OUTLOOK ’14: Asia benzene to trade at tight range in Q1

By Ong Sheau Ling

SINGAPORE (ICIS)–Spot benzene prices in Asia may see limited movement in the first quarter amid a clash of bullish and bearish factors in the market, market players said.

Benzene may trade within the $1,320-1,350/tonne (€964-986/tonne) FOB (free on board) Korea range in the next three months, most market players said.

“It is not clear exactly how the price trend will be, but at least there will no significant price upside or downside,” a South Korean producer said.

“There are just too many supply-demand factors affecting how the price will be. I am actually lost,” a Singapore-based trader said.

Current spot price levels at close to $1,350/tonne FOB Korea are deemed too high by market players, citing that China – a key benzene-importing country in Asia – is still unable to take in cargoes from abroad, raising concerns among regional producers about inventories.

China’s import window has been shut since mid-December 2013, with the FOB Korea pricing rising above the buying ideas of Chinese importers, while domestic benzene prices in China were relatively stable.

“Sinopec did raise the [benzene] list price but it is still not high enough,” a Chinese trader said.

On 26 December 2013, Chinese petrochemical major Sinopec raised its benzene list price in east China by yuan (CNY) 200/tonne to CNY9,500/tonne ex-tank.

The prices translates to an import parity of $1,311/tonne CFR (cost and freight) China for cargoes subject to 2% import duty based on an exchange rate of CNY6.07 to $1, according to ICIS.

A number of South Korean producers said that their inventories are low because of the re-opening in the Asia-US arbitrage window since December 2013.

Major South Korean producers and traders have been actively seeking vessels to ship out cargoes to the US, where prices are currently higher.

Over the past few weeks, the price gap between Asia and the US has been hovering at $60-100/tonne – more than sufficient to cover the freight cost of about $55-60/tonne from South Korea to the US for a 15,000-tonne vessel.

“[The] US is still short [on] prompt cargoes and given the [lower] January exports from Asia [because of the vessel issues], we are considering to export for February loading,” a South Korean trader said.

“Since we can’t export to China, US now is the viable outlet,” a second South Korean producer said.

Meanwhile, China may have to import some volumes soon to feed a Ningbo-based major methylene di-isocyanate facility that will restart soon, industry players said.

Benzene inventories in east China, excluding Ningbo, in December hovered at 25,000 to 40,000 tonnes, lower than the normal level of more than 50,000 tonnes, they said.

“Short-term demand does not look so bad,” a second South Korean producer said.

However, demand may start to dwindle as the Lunar New Year in end-January draws closer, as downstream end-users will be mostly away and disinterested to build up inventories.

Upcoming turnarounds at key downstream styrene monomer (SM) and phenol facilities from the second half of February to June will also curtail the spot demand for benzene, traders said.

“Demand [for benzene] will certainly decrease because of these downstream turnarounds,” a second South Korean trader said.

Meanwhile, supply of benzene to Asia in the next few months will grow, with the expected start-up of new benzene facilities in Saudi Arabia and India.

Saudi Aramco Total Refining and Petrochemical’s (Satorp) new 140,000 tonne/year benzene facility is expected to begin production in end-January this year, while ONGC Mangalore Petrochemical’s (OMPL) new 270,000 tonne/year benzene plant is expected to start up by end-March. The start-up of these two facilities were postponed from late last year.

In China, new capacities are also expected.

Chinese petrochemical major Sinopec has started conducting trial runs at its Hainan-based 140,000 tonne/year benzene unit on 9 December, with on-spec material achieved on 27 December. Production at the plant is currently being ramped up.

Fujian Refining & Petrochemical Co (FREP) has achieved on-spec production at its aromatics facility in Quanzhou on 20 December 2013, after restarting the unit three days before. The plant had undergone maintenance and debottlenecking from 20 October that raised its benzene capacity to 360,000 tonnes/year  from 260,000 tonnes/year.

Another Chinese producer – Qingdao Lidong Chemical – meanwhile, declared a force majeure on 6 January because of its inability to restart its aromatics unit, which was debottlenecked to increase its benzene output to 270,000 tonnes/year from 240,000 tonnes/year.

“This slew of new capacities is before the major addition of new capacities coming this June, hence even if demand is not too bad, we can’t be sure that supply will not increase to cause a supply overhang,” a second Singapore-based trader said.

($1 = €0.73 / $1 = CNY6.05)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections