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Steady expansion in global benzene capacity, predominantly in Asia and the Middle East

Steady expansion in global benzene capacity, predominantly in Asia and the Middle East

Global benzene capacity continues to witness steady expansions, predominantly in eastern parts of the world, especially Asia and the Middle East. The expected capacity expansion, when onstream, is expected to offer a much awaited respite from the hitherto imbalance between demand and supply. World consumption of benzene is projected to exceed 54 mln tons by 2012, supported by demand from developing nations, according to a report by Global Industry Analysts. Demand for benzene continues to be driven by the gradual phasing out of MTBE. Several major refiners, who were earlier using MTBE, have shifted towards aromatics usage including benzene. Increased use of benzene in the production of styrene is additionally driving up demand in the world market. A majority of trading countries depend on imports to balance their requirements, rather than making incremental increases in domestic manufacturing capacities, thus leading to demand and supply imbalances in the international marketplace. For instance, North America in general, and the US in particular, resort to large imports of benzene to meet domestic demand. Regions poised to emerge into key exporting bases for benzene, in the upcoming years, include - Asia, Africa, and South America. Asia (excluding Japan), and Europe are poised to dominate the world benzene market through 2011. China, Thailand and Saudi Arabia are forecast to lead global growth, with majority of capacity expansions scheduled for installation between 2007 and 2011. Increase in pygas production and gasoline consumption will further spur the demand for benzene in key Asian markets. The surging gasoline consumption in Asia will stimulate benzene production as a co-product from reformate. In the Middle East, the limited availability of ethane will result in cracking higher amounts of condensates and naphtha yielding abundant pygas and benzene. Consumption of benzene in the Alkylbenzene end-use market is the highest in Asia-Pacific with consumption projected to reach 717,000 tons by 2015. Benzene demand in North America, Europe and Japan is anticipated to grow moderately through the years 2011 to 2015. Sustained level of demand for key chemical derivates such as nitrobenzene, cumene and cyclohexane will continue to prop up growth in these markets. Consumption of benzene in the ethylbenzene end-use market accounts for a 54% share of the global benzene market estimated in the year 2008. Nitrobenzene and ethylbenzene are projected to record faster growth rates in South and Central America. Key players dominating the global benzene market include BP Plc, Compania Espanola de Petroleos SA, ChevronTexaco Corp, Chinese Petroleum Corporation, Chevron Phillips Chemical, Copesul, Deutsche Shell GmbH, Dow Chemical, Lyondell Chemical Company, Exxon Mobil Chemical, INEOS, Maruzen Petrochemical Co Ltd, Mitsubishi Chemical, Nippon Oil Corporation, Total Petrochemicals USA Inc, Saudi Basic Industries Corp, Samsung Total Petrochemicals, Shell Chemical, Showa Shell Sekiyu, and SK Energy Co. Ltd, among others.
Shell Chemicals has estimated potential annual demand growth for benzene of 3.9% from 2011-2014, as per Platts. This would be underpinned by derivatives demand growth, including 3.6% for styrene, 5.1% for cumene/phenol (3.5%) and 4% for aniline. Much of the future demand growth is likely to emerge from the slowly improving automotive manufacturing and construction industry. This will be largely because C6-derived products are well suited to meet the needs of a low-carbon age. Their light-weight and insulating properties can help reduce energy consumption and lower CO2 emissions, while their 'processability' is enabling designers to engineer a variety of stronger, more flexible parts and products that meet the needs of a wide range of manufacturing industries. The industry estimates better demand amid significant opportunities for future growth if the supply chain remains flexible, competitive and creative. As per Sri Consulting, global production and consumption of benzene in 2010 were around 40 mln metric tons. Average global capacity utilization was 73.6% in 2010, higher than in 2009. Global benzene consumption is estimated to have decreased by 5.8% in 2010; is expected to average growth of 3.6% pa from 2010 to 2015, and 2.6% pa from 2015 to 2020. Utilization rates will slowly increase throughout the forecast period from the mid-70s range to the mid-80s range. Ethylbenzene accounted for just over half of global benzene consumption in 2010, followed by cumene and cyclohexane, together making up almost another third of global benzene consumption.
