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Key Drivers - Jan 19,2012

Benzene & Styrene

Americas February and March spot prices move up to $4.20 per gallon. Rate reductions expected as current export prices do not cover raw material costs.
Europe Prices continue to move up on feedstock limitations and improving demand. Prices have risen strongly but margins remain unsustainably weak.
Asia Spot firms up past $1200/MT on mid-week surge in USG benzene values. Prices firmer in line with feedstock, but demand softening ahead of Lunar New Year.
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Supply & Demand
 
Market Commentary

Benzene - Newsletter#: 1797
Date: 02/24/2011

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Americas

One producer nominated $4.75 per gallon as March contract price; negotiations should be finalized on Monday. Spot market volumes this week were relatively thin. February barrels were done last Friday at $4.42 per gallon and March at $4.35. On Monday, two deals were done for early March delivery at $4.50 and $4.55 per gallon and the March market eased yesterday to $4.46 FOB and $4.43 per gallon for any DDP barrels. Buyers showed little interest in the spot market today with only one deal confirmed late at $4.30 for DDP March barrels. The forward price curve remains notionally backwardated, but no deals were confirmed for April deliveries and beyond. April DDP barrels were offered at a 15 cpg discount to March barrels and May barrels were offered at a 3-5 cpg discount to April. The spike in March spot market on Monday seemed to have been a move to cover short positions prior to initiation of contract negotiations. Heavy fog on the Houston Ship Channel has delayed vessel unloading and reportedly the berthing of ships. The industry continues to be dependent upon imports to balance lost domestic production. Volumes from Brazil have been reduced due to utility issues in Camacari, the site of Braskem’s largest benzene production. Saudi benzene, which totaled more than 200KT last year, will not be available before May. More benzene is booked to the USG from Asia, with above average volumes expected in March and April. In addition to limited import volumes, the physical market has remained tight because of reduced extraction feeds from refineries and ethylene crackers. Refinery margins have been razor thin, unless the refiner is able to source crude oil at a WTI related price. Most crudes in the Gulf Coast are tracking Brent, which has recently seen a premium to WTI of nearly $20/bbl. Last week, refinery operating rates fell 0.8% to 78.6% of capacity and East Coast refineries ran at just 66.3% of capacity. Midwest refineries, which source most of their crude from Canada or the WTI hub at Cushing, OK, ran at 88.4% rates. In addition to poor overall refinery margins, reformer economics continue to worsen. Octane values worsened this week with a sharp fall in ethanol prices which yesterday traded at 16 cpg below naphtha, the feedstock of reformers. Co-product credits for hydrogen continued their downward trend, with natural gas prices moving below $3.80 per MMBTU. The USA extracts half of its domestic production from reformate. Until reformer process economics improve, benzene extraction feed will remain very limited. More than 90% of U.S. reformate extraction capacity is located in the Gulf Coast and East Coast…the two refining regions suffering most from the recent turn of events. Pygas extraction units continue to run well below capacity, but are being supplemented by increased imports. A series of upcoming ethylene turnarounds in Northwest Europe will allow third-party pygas to flow into the USGC, rather than to its typical outlet in the Rotterdam area. One source expects 50-60KT of pygas to arrive from Europe by the end of April. That volume will be supplemented by smaller volumes out of Northeast Asia as well. Benzene demand has been limited, particularly due to lack of benzene derivative exports to Europe and Asia. Despite a strong cost advantage on ethylene, styrene exports to those regions have not been viable for most of the year. If rates are reduced, the lost benzene demand could weigh on the spot market. On margins, all incremental benzene production economics were slightly weaker this week. Higher alternate values for naphtha reduced reformate extraction margins and a 10 cpg increase in toluene prices led to a reduction of conversion margins. HDA forward economics are expected to deteriorate due to backwardation of the benzene market and expected increases in alternate values for toluene and TX mix required to feed the unit. Demand for those streams increases with move to summer grade gasoline production due to their low vapor pressure characteristics.

