NWE benzene set to stay firm on constrained supply and rising demand

11-May-12

Northwest European benzene is likely to remain strong in the short term thanks to increased downstream demand and restrictions on supply, as per Platts. While NWE benzene prices have dropped around US$11.50/mt since the beginning of April, upstream naphtha has crashed by US$78.25/mt. This has seen the naphtha-benzene spread climb to US$338.50/mt -- it's highest level since January 24 when benzene prices were at a yearly high. Spot prices remained firm Wednesday morning, with sellers holding offers for May and June at US$1255/mt and US$1245/mt respectively for 1,000 mt CIF ARA barges, while buyers were seen $10/mt below the offers for both months. Benzene has been able to withstand sharp falls in crude and naphtha as buying has been increased from non-ARA regions such as the Mediterranean while many traders have also stepped into the market to cover short positions taken earlier in the year. Sources at Platts also say that physical benzene inventories were shortened during March and April when strong gasoline prices compared to weak benzene levels saw more pyrolisis gasoline (pygas) move to the gasoline pool rather than the benzene extraction pool, thus reducing feedstock availability. Strong market conditions are likely to continue, especially with major derivative units returning from turnaround in May. Demand is good from all the derivatives; cyclohexane, cumene and styrene. The supply situation also looked unlikely to lengthen, with a number of factors likely to keep benzene production balanced. Steam cracker rates in Europe are expected to drop in May, with lengthening polyolefins supply putting pressure on cracker margins. According to cracker operators, rates are expected to fall to around 85% from 90-95% during April. In addition, cheap propane compared to naphtha suggests that crackers will maximize cracking of lighter feedstocks in May. LPG's such as propane yield less pygas than naphtha via crackers. With toluene contract prices between US$1220-1230/mt in Europe, there also seems little prospect of production via hydrodealkylation (HDA), where toluene can be used to produce benzene.