OUTLOOK ’19: China benzene rebound to be capped by uncertainties

SINGAPORE (ICIS)–China’s benzene prices are expected to rebound this year as demand will outpace output growth, but gains will be likely capped by uncertainties in the upstream crude market amid weakening macroeconomic fundamentals.

Demand in the first quarter will be boosted as downstream styrene monomer (SM) plants are expected to restart in January, which will boost benzene consumption by at least 5,000 tonnes per month.

Container port in Qingdao, Shandong Province, east China (Photo by Yu Fangping/Pacific Press Via Zuma Wire/REX/Shutterstock)

Imports are expected to remain strong during the period, thus keep inventories at Chinese ports high and cap gains in benzene prices throughout the year even with the projected strength in demand in the second quarter.

Benzene and derivatives prices have slumped in fourth quarter of 2018, largely tracking movements in upstream crude markets amid uncertainties generated by the US-China trade war.

Consequently, the price gap between benzene and feedstock naphtha in Asia had stayed below the breakeven level of $150/tonne for a long time.

For the whole of 2019, demand growth is expected to outpace the projected increase in output even though capacity expansion is predicted to peak this year at 15.1%, according to ICIS data.

Consumption is expected to log an 8.5% increase to 15.7m tonnes, against the forecast 7.4% rise in output to 13.2m tonnes.

China’s benzene capacity, on the other hand, is projected to expand by 2.67m tonnes to 20.4m tonnes, but this will not necessarily translate to an immediate increase in available supply, the data showed.

Demand for benzene is due to strengthen amid capacity expansions in the downstream SM, phenol, acetone and caprolactam (CPL) sectors.

SM, which accounts for 38% of total benzene consumption in China, will have an additional capacity of 1.43m tonnes this year.

Based on the projected consumption and output, the country will need to import 2,425 tonnes of benzene in 2019.

In the first 11 months of 2018, China’s imports of the material stood at 2.24m tonnes, down 3.8% from the previous corresponding period, according to official data.

Meanwhile, southeast Asia and Saudi Arabia are expected to add a combined 1.59m tonnes/year of new benzene capacity this year, with no corresponding substantial downstream expansion, based on ICIS data.

Kumho Mitsui Chemicals Inc’s (KMCI) planned expansion at a downstream methyl di-p-phenylene isocyanate (MDI) plant in Yeosu, South Korea, is not expected to come on stream until late 2019. The plant’s capacity will be increased by 60,000 tonnes via a debottlenecking process to 410,000 tonnes/year by 2020.

This meant that the Asian benzene market will remain oversupplied this year.

Global supply-demand balance in 2019

China is the world’s largest consumer of benzene, with a 30% share of the global market.

But the world’s second biggest economy has been showing signs of slowing down since the fourth quarter and this would weigh down on the general sentiment in the benzene market.

Focus article by Ran Cheng

(recasts paragraph 14 for clarity)

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