Europe

Prompt material has been in tight supply and rapidly rising oil prices pushed producers and consumers into the market earlier in the week for both March and April material. February prices peaked at $1465 on Tuesday, while March traded up from $1360 to $1415, with $1420 done for 1H March. April traded up to $1375. There was something of a hiatus on Wednesday and Thursday, with trade thin as the market waited on events in the Middle East. Prices for March slipped on Thursday from $1410/$1415, done in the morning for March, to $1370, done twice in the afternoon. Brent prices have surged above $110/bbl in reaction to what can probably now be described as civil war in Libya, touching $119 at one point. The rise in crude oil since the beginning of the year is now similar in percentage terms to that seen for benzene. Naphtha has been lagging, because of oversupply and competition as a cracker feedstock from propane and butane, but reacted on Thursday to higher crude and gasoline prices. The differential of benzene over naphtha has been consistently around $500/T for the past month, but dipped below $450 on Thursday. Contract for March will be settled on Monday and based on current price levels is likely to settle somewhere near the $1400 mark, equivalent at today’s exchange rate to €1015. Assuming these values hold, the Euro price will again be the highest seen, while the USD value will be close to the previous high of $1403, reached in August 2008. The combination of historically high absolute values and strong margins over naphtha are contributing to some nervousness in the market. Downstream demand remains generally good, with growth of manufacturing output and new orders at their highest level since last March. The flash manufacturing Purchasing Managers Index for February, recently published by Markit, shows a jump to 59.0, the highest recorded level since June 2000. Phenol, cyclohexane and aniline output are running strongly, and styrene should pick up in March now that recent production cutbacks have brought the physical market back close to balance. Pygas feedstock is in good supply prompt, because of impending extraction shutdowns in the Netherlands, though a two week unplanned cracker outage has cut supplies in Belgium. Availability of reformate remains limited because of poor refining margins. Italy is the country most likely to suffer knock-on effects from the Libyan crisis, receiving as a rule about one quarter of its crude oil from Libya. The natural gas pipeline from Libya to Italy has been closed this week.

Asia

The market on Friday was very much in line with numbers for the week with four 3 KT parcels done at $1180 twice, $1184 and $1187 FOB Korea, all for April. March parcels were not traded during this week. WTI was at $86.20 and naphtha CFR Japan at $876; both slightly lower than our last coverage on Feb. 17. The Middle East violence, especially in Libya, pushed WTI to $90.25 on Monday while naphtha stayed flat at $876 as Asia was a bit slow to react in view of the US holiday. Benzene moved up in all regions with one deal done in Asia at $1195 FOB Korea for April. Tuesday saw a further rise in WTI to $93.57 and naphtha CFR Japan jumped to $923.50. Benzene firmed up quickly with 3 parcels at 3 KT done at $1235 and $1245 for April and $1235 for May, all FOB Korea. USG was in backwardation with March at 435/445 cpg and April at 418/428 for April, bid/ask DDP. Europe was likewise backwardated at $1420 for March and $1375 for April, all CIF. It appears that the market players do not see a sustainable high WTI and naphtha prices and the markets will ease once the Middle East problems blow over. Yesterday, USG and Europe remained in backwardation while Asia weakened slightly with two April parcels done at $1222 and $1223 FOB Korea. Bid/Ask numbers FOB Korea were at $1217/$1232 for March; $1217/$1227 for April and $1212/$1217 for May. Today, two more 3KT parcels were done for April at $1220 and $1225 FOB Korea, almost the same prices as the two deals done yesterday. The outlook for benzene remains bullish in the near term, particularly if Middle East unrest continues to support high price levels for Brent. Further out, opportunities grow increasingly limited. European prices are in extreme backwardation at $1400-$1405/MT for March versus $1335-$1350/MT for April. Although arbitrage is still open given Asia at $1220-$1230 FOB Korea, vessel space to Europe is usually limited and few traders will likely risk taking positions on material shipping in April to land in May given the levels of backwardation. Export opportunities to the USG pose a similar problem with April down to $4.20/gal or roughly $1260/MT. Given high freight costs from Korea to the USG quoted at $60-$65/MT, arbitrage is essentially closed beyond March. Note that this will push traders to export heavily next month because of the tight window of opportunity. Reports have March bookings at over 100 KT with one Korean trader alone at 40 KT. Finally in Asia, fundamental support for benzene remains lackluster with China still not importing in significant levels while incremental benzene production will be higher than expected with turnarounds at MTPX lines in Korea likely to be delayed given the current high profit margins for PX.
Daily Prices

Benzene

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Unit

Market Date: 12/23/2011

RegionPriceUnitTypeDeliveryBidAskVolComments
West Europe 1,090 $/MT CIFJanuary 1,000 Reported done 6 times
Asia Pacific $/MT FOBMarch 1,060 1,070 3,000  
  $/MT FOBFebruary 1,050 1,070 3,000  
  $/MT FOBApril 1,065 1,075 3,000  
         

Historical Pricing
 
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