Europe spot benzene approaching yearly lows

By Truong Mellor

LONDON (ICIS)–Falling global prices and soft derivative demand have helped pull European benzene prices down in July, sources said on Wednesday, with spot numbers fast approaching the lowest point so far in 2013.

European spot prices saw a minor upturn last week, driven by firmer oil and energy numbers, although several traders were unsure of how sustainable the upward momentum was given the bearish outlook on fundamentals.

“The benzene market has been pretty quiet really,” one trader said last week. “The talk of the town has been styrene.”

However, the gains seen for crude futures combined with higher pricing in both Asia and the US all served to raise July spot numbers for European benzene by $15-25/tonne (€11-19/tonne) from the previous week, despite poor offtake levels from key derivative paths such as the phenolic chain.

“With the weak propylene oxide [PO] demand and producers all back on line, this has all meant there is less benzene demand in July,” one source said.

“The gains in line with crude were overdone last week,” another trader said. “The market was reacting too much, and there is no reason for the US market to be lower than Europe.”

Spot numbers subsequently did come down from last week, with July offers opening on Monday 15 July as high as $1,270/tonne before gradually easing. Tuesday saw July deals done at $1,240/tonne, $1,233/tonne and $1,230/tonne.

The European July contract was settled at a US dollar concept of $1,274/tonne FOB (free on board) NWE (northwest Europe), and converted to €978/tonne at the agreed exchange rate of €1:$1.3027.

The bid/offer range for the current month opened this morning at $1,200-1,230/tonne, following continued losses in the US and Asia, the latter market seeing numbers move as low as $1,200/tonne FOB Korea for September delivery.

“Spot is down by about $20/tonne today because of the US impact,” said one source in Asia. “The market is getting directionless, because styrene is still firm.”

The lowest spot deal in Europe so far this year was at $1,220/tonne CIF (cost, insurance & freight) ARA (Amsterdam-Rotterdam-Antwerp) on Wednesday 20 March.

“With the current exchange rate, benzene in euros is now the lowest it’s been since mid-2012,” one styrene consumer added.

All of which is a far cry from the beginning of 2013. On the back of a volatile 2012 and a record-high January 2013 Europe monthly contract at $1,529/tonne FOB NWE in US dollar terms, most players were braced for an ongoing upward trajectory this year.

However, the story of European benzene has been one of perpetual decline so far this year, with only a short-lived upward swing in April driven by several production problems and low inventories at the time (see graph).

The problem Europe has faced in 2013 is that there has been no real long-term view when it comes to business planning. With austerity being the key word among politicians, governments are not investing in new projects, and businesses are scared of making strategic decisions in such an uncertain economic environment.

One benzene trader said that this has impacted key end-use markets such as construction and automotive, with many derivative producers operating a short-term book when it comes to inventory purchasing.

“Polystyrene (PS) and EPS [expandable polystyrene] are struggling this year,” said one styrenics distribution source. “You have the wider global economic concerns, so stocks are being kept low. Nobody is keeping inventories. In the case of PS, you have some players that are buying for just a week in advance.”

The high pricing on benzene in 2012 was driven by low supply rather than strong demand, which was largely described by players as satisfactory at best. However, this year has seen better availability for benzene feedstock from refineries, while demand has sunk even lower, contributing to the steady slump in European pricing so far in 2013.

Despite this, one source noted that August could see some volatility on benzene, which, despite the reputation of being a quiet holiday month in Europe, has in the past seen huge pricing and activity spikes.

“There is often a unit that breaks down in the summer, and the market then goes crazy,” the source explained.

($1 = €0.76)