29 May 2012 11:34 [Source: ICIS news]
By Truong Mellor
LONDON (ICIS)--Strong market fundamentals and a weak euro against the dollar is expected to push the European June benzene contract up, sources said on Tuesday, despite softening derivative demand and the wider political and economic instability across the region.
May saw European benzene numbers holding firm against plummeting crude and energy futures early in the month, as curtailed availability on the back of reduced production since February kept the market from falling.
Owing to softer benzene prices in the first quarter, a significant portion of feedstock pyrolysis gasoline (pygas) was also diverted from benzene to the gasoline sector, helping to keep the market balanced.
While the continued bearishness upstream did eventually pull the market down, this downtrend saw a quick reversal as crude futures appeared to stabilise last week.
Additionally, talk of several production problems with at least two aromatics units, on top of a balanced-to-tight market drove prompt values up sharply towards the end of May. Deals were done as high as $1,400/tonne as players moved to cover short positions.
A sizeable contango for the first half of June also emerged, with cargo for early delivery next month valued around $40/tonne above any June.
Price ideas for June this week have eased off slightly amid talk of imports coming into Europe from Asia, where benzene hit a four-month low in May. Players are expecting a lot of material to be shipped fromAsia in the coming weeks.
“I think there’s going to be an avalanche [of imports] if you look at the arb [arbitrage window],” said one trader.
Additionally, there is a sense in the market that it has been somewhat overheated in May.
“Both benzene and styrene are overpriced for June,” said one source. “Look at all the other chemicals, they are crashing. The butadiene CP [contract price] is down €400/tonne, that’s nearly 20%.”
Nevertheless, an increase is expected for the June contract settlement, which has leftdownstream players nervous. Crude and energy numbers appear to be back on an uptrend, while the weaker euro will push up the price in euro terms.
The May benzene contract was agreed at US dollar concept of $1,254/tonne FOB (free on board) NWE (northwest Europe) and converted to the euro price of €948/tonne at the agreed exchange rate of €1:$1.3228.
June spot activity was subdued so far this week, owing to a public holiday on Monday 28 May across most of Europe. The range for June was valued at $1,255-1,285/tonne while July was backwardated with offers at $1,190/tonne.
One broker said that there were wide ranges in the market this week, an indication that divergent views on market direction had taken hold ahead of June.
Downstream, styrene prices have been softening this month amid slower than expected demand although this bearishness was underpinned by strong benzene numbers. The arrival of imports from the US is expected to keep prices down.
With the bullishness upstream expected to carry over into June, several sources expect that styrene producers will have to cut back on operating rates due to the economics of the market.
Despite the downtrend, many players remain uncertain where the June barge contract will settle.
One styrene trader said that the weak euro could mean it rolls over from May, adding that with ethylenedown by €120/tonne while benzene is expected to firm only slightly in dollar terms, the shift in the exchange rate would make the difference.