Pressured by weak crude and periods of oversupply, US spot benzene prices are on track to average under $2.38/gal in 2015, their lowest level in six years.
Benzene assessments closed Friday at $2.03/gal ($606.97/mt) on an FOB USG basis and $2.02/gal on a DDP basis, hovering at six-week lows on weak demand and bearish sentiment amid expectations for incoming supply from Asia to flood the US market, sources said. And while those levels indicate a modest 6% year-on-year drop -- spot benzene opened 2015 at $2.16/gal FOB USG and $2.15/gal for DDP USG -- they don't tell the whole story.
"The 2015 benzene market danced around like Drake in the 'Hotline Bling' video," a trader source said.
"The last time the US saw prices that we've seen this year, it was because of a weak US economy, but this decline has been different given the strength of the US stock market and [the US market has] chartered in unfamiliar territory this year," another source said.
The year began with a glut of benzene in Asia and falling crude prices exerting downward pressure on spot pricing in the US, a net-short market that depends on imports, particularly from South Korea.
As a result, US benzene pricing fell to $1.91/gal FOB US Gulf Coast on January 13, a level not seen since May 2009, according to Platts data, to start its roller-coaster ride.
Throughout the year, demand for styrene, a key benzene derivative, as well as movements in crude prices proved to be key drivers of benzene pricing. Also affecting market pricing was a frequently closed arbitrage window with Asia, which contributed to a bullish sentiment that US supply would tighten and cause pricing to move higher. The lack of arbitrage resulted in a fall in imports from Asia, which sources said was a good recipe for tighter supply.
Several times during the first half of the year, spot pricing trended higher as a result of stronger derivative styrene demand, sources said. Eventually, a combination of styrene demand, upward movement in crude pricing and low benzene imports from Asia led US benzene prices to peak at $3.02/gal FOB USG on July 21, Platts data showed.
The market moved lower after that as opportunities for the US to export styrene to Asia and Europe either diminished or weren't as attractive, sources said. The US is a net exporter of styrene, and demand weakens when there's no arbitrage for the US to export product, sources said. With that demand weakening, a little more than a month later, the US benzene market saw the lowest price it would see in 2015 at $1.88/gal FOB USG, a level not seen since April 30, 2009, Platts data showed.
Since then, US spot benzene prices have averaged $2.15/gal FOB USG as of December 17, Platts data showed. US benzene supply is currently limited amid lower imports from Asia in October and November, sources said. There was only 50,000-70,000 tons shipped in October and a little more than 75,000 tons shipped in November, and inventories in December have tightened as a result, sources added. Benzene prices have sustained against even lower crude prices than the beginning of 2015.
The industry-accepted benzene-to-crude ratio was 2 during the atypical fundamentals seen in 2015. In the fourth quarter of 2015, 2.20 wasn't out of the norm, though Friday's ratio at 2.45, based on WTI crude pricing at $34.95/b and US benzene pricing at $2.04/gal, has some participants thinking US prices are overvalued. US WTI crude has averaged around $49.21/b thus far in 2015.
"Based on crude in the mid-$30s/b, US benzene prices would make more sense around $1.85/gal," a source said in response to the higher benzene-to-crude ratio.
After 2015 started with clear factors of oversupply and steep declines in crude as reasons for US spot benzene prices falling to 5 1/2-year lows, it's ending cloudy, with a chance of limited supply pushing prices higher or weak demand and a bearish crude market pushing prices lower into the start of 2016, sources said.
Market views of price direction are mixed for both the short and long term. In the short term, some sources said benzene prices could rise during the second half of December and the beginning of January amid participants having to cover short positions because of limited supply. Others believe factors of a higher benzene-to-crude ratio with crude prices in the mid-$30s/b and weaker sentiment because of anticipated shipment arrivals from Asia in January will push US benzene prices lower. Asian shipments have been fixed to the US for January and February arrival amid an open arbitrage in November and the beginning of December, which has participants believing the US might see another period of oversupply and weak demand, as it did at the beginning of 2015, sources said.
In the long term, some market participants expect the US benzene market in 2016 to average higher prices because of new online derivative capacities in Asia limiting the benzene flow to the US. Others believe a slower-growing China economy coupled with a bearish US crude market means 2016 US benzene prices will average lower than the 2015 average.
