM) and phenol plants have undergone frequent maintenance shutdowns. Therefore, overall downstream demand is expected to improve in 2016.
Domestic petroleum benzene supply will continue to increase in 2016, but the growth rate will slow down further. New plants, including those at CNOOC Taizhou Petrochemical and Ningbo Daxie Petrochemical, with a combined capacity of around 190,000 tonnes/year will start up, which will bring the domestic petroleum benzene capacity to 115.3m tonnes/year. However, given the weak aromatics market in 2015, these new capacities might be delayed in beginning operations. The increase in domestic petroleum benzene output in 2016 will mainly depend on the new plants at WEPEC and Ningbo Zhongjin Petrochemical, which became operational in the second half of 2015. Meanwhile, the expansion in domestic hydro-coking benzene capacity will also slow down, with new capacities estimated only at 400,000 tonnes/year in 2016.
Numerous phenol expansion projects in 2015 have resulted in very low plant run rates in the industry. Demand for phenol might increase in 2016 in consideration of the expansion plans of downstream industries. However, as there might be no new capacities and expansion projects for phenol, the operating rate of the existing phenol plants will likely rise in 2016. This might contribute to an increase of 11.6% in benzene demand.
Most of the new CPL plants will start up at the end of 2015 and their demand for benzene might emerge in 2016. Thus, benzene demand from the CPL industry is estimated to increase by 19.6% in 2016.
Benzene demand from the SM and adipic acid industries might increase by 1.13% and 6.36% respectively in 2016. The growth rate in demand from the aniline, maleic anhydride (MA) and methyl di-p-phenylene isocyanate (MDI) industries is estimated at 2%, 1.45% and 5.36% respectively. When crude oil prices fluctuate widely, their impact on the benzene market outweighs that of the supply-demand fundamentals, especially in 2015.
When oil prices are stable, the supply-demand fundamentals play an important role. The International Energy Agency (IEA) oil market report for August said that global petroleum supply is estimated to increase by 2.70m bbl/day in 2015, reflecting a slowdown in growth rate. However, petroleum supply in the US and non-OPEC countries will not decrease until 2016. Hence, the surplus in oil supply will stretch into 2016, which will continue to weigh down global oil prices. Under such circumstances, improvements in the supply-demand fundamentals will be the linchpin for the benzene market to regain steam.
East China is the largest benzene consuming region domestically, with its benzene consumption volume estimated at around 5.481m tonnes, accounting for around 44.4% of the domestic total. East China is also a major market for imports, with its benzene import volume totalling around 911,000 tonnes in the first eight months of 2015, covering 93.9% of the domestic total. This is largely a result of increasing demand.
Three benzene plants in China, with capacities totalling 400,000 tonnes/year, are expected to start up in 2016. These plants are located in Hainan, Jiangsu and Zhejiang. Ningbo Zhongjin’s new plant, which will be commissioned in the fourth quarter of 2015, will release capacities. This might be a major contributor to the benzene supply increase in east China, in consideration of the uncertainties of the new plants’ start-up. Benzene supply in east China is estimated to increase by around 300,000 tonnes in 2016.
New capacities and expansion projects in the downstream industries will largely be concentrated in the SM, CPL and cyclohexanone sectors in 2016. The CPL industry will be the largest contributor to the benzene demand increase, at an estimated 19.6%. Demand from the SM and adipic acid industries will rise by 1.13% and 6.36% respectively. There will be limited new downstream plants in east China, but their capacities will be large. The supply gap in east China will likely persist in 2016. The increase in benzene supply and demand will both slow down in 2016. However, due to the significant slowdown in benzene capacity expansion, the supply-demand fundamentals might be positive. Import volume will stay at a high level. Some of the imports will meet the downstream demand in east China and some will be re-sold by traders to other regions.
ICIS’ China Benzene Annual Study offers an extensive look into the latest developments, hot topics and future trends in China’s changing benzene industry. This must-have resource also provides a comprehensive view of supply and demand for 2016, giving you all of the following:
Key topics covered:
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