<article><p class="lead">A recent rebound in the benzene (BZ)-to-crude ratio signals that the US Gulf coast BZ market is not only increasing in value but also has begun to squeeze out production of derivative SM.</p><p>The BZ-to-crude ratio started September at 1.73 when BZ was valued at 360¢/USG and rose to an intramonth high at 1.96 on 14 September when BZ reached 420¢/USG, according to <i>Argus</i> data. The ratio fell slightly to 1.87 on 20 September when BZ was assessed at 401.5¢/USG.</p><p>The BZ-to-crude ratio, which historically averages 2, is a metric for valuing derivative US Gulf coast BZ relative to upstream feedstock WTI crude futures to gauge the supply and demand balance of the BZ market. In a balanced US benzene market, spot benzene generally averages twice the value of front-month WTI crude price – demonstrating the average margin value add for the derivative petrochemical<b>.</b></p><p>During the pandemic, the BZ-to-crude ratio dipped significantly as derivative demand for BZ weakened on reduced downstream auto, construction and durable goods sectors. However, the ratio rose steadily post pandemic, and the 2022 annual ratio average rose to 1.72, followed by a year-to-date 2023 ratio average at 1.9 – nearing the historical industry average.</p><p>An inverse relationship exists between the BZ-to-crude ratio and the premium of feedstock spot BZ over derivative styrene monomer (SM). When the BZ-to-crude ratio increases, SM's premium over BZ falls. This phenomenon has been particularly pronounced in 2022 and 2023 as feedstock BZ costs rose in response to strong blending demand for derivatives ethylbenzene (EB) and cumene as octane boosters for the summer gasoline blending pool.</p><p>This has reinforced the seasonal demand dynamic in which blending demand increases, the BZ-to-crude ratio rises and the SM-BZ spread narrows. When the summer blending season concludes, that trend reverses and BZ become reliant on chemical demand, of which 50pc is comprised of SM demand. </p><p>When BZ costs overcome derivative SM for a sustained period, as is happening in September, SM operators often reduce SM operating rates and run upstream EB units harder due to stronger margins for the latter commodity in gasoline blending.</p><p>When the BZ-to-crude ratio peaked this month at 1.96, spot BZ held a $92.14/t premium over derivative SM. By contrast, when the BZ-to-crude ratio hit an intramonth low at 1.7, SM held a $120.34/t premium over feedstock BZ.</p><p>EB is an intermediary petrochemical, combining ethylene and benzene. When fed into an SM plant, EB undergoes an endothermic reaction with heat provided by natural gas to produce SM.</p><p>Following the switch to winter gasoline blends this month and stronger sub-octane paraffinic naphtha prices, BZ-derived, high-octane blendstocks may see reduced blending demand in the fourth quarter. BZ should then respond more readily to chemical demand such as SM, although that market is experiencing soft domestic and export demand. For this reason, many buyers and sellers anticipate weaker BZ spot prices moving further into the fourth quarter.</p><p class="bylines">By Nicole Johnson</p><p><div class="picture"><div><span class="pic_title">US BZ to WTI crude ratio vs US SM-US BZ spread</span> <span class="units"></span></div><img src="https://argus-public-assets-us.s3.amazonaws.com/2023/09/21/20230921usbztowticruderatiovsussmusbzspread21092023081226.jpg"></div></article>
