Northwest European benzene is likely to remain strong in the short term thanks to increased downstream demand and restrictions on supply, according to market sources Wednesday.
While NWE benzene prices have dropped around $11.50/mt since the beginning of April, this is compared to a $78.25/mt fall in upstream naphtha. This has seen the naphtha-benzene spread climb to $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 $1,255/mt and $1,245/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.
Alongside this, sources have said 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.
According to many sources, the strong market conditions are likely to continue, especially with major derivative units returning from turnaround in May.
One producer said: "Demand is good from all the derivatives; cyclohexane, cumene and styrene. The current spread reflects that good demand and I don't see many sellers."
An industry source added: "If crude holds up, then I can't see benzene falling. The demand is there and there's not that much around. The market could even go higher."
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.
Finally, with toluene contract prices between $1,220-1,230/mt in Europe, there also seems little prospect of production via hydrodealkylation (HDA), where toluene can be used to produce benzene.
In terms of current supply one trader stopped short of saying the market was short saying that "you can always find benzene if you want it." He added however that availability was "just a matter of price."
The same source continued: "No reason why the strength should disappear. There's less around and demand is better. That won't change as such."
Another trader was less bullish and said he was more cautious about the forward picture, given that the European was still seen as perilous.
"For the short term, benzene can resist the downwards push from energy...the market seems tight and the current levels are justified," the trader said before adding: "But sooner or later reality will kick in and we will be over-supplied again. You have to look at the bigger picture of the economy.
"I wouldn't buy at these prices though, going long at these levels is irresponsible for a trader. For consumers its different and they may have to buy. Peaks of $350/mt above naphtha are generally short lived and sentiment tends to be either overly bearish or overly bullish," the trader added.
