Spread widening between benzene, styrene

HOUSTON (ICIS)–The spread between US benzene and US styrene has widened in recent weeks as benzene prices track weak crude oil while derivative styrene prices climb in a tight market.

US benzene prices in late 2015 had been supported by strong demand and fewer imports during the fourth quarter. October marked a low point in monthly import levels for 2015 and December was below the average monthly level, according to data from the US International Trade Commission (ITC).

Amid the tight market, inventory levels in the US declined during Q4 despite higher production during that quarter, according to an American Fuels and Petrochemical Manufacturers (AFPM) survey.

The tight market had insulated benzene values from the effect of falling crude oil prices, which had moved generally downward in Q4.

However, support from the tight market faded in early 2016 as benzene values hit a multi-year low in mid-January. Import levels had recovered, with twice the volume scheduled to arrive during the first half of January than during all of December. Ample cargoes again were heard shipping to the US Gulf in January and early February from South Korea, a major source of US benzene imports.

With the increased benzene import levels in January and February, the US market has been more focused on downward pressure from upstream crude oil declines and volatility.

Weakening upstream prices generally keep buyers on the sidelines as they anticipate lower prices to come. Additionally, the sharp jumps and drops in crude oil futures have had a chilling effect on the benzene market.

One US benzene trader noted it held half the positions in January that it had a year ago and said some market participants are simply not buying right now due to a lack of direction in the market.

Consumption continues to support values, with market sources saying in January and February that demand for benzene in all derivative sectors is good. Although a turnaround this month in downstream styrene has put additional downward pressure on benzene values.

Benzene also is used to make cumene for the phenol/acetone chain, aniline for the polyurethane chain and cyclohexane for the nylon chain. However, the majority of US benzene is consumed in the styrene sector, which is the main downstream driver of benzene prices.

In the styrene market, prices have been rising in recent weeks amid a current turnaround, strong export demand and a still-tight market from 2015.

US styrene supply tightened in early 2015 as multiple outages limited production. Currently, an Americas Styrenics plant is undergoing a planned turnaround of about half of its 950,000 tonne/year capacity, which is just under 10% of US capacity. The turnaround is expected to be complete within the next two weeks.

The 2015 US styrene outages, both planned and unplanned, happened amid multiple outages in Asia and Europe during the first half of that year. The US is a net exporter of styrene, and the global tightness caused by the regional outages resulted in strong demand for US exports and a sharp uptick in US styrene prices.

While US producers returned to full capacity for the second half of 2015, strong US export demand, especially for shipments to China, kept the US market relatively tight into the start of 2016.

The majority of US styrene exports in 2015 were shipped to Mexico at 579,671 tonnes for the year. However, shipments to China were a close second at 424,455 tonnes, up more than five times from volumes shipped in 2014, according to data from the ITC.

While export demand to China weakened in early February ahead of the Lunar New Year in Asia, strong demand after the holiday has driven interest in US styrene exports. About 10,000 tonnes of styrene was heard fixed last week from the US Gulf to China/South Korea for February and March loadings.

While most of the styrene being shipped out of the US is contract volumes, the spot market is tight with limited sellers heard for March and April material and downstream polymer demand expected to begin increasing next month.

One producer said it had no spot styrene volumes to offer until July.

With the tight market and expected demand increase, styrene prices are likely to continue rising even if feedstock benzene prices fall or remain flat.

US spot benzene was assessed on Tuesday at $1.75-1.76/gal (24 cents/lb), down from $1.76-1.79/gal FOB (free on board) at the close of last week. Spot styrene was assessed on Tuesday at 42.60-43.10 cents/lb, up from 41.65-41.90 cents/lb at the close of last week.

The spread between the two products is currently about 18 cents/lb, up from about 17.5 cents/lb at the close of last week and up from about 10 cents/lb in early January.

Focus article by Jessie Waldheim