Europe benzene still tight, bull run set to continue into Q4

LONDON (ICIS)–European benzene prices have continued their bull run in September, owing to production problems curtailing supply – and the volatile market environment looks set to continue in the fourth quarter, sources said on Monday.

September had already seen benzene numbers spike on players covering short positions, but with four European suppliers currently either on turnaround or facing production problems, availability has dried up and pushed current month pricing back above $1,500/tonne (€1,140/tonne).

Deals were done as high as $1,525/tonne for September last week. There was talk of trades as high as $1,540/tonne, but these were unconfirmed.

“Benzene was very tight and people had to cover shorts,” said one downstream source. “Some paid desperately high numbers.”

By Friday 14 September, however, the market had edged back below $1,500/tonne, and the range for September was valued at $1,420-1,460/tonne CIF (cost, insurance and freight) ARA (Amsterdam-Rotterdam-Antwerp) this morning, further weakening as oil and energy numbers came off.

Nevertheless, the outlook for the coming weeks remains bullish on benzene, with a premium for the first half of October emerging at several points last week. An estimated 80,000 tonnes of production has been taken out of the market, while only approximately 25,000 tonnes has been imported into Europe to cover the shortfall, leading to the current imbalance.

But the main factor creating the volatile environment in Europe has been the tentative nature of many consumers, according to one trader.

“The problem is that consumers aren’t looking further than two weeks ahead,” the trader explained. “There is always a great risk in this hand-to-mouth approach.”

European benzene players have struggled with supply volatility and sharp swings in pricing since earlier this year, when the diversion of scheduled imports – as well as declining output owing to reduced pyrolysis gasoline (pygas) availability – led to price surges for prompt cargo.

With crackers increasingly utilising lighter feedstocks, this will keep pygas supply restricted and mean that European benzene will remain structurally balanced to tight in the coming weeks.

While the closure of Switzerland-headquartered producer INEOS’s Marl polystyrene (PS) units could help redress the balance by easing some domestic demand for benzene, many in the market are sceptical of this as a solution to the current problem, as PS output has already been running at reduced rates for some time amid weakening demand.

However, stronger than expected demand from styrenics derivatives in September has also helped support the higher benzene prices, with expandable polystyrene (EPS) units in particular said to be running hard following the traditional slowdown over August, which many sources found surprising, given the close to record-high contract price this month.

September styrene traded as high as $1,820/tonne FOB (free on board) Rotterdam last week, and while the market appeared to be easing off towards the end of the week, with offers as low as $1,750/tonne, a deal was heard this morning at $1,800/tonne amid severely restricted availability for prompt volumes.

“[The] industry is bone dry,” said one trader. “Inventories are nothing. I know it is the end of a quarter but this is ridiculous.”

While styrene producers are now ramping up output to meet demand, previous ethylene restrictions and technical problems with reformers limiting benzene production means that some units are playing catch up in a fast moving market.

($1 = €0.76)