After an uncharacteristically tight first half, benzene supply in the US and Europe is expected to return to normalcy in the second half of 2021, easing demand for Asian cargoes.
In the US, limited imports from South Korea and lower-than-typical refinery operating rates suppressed US benzene inventory even before the mid-February winter storm knocked out more than 4.6 million b/d of refining capacity in Texas and Louisiana.
The interruptions to supply in the US, as well as limited Asian material, disrupted flow towards Europe, while a steeply backwardated market, firm Chinese demand and limited vessel availability has limited Asian exports to Europe and the US in first half of 2021.
But as the market backwardation eases around summer and a greater number of cargoes become available globally, European benzene consumers are expecting more product to arrive in Europe and cover the shorts.
The shortage could also be expected to ease as capacities return to production after maintenance works at ExxonMobil Chemical units in Botlek at the Rotterdam area in the Netherlands, generating product for restocking.
US supply should increase around July as South Korean benzene cargoes begin to arrive in greater numbers in the USGC. The volume of benzene that loaded in South Korea bound for US shores over May 1-10 was roughly equal to that which loaded in all of April, according to KITA data, and the US is expected to overtake China in May overall as the biggest importer of South Korean benzene.
Domestic US production is also expected to increase, sources said. COVID-19 vaccinations, the summer driving season and improving air travel demand provide incentives to US refineries to increase rates for gasoline, jet fuel and middle distillates production.
With incredible benzene margins in H1, producers in Asia had been heard running at high rates to maximize profit, leading to a rise in export volumes from Asian countries. Benzene-naphtha spreads in Asia averaged $240/mt between January and April, and briefly touched a high of $475/mt mid-April.
In contrast, at the January-April average of $224/mt for the paraxylene-naphtha spread, producers shifted focus to benzene production and sales. Prices in Europe and the US were higher than in Asia, drawing Asian parcels towards the Americas and through the Suez Canal towards Europe. This helped to ease the tightness in supply there.
With supply returning gradually, the fate of margins in Asia remain uncertain in H2, with the possibility that benzene will retain its strength from H1, sources said.
"The pace of local demand recovery is likely to rapidly accelerate over the next six months in the West," Platts Analytics wrote in an April report. Net refinery utilization rates could reach roughly 95% in mid-summer, they forecast.
But market participants were uncertain whether such additions would be enough to suppress prices amid robust demand from various value chains downstream to benzene with strong post-pandemic recovery in US manufacturing sectors. Nor are styrene producers expected to cut rates to any significant levels, and no US SM unit turnarounds are planned through the remainder of 2021.
Downstream demand to stay healthy
Demand from downstream products such as styrene and phenol is expected to remain healthy. Receding coronavirus cases and progression of vaccination programs offer glimmers of hope for easing lockdowns across Europe, supporting further demand for benzene and its derivatives. A boost in summer driving would also mean that refineries may ramp up production of road fuels, and increase benzene feedstock availability.
Physical demand for styrene was expected to be steady to stronger in the second half of the year, but a reduction in SM imports from the US may put pressure on benzene prices, a source said.
"New capacity for styrene in Asia means there'll be a big pull on benzene," a trader said.
China's downstream capacity additions have seen both delays and start-ups to date in 2021, which has increased demand for benzene particularly in South China where commercial storage is not widely used. At the same time, an excess of benzene supply is expected from integrated refineries in China whose styrene unit startups have been delayed to 2022.
Previously, as cargoes were sold ex-Asia, there was a reduction in available cargoes for Asian buyers and end-users in Asia were disgruntled by the sharp hike in prices, with the FOB Korea benchmark reaching fresh 7-year highs multiple times in April and May.
Bids and offers in CFR Asia markets saw wide bid-offer gaps, with sellers contemplating delivered prices across the world, while CFR Asia buyers are faced with spot offers almost tenfold higher than 2021 term contract benzene prices.
"It's difficult for buyers in Asia to stomach such a huge jump in cost for reasons not pertaining to Asia," one buyer said, adding that prices would eventually have to normalize in H2 across the styrenics chain. Many sources said that the situation in H1 was circumstantial and was unlikely to be the norm going forward.
