Europe aromatics market perplexed by benzene bullishness

19 April 2013 10:30 Source:ICIS News

By Truong Mellor

LONDON (ICIS)--European aromatics players continue to struggle with the bullishness on benzene, sources said on Friday, with many unclear on what is driving the upward trend.

While benzene prices have gradually moved up this week, with confirmed April business as high as $1,320/tonne CIF (cost, insurance, freight) ARA (Amsterdam-Rotterdam-Antwerp) and offers reaching $1,350/tonne, styrene values have eroded, with a deal done for April delivery late on Thursday April 18 at $1,517.50/tonne FOB (free on board) Rotterdam.

“The recent benzene rise has many people perplexed,” said one styrene player. “The magnitude of change against previous expectations is making people question their plans. The spread between benzene and styrene has come down from over $400/tonne earlier this year to less than $200/tonne now. The question is: do we keep operating at these levels?”

The received wisdom earlier this year was that styrene was set to tighten over the turnaround season from March to May, while output reductions for styrene as well as phenol during this time meant that benzene would start to pool.

However, a raft of styrene imports from the US combined with weaker-than-expected derivative demand has actually seen some length creep into the European market, pulling prices down with it.

Players have been watching the construction industry struggle with poor demand, initially due to cold weather conditions. However, there appears to be no noticeable upturn as the second quarter unfolds and the weather improves.

While there had always been a sense among some players that the potential tightness and volatility predicted by many was overstated, what has surprised the market is the firming of benzene prices over the last week, especially when viewed in light of the sharp drop in crude and energy numbers.

“That has been the main issue people were not prepared for,” said one benzene supplier, who felt that there is an expectation that the market would improve following months of low demand.

“Derivative production is starting to come back up while benzene availability has been lower. People have been coming into the market for May.”

One European styrene unit is said to have come back online following a turnaround that began in March, while another is expected to begin the restart process by the end of April.

With the spread between benzene and naphtha fast approaching $600/tonne, with naphtha moving down by 10% in the last two weeks, several downstream players have questioned whether the current benzene numbers above $1,300/tonne are sustainable.

So what is driving the current upturn on benzene? Sources have posited various theories, none of which seem to explain the bullishness as a whole.

The US market, the key driver for Europe earlier in 2013, saw an upturn early in the week. However, this was largely thought to be a result of the higher domestic numbers, which was borne out by the subsequent dip in pricing following continued energy losses.

There has also been talk of cracker turnarounds limiting availability and even speculation of an aromatics outage in Europe, although traders and suppliers both refuted this, adding that the steady contango seen into May and June would not have emerged if there was a production problem limiting prompt supply.

“There’s no market activity to suggest an outage,” explained one producer. “Nobody is stepping in to cover something like that.”

One trader argued that the upturn is down to a general lack of supply rather than any short term availability problem, combined with the expectation among players that demand will return.

“There are a lot of buyers sniffing around for May, but no deals done yet,” the trader said. “Benzene production has been limited for nine months as a reaction to lower demand, so there is a sense that it can’t get any worse.”

Indeed, another source said that the story among suppliers is that there is not a lot of material available at the moment, due to lower production rates in 2013 and a growing number of  enquiries for material for the upcoming weeks following a first quarter when many players went short on benzene.

So while feedstocks lose ground and derivative demand struggles amid the wider economic malaise, this may not necessarily hold back the upward movement on benzene.

“We saw the market get tight at the end of 2012 and that spread with naphtha really move up,” said one producer. “We’re not there yet but it’s getting close.”

($1 = €0.77)

By Truong Mellor