Asia benzene under pressure on crude, lengthening supply

Clive Ong

25-Oct-2018

SINGAPORE (ICIS)–Asia’s benzene market slumped this week amid a sharp pull back in the crude oil sector and market fundamentals suggest the pressure on the molecule will remain strong in weeks ahead.

Spot prices in Asia declined below the $800/tonne FOB (free on board) Korea level this week, the first time for this year, according to ICIS data. On 19 October spot prices closed at  $803/tonne FOB Korea.

Brent crude futures slumped to around $77/bbl this week, after reaching $85/bbl in September, amid the ongoing US-China trade war and weakness in the global equities market.

Weaker forecasts for global economic growth by the International Monetary Fund also dampened the crude oil market. The IMF cut global growth next year by 0.2 to 3.7%.

“Declining crude prices are exerting downward pressure on benzene,” said a trader in Singapore.

Benzene is a base chemical used to make other chemicals like styrene, phenol and caprolactam.

Ample supply across Asia also weighed on sentiment of players here.

With fewer turnarounds scheduled in the fourth quarter, supply disruptions are expected to be limited.

At the same time, the third quarter manufacturing for exports season in China has ended in October, with demand for chemicals and resins likely to recede as the year-end lull approaches.

Benzene demand is not expected to show any significant improvement during the traditionally slower fourth quarter.

The narrow Asia-US arbitrage window for spot benzene trade for most part of this year has also kept cargoes within the Asian system.

Japan and south Korea are key exporters of benzene to the US. Traders found limited opportunities this year to move parcels over to the US, as the arbitrage was mostly closed.

“China is the key market here, but since demand is soft, Asia cargoes have no other place to go,” said a producer in SE Asia.

Other markets like Taiwan and southeast Asia remained well supplied with end-users having sufficient volume from term contracts to meet production requirements.

At current prices, the spread between benzene and feedstock toluene has turned negative.

Based on prices on 23 October, the spread between benzene and toluene was -$23/tonne, compared to $34.5/tonne a month ago.

This is expected to impact toluene disproportionation units (TDP) across Asia, where toluene is used as a feedstock to produce benzene and xylenes.

However, with the paraxylene (PX) prices still elevated, TDP operators could still run at high rates for xylenes production

in order to producer PX. However, this means that benzene production would continue despite the negative spread to toluene.

Given these head winds, the Asia benzene market is likely to remain under downward pressure with demand/supply dynamics staying poor in the near term.

ICIS Editorial Chart goes here

Focus article by Clive Ong

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