Mixed bag of fundamentals for ARA benzene in Sept

27 August 2014 11:52 Source:ICIS News

Focus article by Truong Mellor

dollarsLONDON (ICIS)--With spot prices hovering below $1,400/tonne this week, players in the European benzene market are expecting some downward movement for the upcoming September monthly contract, sources said on Wednesday.

The market had been growing increasingly bullish in August due to supply restrictions and firmer US numbers, with September trading as high as $1,390/tonne last week.

However, a slump in the US market late in the week due to some aggressive selling brought European prices down, and there were deals for September delivery done on Friday 22 August at $1,365/tonne.

This week opened with another September deal done at $1,365/tonne, and the market began to edge up as the week progressed, trading as high as $1,377.50/tonne on Tuesday 26 August.

The August European benzene contract was agreed at $1,450/tonne FOB NWE earlier this month. September was valued at $1,355-1,365/tonne this morning, while October was valued $10/tonne lower.

There is still some pressure on the front end of the month, with bids for prompt September delivery still commanding a $5/tonne premium earlier this week.

However, any upward momentum for September is being counterbalanced by slower derivative demand both in Europe and abroad. While there are several scheduled shutdowns on benzene in the US beginning next month, these will be counteracted by shutdowns in the downstream styrene market, so some players in Europe do not see any major upward impact on US pricing.

With a steady flow of spot and term cargo already fixed to be shipped from Asia to the US in September, this should also help redress any shortages in the market. Close to 100,000 tonnes of material has been fixed for September export to the US from Asia already, sources in the region confirmed last week. In August, around 110,000 tonnes – including spot and term – of Asian material were fixed to the US.

There is also a sense that any continued upward movement on European pricing will meet fierce resistance from derivative markets, which will be struggling to get back on track after a sluggish August.

“Benzene is too high still, and it is not reflecting fundamentals,” said one downstream styrenics producer. “The spread with naphtha at $500/tonne [see graph] is not sustainable. It has been the physical arrival of vessels that has kept the price inflated, and this is having consequences downstream.”

Benzene versus naphtha August 2014

Sources also highlighted the upcoming cracker turnaround season in Europe, which will run from September-October, and the potential impact this may have on benzene availability.

However, the crackers involved were said by one market source to be small or very localised, which will in all likelihood minimise the overall impact on the European market.

Several traders also pointed out that crackers have been running light for a considerable time already, restricting feedstock pygas supply, so the effect on benzene may prove to be minor.

“There is a mixed bag of fundamentals,” said one benzene trader. “Things could go either way in September. If prices hit $1,350/tonne, buyers will come back in at this level, but we don’t expect to see any fireworks.”

By Truong Mellor