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Spot benzene defying expectations from start of year

By John Calton and Jeremy Rakes

April 9, 2013 - The benzene market has yet to live up to expectations heard late in 2012 and into the beginning of this year after being assessed on March 28 at $4.23/gal ($1,264.77/mt) FOB US Gulf Coast due to lower European levels and weaker demand from downstream markets.

This is the lowest benzene spot level since September 5, when it was assessed at the same level, according to Platts data.

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Many participants expected benzene prices to rise throughout the year, with prices expected to reach as high as $6.00/gal FOB USG, based on strong demand against limited market supply. In the fourth quarter of 2012, spot benzene prices started at $4.18/gal FOB USG and peaked at a record high of $5.36/gal FOB USG in October, according to Platts data. See related chart of Benzene W2 FOB Korea, CIF ARA M1, DDP USGC.

Spot benzene prices remained around or above $5/gal FOB USG for most of November and December and started 2013 assessed at $5.16/gal FOB USG on January 2, according to Platts data. Sources said the expectation was for $4.50-$5/gal FOB USG to be the new normal in the benzene market.

However, the market has done the opposite of market expectations.

Currently, benzene supply is long against demand characterized by market participants as slow to steady.

Weaker demand stemmed from downstream styrene producers having ongoing turnarounds that started in February as this has also been attributed to the reason for excess supply.

According to sources, styrene producers put their benzene back into the market during the beginning of these turnarounds in February, which increased market supply.

Demand was also impacted as styrene producers, who are normally consumers of benzene, no longer needed product.

Most participants maintain a bullish outlook on benzene, but are trying to figure out when prices will rise again.

European benzene levels have also been on a downward trend with several styrene turnarounds happening in Europe.

Europe was assessed at $1,230/mt CIF Amsterdam-Rotterdam-Antwerp on March 28 and has fallen nearly $300/mt since the beginning of the year, according to Platts data. This has also been pressuring US prices lower to avoid an open Europe-US arbitration window that could flood the US market with product.

US styrene demand was steady to strong to begin the year as arbitrage windows to both Europe and Asia were open ahead of the global turnarounds.

The arbitrage window to Asia closed in January, and the European arbitrage window closed in February, and with it, demand for styrene declined.

Styrene supply was described as tight for the first two months of the year, but due to the weakened demand, several sources said supply was loosening some.

US spot styrene prices have fallen with demand after reaching a peak of 78.30 cents/lb ($1,726.20/mt) FOB USG on February 19. It has fallen to an assessment at 71.70cents/lb FOB USG on March 28.

Helping the dropping styrene price is the arbitrage window to Europe, which opened briefly in mid-March only to close.

Sources said European styrene tanks were full, adding European buyers did not want to purchase US styrene for April delivery and risk the market being flooded with product.

Styrene producers said supply is still tight in the market, and as polystyrene demand improves ahead of the summer season, benzene demand could increase as well.

Next page: Benzene W2 FOB Korea, CIF ARA M1, DDP USGC

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