US benzene supply expected to be limited in Q3 on imports, domestic production

New York — US benzene supplies are poised to tighten in July and August as imports wane amid continued supply curtailments, sources told S&P Global Platts this week.

A reduction in domestic production coupled with lower benzene exports out of Asia could lead to supply side tightness during the second half of July and early August, sources said. They cited ample inventory levels and builds that saw support from diminished demand from the downstream styrene monomer segment as well as from some lower prices benzene seen during the initial stages of the coronavirus pandemic.

US benzene stocks finished the first quarter stronger, according to AFPM statistics, which showed an quarter on quarter inventory build of 7%. In addition, two 30,000 mt vessels arriving in late May/early June were expected to keep inventories stronger in the near term. Still looking forward, a sharp drop in Korean benzene exports to the US in May could lead to tighter supply in July and August, sources have said. Korean benzene exports for the first 20 days of May were at just 23,558 mt, according to Korean customs data. To add context, Korean benzene exports to the US for the three months prior ranged from 75,613 mt to just over 115,000 mt. Sources added that the lower exports to the US could result in an inventory draw.

Sources pointed to lower domestic benzene output as further justification for a prognosis of supply tightness in the third quarter, with less production from reformers tied to decreased refinery utilization rates.

Refiners began to cut rates amid a build in gasoline inventories and refinery utilization rates fell to as low as 67.6% in April. Considering benzene from reformate production capacity of roughly 5.5 million mt/year, a 10% decrease in reformer run rates equates to roughly 45,000 mt of benzene taken out of the market each money. Further output from toluene conversion units has been curtailed amid poor margins as toluene prices have held a premium to benzene and paraxylene values have been softer. With total benzene capacity from STDP units estimated at just over 1.3 million mt/year, a 10% reduction in operating rates equates to roughly 10,800 mt of benzene taken out of the market per month. During April and May, participants suggested that STDP units were running at 50%-60%.

Some price support will come via an uptick in demand from products like cumene, sources have said. Additionally stronger styrene margins seen during the latter half of May could motivate producers to increase run rates. Styrene values traded at premiums as high as $170/mt above benzene in late May, a marked improvement from March levels of $50-$60 above benzene.

Market participants have also noted that benzene is undervalued in relation to crude. The spot benzene-crude ratio was seen as soft and S&P Global Platts data showed the ratio as low as 1.12 in late May. By contrast, the ratio spent most of the first quarter above the 2.0 mark.

All of these factors were poised to contribute to a tighter US benzene market in the third quarter as well as higher prices. However a variety of factors were working against benzene including continued uncertainty surrounding the coronavirus pandemic as well as the associated economic impact. One participant noted that upward price momentum could be hampered by a recessionary impact on derivative demand. Additionally, new benzene capacities in Asia were expected to negatively impact both demand and pricing.