Viewpoint: US benzene poised to fall in 2018

US benzene rose 38pc since the start of fourth quarter 2017, trading as high as 362.5¢/USG on 13 November, on tight domestic supplies spurred by strong operating rates at styrene units.

But benzene remains steeply backwardated into the first quarter of 2018 as open arbitrages draw in imports from both Europe and Asia. Turnarounds by styrene producers, which account for about 50pc of global benzene, in the first quarter are likely to pressure benzene lower.

In the US, flooding-related shutdowns following Hurricane Harvey, which made landfall on the US Gulf coast 25 August, pushed benzene higher as styrene producers whittled away existing inventories. Even after many benzene producers resumed production, inventories at the end of the third quarter remained down 15pc at 108mn USG compared with the previous quarter, according to data from the American Fuel and Petrochemical Manufacturers' Association.

At the same time, benzene's forward curve, which had been nearly flat, fell into a steep backwardation. In September buyers bid up the market in an effort to cover shortfalls, and the spread between the front and forward month widened to more than 20¢/USG.

The higher US prices seen in September opened the arbitrage from Europe, and an estimated 100,000t of benzene was fixed from Europe to the US in October and November. Simultaneously, spot fixed cargoes from South Korea doubled in November to 52,000t and nearly doubled again for December loading to about 90,000t. On 28 November, the arbitrage from Europe to the US closed on paper, but remained open on paper from South Korea further along the forward curve.

January benzene narrowed from an 18¢/USG backwardation compared with December at the beginning of the month to an 11¢/USG on 22 December. February discussions at an 8¢/USG discount to December to begin the month narrowed to a 6¢/USG on 22 December. Lower prices anticipate the arrival of fixed cargoes from Europe and Asia in the coming months, as well as weaker demand from styrene producers given heavy turnaround schedules in the US, Europe and Asia in first quarter 2018.

Higher operating rates for MSTDP and TDP units are also expected to contribute to benzene supply so long as margins remain wide. The benzene-to-toluene spread reached over 100¢/USG in November and dipped as low as 59¢/USG on 22 December. Reformers are expected to continue running hard and supply benzene as a co-product while making up for lost gasoline production on the US Gulf coast during Hurricane Harvey. A major producer heard currently offline but expected to resume production in mid-December could contribute to more first quarter supply. Typically pygas imports resume from Europe to the US during the first half of the year, which could prompt benzene extraction from pygas to run hard again in 2018 as in 2017.