Oversupply will continue to plague the European benzene market into 2019, with any sustainable pick up in spot prices only likely when the cracker and refinery maintenance season begins in the second quarter.
Benzene supply length has built up because of severe logistical bottlenecks caused by extremely low water levels on the Rhine river. These should ease by spring, enabling resumed consumption of ethylbenzene/styrene, cumene/phenol and cyclohexane (CX) production, the main segments disrupted in 2018.
The Rhine issues have contributed to spot prices for benzene having languished, with the front month reaching $560/t cif ARA, the lowest since January 2016. But other issues have weighed on the spot price, including the steep fall in upstream crude and naphtha values, unplanned downstream production issues, increased imports, and a lack of arbitrage opportunities.
Crackers and refineries are likely to run hard in the first quarter of 2019 ahead of the spring maintenance season, boosting supply of feedstock pygas and reformate. There will be a heavy cracker shutdown season in the spring, with predominantly naphtha-fed units shutting for six to eight weeks in Antwerp, Belgium, in Moerdijk, the Netherlands and in Boehlen, Germany. Pygas exports to the US have slowed since the second half of 2018, as the US also grappled with surplus benzene availability.
Increased benzene imports, mainly from India, Turkey and the Mideast Gulf, continue to boost supply in Europe, particularly in the Mediterranean region. Net imports into northwest Europe reached 944,100t in the January-September period, up from 843,100t a year earlier. India shipped 305,000t into northwest Europe in that time, exceeding the 182,000t in all of 2017. Shipments from India, mostly from conglomerate Reliance Industries, were running at 40,000-45,000 t/month in the third quarter, more than double the year-earlier levels.
These cargoes are fulfilling a large share of import demand in Spain, the UK and Benelux and have significantly reduced liquidity in the spot market.
The nine-month data took into account exports to the US of 70,000t. Of that, 50,000t moved in August when arbitrage opened as US consumption increased and limited benzene cargoes went to the US from Asia-Pacific.
Strong paraxylene (PX) markets globally, well supported by robust downstream polyester demand, will keep disproportionation units operating at high rates in Europe for most of the first half of 2019. These will slow down in the second half when new PX capacities in China come on stream.
The restart of Indorama's 700,000 t/yr purified terephthalic acid (PTA) plant in Sines, Portugal, last June buoyed European PX consumption. The plant shut in 2014, when previous owner La Seda de Barcelona became insolvent. PX is a key raw input for PTA production. High disproportionation run rates will bring more co-product benzene into an already well-supplied market.
Disproportionation units account for less than 10pc of benzene capacity in Europe each year.
Benzene spot prices are likely to stabilise and then steadily pick up in the second quarter, when cracker and refinery turnarounds begin and Rhine-related logistics issues dissipate. Tempering any upside for spot prices will be scheduled maintenance shutdowns in styrene, which accounts for 45pc of benzene consumption in Europe. Production units in the Netherlands and Belgium are likely to be down for maintenance, starting in the second quarter and running into the third quarter.
All other units are likely to run hard at this time, with the styrene supply shortfall fulfilled by steady shipments from the US.
The automotive market will drive styrene demand. There was a steep fall in the fourth quarter of 2018, after the introduction of tighter emissions testing rules in cars in September. The seasonal upturn in the packaging and construction markets will also underpin demand.
Imports of styrene feedstock ethylbenzene from the US are increasing, reaching almost 50,000t in the second and third quarters combined, from zero in the first quarter and 13,400t in the whole of 2017. The US has been shipping more styrene to Europe, previously intended for China, since the second half of 2017, when the Chinese government introduced antidumping duties on US styrene imports. Further restrictions came into force this year as the US-China trade dispute escalated.
The benzene-naphtha spread should return to around the $200-250/t range during the first half of 2019. Benzene's premium to feedstock naphtha averaged $118/t in the first half of December and $232/t in 2018, down from $374/t in 2017.
