Aromatics supplies set to lengthen in Europe during 2021

19:52 PM | January 8, 2021 | Fahima Mathe, OPIS

Aromatics had a turbulent year in 2020 as benzene and downstream market activity slowed due to the severe impact on demand from COVID-19, so much so that at one point, the spot benzene price found itself in negative territory, a situation last seen in November 2011.

European benzene demand is currently estimated at 7 million metric tons/year, according to IHS Markit data. Styrene accounts for around 50% of benzene demand in Western Europe. Benzene is used mainly in the manufacturing process for styrene, cumene, cyclohexane, and nitrobenzene, found in downstream sectors such as construction, automotive, and electronics.

When estimating the profitability of benzene, historically the market looks at the spread between benzene and its feedstock naphtha, which can provide a gauge for benzene production. A profitable spread is typically estimated around $200/metric ton on average, according to market sources.

Benzene-naphtha spreads tightened at the end of March, narrowing to $29.75/metric ton on 24 March, according to OPIS pricing data. The spread improved gradually from April but found itself in negative territory in early October, reaching minus $2/metric ton on 5 October, as feedstock naphtha values continued to increase amid robust petrochemicals demand since September. The last time the benzene/naphtha spread turned negative was more than nine years ago in November 2011, at minus $1/metric ton.

However, spot European benzene prices unexpectedly hit a fresh eight-month high in mid-November, pulled up by strong downstream styrene values in Asia. Rising demand and limited styrene availability caused Asian styrene prices to shoot up and this increased benzene demand, as a feedstock for styrene, and widened the naphtha/benzene spread.

Benzene prices remained strong going into the end of last year. The spot CIF benzene import price in the Antwerp-Rotterdam-Amsterdam region stood at $780/metric ton on 4 December, the highest since 29 January 2020, when the benzene price stood at $802.50/metric ton, OPIS data showed.

Tight supplies of benzene feedstock, including pyrolysis gasoline (pygas) from steam crackers and reformate from refineries, have also contributed to the upward trajectory in price as the yearend approached. In Europe, benzene production from refineries was curbed by the onset of the COVID-19 pandemic, amid persistently weak gasoline/naphtha spreads that led to reduced reformer run rates last year. Pygas supplies from crackers have fallen following production issues at several plants in October and November.

Still, looking into 2021, it is difficult to see how current levels will be sustained beyond January, according to Simon Cleghorn, director consultant/aromatics, EMEA at IHS Markit. "Despite the post-COVID-19 economic recovery resulting in higher demand, IHS Markit sees a long benzene market in 2021 due mainly to additional benzene capacity coming onstream in Asia, and stronger reformer margins leading to increased supply from refineries," Cleghorn said.

Styrene production levels in Western Europe first fell to the lowest since 2014, because of the COVID-19 pandemic and associated industry-wide lockdowns. But an influx of styrene into global markets began as new capacity in China came online and the country changed import requirements. This resulted in poor styrene margins and operating rates in the first half of 2020, although margins will likely end up positive on average after a third-quarter recovery, said Tobias Spyra, director/styrenics, EMEA at IHS Markit.

The impact of new Chinese capacity and change of import regulations on the global styrene and feedstock benzene markets in 2021 remains to be seen. Although it is clear China will become more self-sufficient with new capacity expansions, the country is expected to continue importing large quantities of styrene and benzene.

"As the global economy improves with a vaccine this year, styrene derivative growth will also be strong, although from a very low level in 2020. Mid-term, sustainability and recycling trends are expected to reduce the requirement of virgin-manufactured styrene," said Spyra. "The industry is in a transitional phase and moving into a bottom-of-cycle time as mainland China is adding much more capacity year by year."

OPIS is an IHS Markit company.

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