EPCA '12: Europe benzene market focused on price volatility

07 October 2012 10:00 Source:ICIS News

By Truong Mellor

LONDON (ICIS)--A key talking point among aromatics players at the 46th European Petrochemical Association (EPCA) meeting in Budapest will be the volatility of European benzene pricing seen so far this year and the continued impact on downstream pricing.

Since the beginning of 2012, the benzene market has been on an upward path with healthy demand from key derivative streams and availability restrictions driving numbers up to near-record highs.

The arrival of imports at times and the switching on of hydrodealkylation (HDA) units have helped alleviate the soaring numbers but have proven to only stop-gap measures in what is now looking to be a permanent supply dynamic in Europe for the near future.

Weak pricing in the first quarter of 2012, owing to downstream shutdowns and ample pyrolysis gasoline (pygas) availability because of high propane costs, has meant that regular benzene imports from markets such as Oman, India and Turkey, had been diverted elsewhere.

A raft of unplanned shutdowns throughout the year also tightened the market, while some traders were quick to move on emerging arbitrage opportunities to the US, further shortening availability this year.

Bullish crude and naphtha levels also mean that crackers will elect to utilise lighter feedstocks, reducing benzene output and keeping prices inflated. With the high cost of benzene, instead of building up inventory, many derivative producers are weighing up the financial pros and cons of keeping units switched on, opting to purchase material as and when required.

The problem is that this approach can often help feed the volatility that leads to it.

“Consumers aren’t looking further than two weeks ahead,” one trader previously said. “There is always a great risk in this hand-to-mouth approach.”

Downstream players have already bemoaned the soaring cost of benzene and the negative impact it has had on end use consumption this year.

“Benzene’s a crazy situation,” a nylon buyer said earlier this year. “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.”

One styrene trader was more succinct in his appraisal of the market, stating: “Benzene is not to be trusted.”

While the closure of Switzerland-headquartered producer INEOS's polystyrene (PS) units in Marl, Germany, 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.

Sources agree that the European market has had to manage extra capacity for some time, so news of the plant closure at Marl did not come as a surprise for many.

“Location-wise, the Marl site is not great and with the structurally high cost of ethylene and benzene, running these EB [ethylbenzene]/SM [styrene monomer] units is difficult financially,” said an aromatics trader, estimating that an EB/SM unit would be running at a loss for nine months of the year.

The annual EPCA meeting runs from 6-10 October.

By Truong Mellor