OUTLOOK ’08: Energy prices dampen US aromatics

By Brian Balboa

HOUSTON (ICIS news)–Falling energy values, ample domestic supply and lower demand are likely to dampen US benzene, toluene and xylene (BTX) prices in 2008, aromatics sources said.

Some US aromatics producers said they did not expect crude oil prices to reach the record highs in the high $90s/bbl seen in late 2007.

“High energy prices and $100 [(€69] crude would be the only thing that would keep (aromatics) prices up,” said a major midwest-based aromatics seller.

“There seemed to be some market resistance to crude oil prices reaching $100. I think if they were going to hit that level, they would have already,” a Gulf coast source said.

While PX and OX sources said prices had likely bottomed out earlier in the fall, little strengthening was expected until the second quarter of  2008, when demand from fuel refiners is expected to rise ahead of the summer driving season.

“The new year is likely to start off slowly, but by the end of March, we’ll start to see prices strengthen as blenders start working on summer blends,” an aromatic and aliphatic solvents reseller said.

The May benzene contract settled at a record high of $4.20/gal FOB (free on board) in late April just ahead of the US summer driving season, but benzene prices gradually dipped for the remainder of the year, except in October, when the benzene contract spiked 13 cents to $3.49/gal FOB on crude gains.

Mixed xylene (MX) contracts, which also spiked amid the US summer driving season at $3.37/gal FOB for June, gradually moved lower during the year. However, record high energy prices in the early fourth quarter prompted the MX contract to settle at $2.99/gal for a gain of 42 cents in November.

Although the outlook on toluene prices was murkier, the toluene market typically follows xylene, especially leading up to the US summer driving season. US toluene prices for the week of 16-22 December were $2.90-2.95/gal, compared with $2.70-2.80/gal during the same week in 2006, according to global chemical market intelligence service ICIS pricing.

After softening in late summer, US paraxylene (PX) and orthoxylene (OX) contract prices rose in the fourth quarter on higher crude oil. PX and OX contracts finished the year with gains of 0.25 cents ($5.51/tonne) and 0.5 cents to settle at 54.25 cents/lb DEL (delivered) and 47.5 cents/lb FOB, respectively.

Despite the lacklustre sentiment for 2008, suppliers did not rule out the possibility of record high energy prices, especially in the weeks leading up to the US summer driving season and during the US hurricane season.

While weather forecasts called for a greater-than-average number of named storms during the 2007 hurricane season, the US Gulf had a milder-than-normal system. However, aromatics were well supported by a robust gasoline market.

On the production front, US aromatics supply is expected be more than adequate, according to market insiders, who cited BP’s Texas City complex as an example of additional material coming online in the US.

BP said in its third-quarter financial outlook that the Texas City refinery was expected to be at its full crude capacity in the first half of 2008. The company also said it expects petrochemical production to be at full rates in 2008, as well.

The BP Texas City complex produces 770,000 tonnes/year of benzene, 800,000 tonnes/year of toluene and 1,220,000 tonnes/year of paraxylene (PX), according to ICIS pricing.

In addition to the long supply position in the US, aromatics participants pointed to more production coming online overseas as a factor for 2008.

With ample supplies in the US and overseas, traders said it would not be unusual to see a drop in demand compared with 2007 for both imports and exports.

A decline in imports and exports could affect the US xylene and toluene markets further, traders and producers said.

Traders said activity for xylene and toluene was already weak in 2007, but with more supplies expected to come on line, those markets could be even smaller.

According to industry estimates, just over 5.1m tonnes/year of combined BTX capacity is expected to come online in parts of Asia and the Middle East in 2008.

Two Houston-based aromatics producers also pointed to a potential for weaker toluene and xylene demand during the 2008 US summer driving season due to the ethanol market.

One producer said, there would be the usual demand for aromatics gasoline blendstocks in the driving season, but the gasoline market would still have option to pull blendstocks from the ethanol market.

Ethanol-blended gasoline or reformulated blendstock for oxygenate blending (RBOB) is currently the standard fuel used in US automobiles.

Despite much of the downplay for the aromatics market in 2008, some aromatics producers were not all pessimistic.

“I do not think the aromatics market it will be too bad,” said a major styrene producer. “Yes, housing is off and consumer confidence is shaken, but there is still good (aromatics) demand out there and I do not see a recession on the horizon just yet.”

Major US aromatics producers include ExxonMobil, Lyondell, Chevron Phillips, Dow Chemical and Shell.

Additional reporting by Gene Lockard

($1.00 = €0.69)