Europe benzene spot prices continue to firm on tight supply

By Julia Meehan

LONDON (ICIS)–European benzene spot prices continue to firm as trade and industry try to cover short positions, markets sources said on Tuesday.

Spot benzene for September delivery was bid at $1,430/tonne CIF (cost, insurance, freight) ARA (Amsterdam, Rotterdam, Antwerp), up by $140/tonne since the month’s contract price settled at $1,287/tonne FOB (free on board) NWE (northwest Europe).

Since the September contract and the return of many market participants following the summer holidays, spot benzene prices, and in particular spot styrene prices, have moved up on a daily basis.

Typically it is feedstock benzene price developments that can drive the value of styrene up or down, but acute tightness in styrene and a “surprising” level of demand from traders and consumers, has resulted in benzene price gains being partly derivative driven.

But the higher spot prices so far this week have been blamed on traders and consumers covering short positions, as well as talk of up and coming outages and production problems in Botlek, the Netherlands.

When asked about possible outages for Total, Shell and Petrogal, and problems at ExxonMobil, an active benzene trader said it thought this was contributing to the upward price trend but felt that much of it was due to buyers covering short positions.

“I think there is 70% truth [to the production story], the rest is cream on top. However, the move is led by short covering now,” said the trader.

As with the styrene market, benzene production rates were severely reduced during the summer months. One source said aromatics producers must have been running on fumes during August.

Demand, particularly for styrene, has come back at a strong level. The market is tight and traders and consumers are all in the market looking to buy.

Spot styrene is now offered at $1,700/tonne for September and October delivery. With no backwardation seen between the current and forward month, this suggests that the tightness looks set to remain in place until October.

Indeed, styrene producers and consumers believe this.

“Demand is good for major derivatives compared to the first half of the year and with reduced imports and production cuts, people are looking to secure [styrene],” said one buyer.

A major producer of styrene said the lack of imports coming into Europe from the US and the Middle East was clearly having an impact on the market.

“Nothing has arrived yet. I am told the first parcels for October are already committed. In July, 20 kt (kilotonnes) came out of the Middle East, six-to-seven kt in August and nothing in September. The imports have incrementally dried off,” the producer said.

“Local [styrene] production has been at a lower level; PO [propylene oxide] is also at a low level. These prices do ring alarm bells,” he added.

The producer also spoke about the “feast or famine” mentality of the US and European markets in terms of supply and demand.

This hand-to-mouth approach in not only exclusive to aromatics – just about every feedstock and derivative market has been running as low as possible in terms of production and inventory levels.

Meanwhile, downstream markets, other than styrene, continue to eye benzene price developments with great concern.

Demand has clearly returned for many markets in the phenol chain for example, but it is unclear just how much of this is restocking or genuine fresh demand.

While downstream markets are concerned about prices firming because of difficulties trying to pass increases on to end-user markets and improve margins, traders are concerned about benzene prices falling.

“Lots of people are buying benzene well over the contract price. Phenol demand is much better and not everybody bought what they need. August was stronger than expected and pipelines were empty because benzene was so expensive in July,” commented one trader.

A second trader said: “Although of this does not sit right. You’ve got an economy built on weak demand. There are reasons for us all to be concerned because when it [the cost of benzene] goes down, it will go down fast.”

In relation to its styrene business, the trader said: “I’m not complaining, but for physical tanks we’re paying storage for empty tanks and we will want to load in October.

“I can’t see this situation being resolved any time soon…it’s a matter of sitting it out,” he concluded.

($1 = €0.78)