Europe benzene bullishness frustrates downstream markets
Truong Mellor
18-Jul-2012
By Truong Mellor
LONDON
(ICIS)–Continued bullishness in the European benzene market,
driven by firm global prices and limited domestic
availability, is keeping downstream activity subdued and
leaving players frustrated, sources said on Wednesday.
“Benzene is not to be trusted,” said one trader, who believed
the market would eventually see a sharp fall and some minor
recoveries before a return to more normal conditions.
The trader added: “The spread [with styrene] is still below
$100/tonne (€81/tonne) for August. Laughable, really.”
A styrene consumer said: “The issue of benzene just won’t go
away … I expect the August barge contract will go up
again.”
July had started to see a slight easing off on prices, as
several hydrodealkylation (HDA) units came online and imports
arrived from other regions.
However, the market saw another sharp upturn as the month
progressed, with July trading at $1,235/tonne on Monday 9
July but deals as high as $1,400/tonne once again being
reported by Friday July 13.
Many styrene players are unsure of how the coming weeks will
shape up, and as a result are opting to remain on the
sidelines until a clearer picture becomes evident. Offers for
July benzene have stayed at $1,400/tonne and above this week,
virtually on a level footing with current styrene
prices.
The backwardation on benzene into August has also narrowed,
with deals already done this week at $1,345/tonne, possibly
indicating that the current dynamics of the market may
continue into next month.
Furthermore, players agree that it is only the high cost of
benzene that has been keeping styrene at such a level – demand from all key
derivatives sectors remains slower than expected for this
time of year.
The most recent cause of the continued bullishness for
benzene is the upturn seen in the US, which is
the result of three major factors: low run rates on toluene disproportionation (TDP) units owing to poor margins, a raft of other production problems and the associated short covering and the perception of product tightness in EU and Asia adding to the uncertainty.
With prices in the US Gulf comfortably above $5.00/gal ($1,500/tonne), this has led several European traders to fix vessels from the ARA (Amsterdam-Rotterdam-Antwerp) region.
“We shouldn’t be exporting from Europe to the US,” said one trader, who nonetheless confirmed that he was. “It’s the last thing the market needs.”
The
trader added that the refinery shutdown at JX Nippon’s Mizushima
B site in Japan will also curtail availability across Asia, where
supply concerns are already evident.
European benzene prices have been consistently
firm since April 2012, when production cutbacks and diverted
imports led to availability restrictions and a sharp rise in pricing.
With only some short and brief exceptions owing to lower oil
pricing and production restarts, prompt benzene numbers have continued to hover
around the $1,350-1,400/tonne CIF (cost, insurance, freight)
ARA level, which is where July is currently valued.
There have been confirmed deals as high as $1,440/tonne and
even widespread talk of trades at $1,500/tonne since the
bullishness began, in what one trader
called a “bloodbath” back in May.
The current situation on benzene is also impacting other
downstream areas of activity such as adipic acid and
polyamides (or nylons) chains, which continue to struggle with poor end use
demand.
“Benzene’s a crazy situation,” a nylon buyer said. “We have
customers buying on a benzene-related basis. We lose margins
because of volumes. We lose margins because of prices. We
lose margins because of raw materials. They’re [benzene
players] not listening to us. It’s a big mess.”
For many downstream players, the benzene market is looking
increasingly divorced from reality with its spreads of
$500/tonne or more over naphtha, a situation not helped by
Brent futures still in triple figures.
“It’s not getting easier,” said a caprolactam buyer.
“Especially if you look at benzene. There’s no reason for
it.”
($1 = €0.81)
Additional reporting by Mark Victory
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