Trading dynamics in the Asia-Pacific benzene market are likely to be driven by continued growth in Chinese demand in 2017, drawing supplies away from the US.
Another 1.23mn t/yr of new styrene monomer (SM), phenol and caprolactam capacity is scheduled to come on stream in China in 2017. The planned start-ups translate to around 1mn t of incremental benzene demand. And there are minimal expansions of benzene production capacity due next year, leaving China even more dependent on imports.
Chinese imports are likely to hit around 1.8mn-2mn t in 2017, a key east China-based trader and importer forecasts.
Imports "should be much higher than this year due to better downstream demand," an official at a major Japanese trading firm says.
Chinese benzene imports are on course to rise by nearly 20pc in 2016 compared with record volumes a year earlier. Imports doubled in 2015. Estimates put Chinese imports in 2016 at 1.4mn-1.5mn t. This means the top end of the 2017 import prediction of 2mn t — if achieved — would represent growth of at least 33pc compared with 2016.
But benzene supply from China's coal-based units in particular is expected to remain limited, increasing the stress on import demand. Coal-based benzene supply makes up nearly 18pc of China's total 12mn t/yr capacity.
Restrictions on the use of coal imposed by the Chinese government this year have resulted in a drop in production from these units. The output curbs may continue into 2017, limiting production further.
Regional sellers are focusing on China rather than the US market in 2017, resulting in a major shift in trade dynamics. The arbitrage window from Asia to the US has been closed on paper in 2016, with the average inter-regional price spread at $20/t through mid-December. Freight rates to ship 6,000t of benzene from South Korea to the US have been at around the $40/t level.
But the average fob south Korea-cfr China spread has been at around $19/t in 2016, on par with freight rates of $18-20/t for loading 3,000t of benzene.
The US has historically been the largest global importer of benzene. But the surge in Chinese demand since 2015 could see China take over this leading position in the coming years.
