Price and market trends: Europe benzene still firm in tight market

17 July 2014 18:13 Source:ICIS Chemical Business

The naphtha/benzene spread could provide some insight into benzene price direction in the coming weeks

European benzene spot numbers have remained firm so far in July, sources said on 10 July, with offers reaching $1,500/tonne midweek amid tight regional availability.

Following the settlement of the July Europe benzene contract at $1,466/tonne FOB (free on board) NWE (northwest Europe), spot pricing has held above this level. The market has been thinly traded, but a deal for July at $1,485/tonne was reported late on 9 July.

Offers for July spot material were at $1,490/tonne on the morning of 10 July, but were not met with any firm corresponding bids in a thin market. August was backwardated, with offers at $1,455/tonne.

“It’s tight in Europe,” said one supplier. “There’s not that many sellers and the market is still very illiquid.”

The current upturn in pricing began last month, with a strong US market pulling volume out of Europe and firmer naphtha and energy costs also applying upward pressure on spot numbers.

The naphtha/benzene spread could provide some insight into benzene price direction in the coming weeks. The margin between the two products has been steadily growing over the last few years, and stands at around $550/tonne, which for many is the current ceiling for Europe.

While a US market that continues to hover around the $5.00/gal level supports higher European pricing, sources felt that the main driver is the constraint on availability.

Europe is expected to stay tight and dependent on imports to make up the regional shortfall. This will keep pricing volatile and dependent on global movements.

However, with four new benzene units with a total capacity of 2m tonnes/year expected to come online in Asia by the end of July, this could help ease global availability and pricing, with material moving to the US helping to bring spot levels down from the structural highs seen.

Already, there have been more exports from Asia to the US fixed for July, with the arbitrage window improving, although this is partly due to lower-than-expected export levels in June.

In the toluene market, European players have also said that the third quarter may see an uptake in HDA (hydrodealkylation) production, which converts toluene to benzene.

“There is no support for current European toluene pricing from the US, so numbers will have to go down to make HDA economics viable,” explained one toluene consumer. “Gasoline levels are also too low to make blending interest an outlet for toluene right now.”

Increased HDA output in Europe could help alleviate benzene tightness, although much would depend on the price direction of both products. Increased toluene demand could push spot pricing higher, while improved availability of benzene would almost invariably help the market move lower, limiting the economics for HDA.

The fortunes of the styrene market, which accounts for over 50% of European benzene consumption, will also play a role in the third quarter.

European styrene pricing currently faces some upward pressure, not least because of bullish benzene values, but an upturn in construction activity and a stronger Asian market pulling US export volumes could support higher styrene numbers. This is turn could lend support to European benzene pricing, even if availability improves.

By Truong Mellor