The following pie chart shows world consumption of benzene by end use.
World Consumption of Benzene 2010
"Benzene is a fungible, internationally traded commodity petrochemical and pricing tends to be highly volatile," as per Simon Palmer, Director�Aromatics (CMAI), in Downstreamtoday.com. "It is very much a bellwether for the commodity petrochemical industry as its health (or otherwise) is a good indicator of the well-being of the downstream industries. In the price 'crash' of 2008, spot prices dropped from US$4 a gallon at the beginning of October to US$0.70 just a few days into December." In the refining and petrochemicals sectors it is typically generated as a co-product, or a by-product, of various processes. Thus benzene price fluctuations have little or no bearing on profit margins in either industry. Benzene is a key raw material in derivatives businesses, however, and benzene prices directly influence the financial health of these sectors. As the diagram suggests, the effect of benzene price increases is felt down the supply chain.
Raw Material - Derivatives
In the 1990s, US refiners were long refining capacity and separating aromatic hydrocarbons (such as benzene) for the chemical market. This was seen as one opportunity to upgrade refinery streams. Moreover, steam crackers at petrochemical plants were cracking greater volumes of naphtha and gas oil, hence generating more benzene-rich pyrolysis gasoline (pygas). Because there are few options but to separate the pygas into benzene and other constituents, the petrochemicals industry was also processing more benzene as a by-product or co-product. Benzene was a plentiful commodity, and it served as one of the low-cost feedstocks fueling the burgeoning petrochemicals industry in Asia's developing economies. By the turn of the century, legislative bodies in the US and Europe were enacting new restrictions on benzene in gasoline. Furthermore, demand for gasoline in North America was strong and demanded greater processing capacity and aromatic octane production from refiners. Hence refineries began to limit their exports of benzene and other petrochemical feedstocks just as the petrochemicals industry in China and elsewhere in Asia was blossoming. The large by-product/co-product components of supply plus the lack of on-purpose capacity found the industry unresponsive when chemical demand surged and prices broke well above historic ranges. Due to the need to retain hydrocarbon, molecules refiners also opted to destroy benzene precursors and 'unmake' benzene to meet new gasoline regulations rather than lose the molecules to the petrochemical pool, and over time the amount of aromatic feedstock available to the petrochemical industry declined. The tightening supply from North America motivated Asian manufacturers to begin producing aromatics closer to their production sites, and the proverbial center of gravity for benzene production has since shifted away from its traditional base, probably for good. All of this has conspired to erode domestic supply in the US to the tune of 35% since the peak in 2007. At the same time demand has also eroded as the US has in many cases lost its derivative market in Asia to expanded local production. The US has also lost its broader position as the provider of cheap hydrocarbons to the rest of the world, likely forever. North America, indeed the global industry at large, is not short of benzene separation capacity but of feedstocks. This is the primary reason why prices and margins have been healthy. A "dramatic" capacity expansion is underway in Asia; however, the polyester industry's strong appetite for the co-product paraxylene is driving this growth. It is unlikely that much capacity is being added for the specific purpose of producing benzene. Over the next several years, Palmer expects the balance between benzene demand recovery and supply recovery to hinge upon how well the world's major economies recover. Output and consumption in the Western Hemisphere is forecast to stabilize and eventually start to grow modestly but both the U.S. and Europe will continue to be major benzene importers. Palmer, pointing out that the shift of benzene production and consumption to the Eastern Hemisphere is a given, also predicted that on-purpose production assets will continue to operate under threat. Adding to the uncertainty is a trend manufacturers have driven in recent years as they have sought to counter benzene's intense price volatility: substituting the aromatic compound in their operations with other, more price-stable building blocks.
 
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