A combination of demand for derivative styrene and continued tight prompt availability of benzene in Europe is supporting a strong backwardation between September and October delivered material, market sources said Friday.
Demand for prompt September arrival barges returned on Thursday, with material trading at $1,315/mt CIF ARA, while Any September traded as high as $1,290/mt CIF ARA.
No deals were reported for October delivery but sources pegged the market at $1,255-1,270/mt, implying an overall $50/mt backwardation between September and October.
Ahead of the settlement of the September monthly contract later Friday, sources said replenishment of some derivative stocks was lending support to the market, in addition to reduced cracker rates, which have been around 70-80% in the past two months, they said.
"The prompt is very tight and there is no material available. People need to cover as stock levels are low. Styrene demand is clearly up, and I feel there is plenty of buy interest," an industry source said Thursday.
In the styrene market, September loading SM was commanding a premium of almost $100/mt above October deliveries.
September styrene was assessed at $1,658.50/mt FOB ARA. With benzene assessed at $1.285/mt, the benzene-styrene spreads -- a standard industry measure of profitability -- stood at $373.50/mt.
In addition to tight benzene supply and lower cracker rates, sources pointed to the impact further down the chain.
"Styrene is tight and polystyrene is picking up. [The styrene strength] should create sufficient demand in September and October, and this should strengthen benzene," a trader said.
A polystyrene producer said earlier this week that demand had been boosted by pre-buying, which had been much better than expected since the end of July and, in turn, improved demand had carried through into August.
As a result, the producer said it had been seeking an additional Eur50/mt increase in regular August monthly contractual business. "The forecast for September is not too bad. The pipeline in the stock value chain was squeezed in the first two quarters, so it is time to fill it a little," the producer said.
