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| European benzene, styrene margins diverge amid weak styrene demand |
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| News Source：http://www.jinchemical.com/
; SendDate：2011-8-12 14:23:00 |
Profit margins in the Northwest European benzene and styrene production chain have diverged sharply, with strong demand for benzene not matched in the styrene market where economic weakness is denting demand.
The naphtha-benzene spread widened to $406.50/mt this week, its widest level since February 25, while the benzene-styrene spread has shrunk to $180/mt its lowest level since March 4.
This divergence in upstream and downstream margins in the production chain has happened as strong prompt demand for benzene supports prices, with backwardation in the benzene market steepening as a result.
Styrene, on the other hand, has been impacted by weak demand for consumer products, including plastics and packaging, since the second quarter, and demand has remained weak in August despite the imminent start of turnaround season.
A raft of styrene units in Europe are scheduled to start maintenance from the end of August, which is expected to see the market tighten in September.
On Wednesday, August-delivery NWE benzene barges climbed $28.75/mt to more than $1,300/mt, while styrene prices climbed by a more modest $5.25/mt, with a 1,000 mt September parcel sold by Summit to Styron at $1,475/mt.
Market sources said benzene was being boosted by traders covering short positions as well as more fundamental factors, including the rally in crude oil prices this week.
"The [benzene] market is like a compressed spring. It compressed lower once the pressure of crude was there but once it was released (after crude rebounded) it bounced higher than before. If [ICE Brent] crude were to go to $110/barrel we would see another $20-40/mt," said one industry source.
"There is less product arriving due to the closed arbitrage and no imports. The Mediterranean is taking more product and [Amsterdam-Rotterdam-Antwerp] has dried up more than expected. Will producers be able to release material quicker?" said another source.
The backwardation in the benzene market narrowed on Thursday, and some sources said unconfirmed reports of production issues with some naphtha crackers in Europe were subsiding, and that as a result, the urgency for prompt benzene might be passing.
Both individual benzene and styrene margins are general industry calculations using naphtha and benzene as the respective feedstocks to make the two products.
A more precise calculation for benzene production margins would take into account pyrolysis gasoline from which it is typically extracted, while ethylene is the other cost of production to be taken into account when producing ethyl-benzene styrene.
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