INSIGHT: Unprecedented Europe CX dynamics persist as supply issues buffet market

By Eashani Chavda

LONDON (ICIS)–Tightness in the European cyclohexane (CX) market has led to an upwards trend in quarterly contract prices this year.

CX delta contract prices have fluctuated for four years, with periods of tightness and plentiful supply being reflected in yearly pricing trends.

This year’s market dynamics, however, have been unprecedented, as supply constraints have affected the global CX market. Global supply shortages and fewer imports led to the third-quarter CX delta contract price increasing to €170/tonne, up by €27/tonne.

As players prepare for the fourth-quarter negotiations, it is worthwhile looking back over recent years at the events and the reflected delta price movements that led up to the current situation.

At the start of 2013, the first-quarter CX delta rolled over at €143/tonne, while movements in the benzene market led to the highest CX monthly contract price in recent years. The monthly CX contract price comprises the sum of the monthly benzene contract and the quarterly CX delta contract. The January 2013 CX contract price settled at €1,296/tonne.

In 2013 BP closed its 260,000 tonnes/year CX plant in Lingen, Germany, due to poor profitability. The plant was Europe’s fourth largest CX plant at the time. European supply constraints led to an upward trend in the CX quarterly delta contract prices between 2013 and late 2014.

The upward trend reached its peak in the third quarter of 2014, settling at €176/tonne, the highest delta price to-date. The second and third quarters of 2014 were notably tight, with CEPSA’s lengthy force majeure limiting availability. There was talk of another European producer also experiencing production problems at the time, but that remained unconfirmed. The third-quarter 2014 CX delta negotiations were lengthy, taking a few weeks for buyers and sellers to agree on the settlement, which sellers thought was too low.  

Delta prices softened from the fourth quarter of 2014 until the first quarter of 2016 as supply levels grew.

CX supply was plentiful in 2015 when SABIC announced its plans to close its Wilton, UK, plant, with the closure taking place in 2017. In 2015, another European producer, CEPSA announced it would lower its operating rates in 2016.

The second-quarter 2016 CX delta contract firmed by €6/tonne, while the remainder of 2016 saw CX deltas soften gradually, and the year ended with the Q4 delta at €126.5/tonne.

SABIC’s Wilton UK facility closed in January 2017 as planned, which left a considerable gap in the European market. The facility had a nameplate capacity of 330,000 tonnes/year, though it was said to be running at approximately 195,000 tonnes/year before it closed. Europe’s largest CX producer had left the market. 

In January, the first-quarter CX delta increased by €5.50/tonne, while the monthly CX contract price also increased due to supply constraints in the benzene market.

The start of 2017 was considerably tight in the benzene market, due to global supply constraints, and an increase in exports from Europe to the US which left the European market tight in December 2016. Bullishness in the US also contributed to the price hikes. The monthly benzene contract settlement increased by €175/tonne in January, and again by €177/tonne in February.

At the end of 2016, Europe had received fewer CX imports and SABIC’s closure added to the existing supply constraints as 2017 began. Price increases in the benzene market, and in the quarterly CX contract delta led to the January 2017 CX contract settlement increasing by €181/tonne, to €938/tonne.

The loss of SABIC continues to be felt in the European CX market this year, and has been reflected in the upward delta pricing trend. The second quarter was notably tight, as was the start of the third quarter when fewer imports were said to be reaching Europe, due to planned and unplanned outages in US and the Middle East.

Last quarter, the CX delta soared to €170/tonne. Due to global tightness in the CX market, producers had targeted higher prices during negotiations, which were rejected by buyers, leading to both sides agreeing to the €27/tonne increase. 

Supply was said to be easing slightly in August, with an influx of imports reaching the European market. Demand has remained high throughout the year, and tightness has persisted, though at varying levels.

However, Hurricane Harvey in the US led to outages and import delays, tightening European supply again.

Globally, there have been a number of recent issues which have caused concern in the petrochemicals industry. Hurricane Harvey, as well as the German rail disruption in Europe have delayed deliveries, and now China’s environmental health inspections poses a threat to Asian production. The next quarter is one of uncertainty in the global market place.

As the fourth quarter delta negotiations begin, supply and demand fundamentals, as well as production levels are sure to lead the discussions.

At present, European producer CEPSA is carrying out a planned shutdown at Huelva, Spain. The plant has a nameplate capacity of 180,000 tonnes/year, but has been running at approximately 130,000 tonnes/year this year, according to a company source. The producer has scheduled another planned shutdown in November.

The September CX contract price settled at €825/tonne ex-words NWE (northwest Europe), following a €10/tonne increase in the September benzene settlement.

Negotiations for the CX fourth quarter delta contract price will take place this week, and are expected to end on Friday.

CX producers have commented on the delta negotiations, with some targeting increases and rollovers. There has been no buyer feedback as yet. With availability being a topic of concern, it is unlikely that prices will soften.

If buyers and sellers cannot come to an agreement this week, the CX quarterly delta contract negotiations will continue to be discussed next week during the 51st annual European Petrochemicals Association (EPCA) meeting. Most players will be attending the conference in Berlin, Germany which begins this weekend.