Argus DeWitt Benzene and Derivatives Issue 14-7 | Thursday 20 February 2014 Market snapshot Highlights Global benzene prices Americas ▪▪ ▪▪ Benzene February prices remain flat in in thin trading; March spot prices move higher. Styrene margins are under pressure due to rising feedstocks and low prices in other regions. Europe ▪▪ ▪▪ Benzene pricing has been weaker, but prompt material remains in tight supply. Styrene pricing has been stable and remains higher forward. Asia-Pacific ▪▪Benzene edges lower on weak fundamentals. ▪▪Styrene prices range-bound in a directionless market. Timing $/t Low High Mid ± Americas fob USGC contract Feb 1,523.44 1,523.44 1,523.44 0.00 fob USGC spot prompt* 1,436.64 1,520.44 1,478.54 -22.45 Europe cif NWE contract Feb 1,432.00 1,432.00 1,432.00 0.00 cif ARA spot prompt* 1,375.00 1,410.00 1,392.50 -27.50 cfr South Korea contract Feb 1,344.80 1,350.00 1,347.40 0.00 cfr Taiwan contract Feb 1,350.00 1,360.80 1,355.40 0.00 Asia-Pacific cfr Asean contract Feb 1,350.00 1,356.80 1,353.40 0.00 fob South Korea spot prompt* 1,280.00 1,290.00 1,285.00 -28.00 cfr China prompt* 1,300.00 1,355.00 1,327.50 -17.50 *Prompt refers to current month, but if the publication date is on or after the 15th of a given month, then the spot posting will include current month and next month trades Benzene breakeven price from toluene conversion Process STDP AsiaPacific Western Europe $/t US Gulf coast 932.80 1,058.65 968.25 TDP 1,083.51 1,194.02 1,245.85 HDA 1,386.88 1,400.00 1,448.27 Contents Global prices 2 About Argus DeWitt Americas 3 Europe 4 Asia-Pacific 5 Argus DeWitt is a leading independent source of pricing data and market intelligence for the aromatics, olefins and related petrochemical markets. Purchasers, business analysts, traders, producers and product managers benefit from Argus DeWitt insight every day. $/t Global benzene prices USGC ARA South Korea USGC 1,800 $/t Global styrene prices Rotterdam E China S Korea 2,000 1,900 1,600 1,800 hhh 1,400 1,200 1,600 1,000 28 Feb 13 hhh 1,700 1,500 27 Jun 13 Copyright © 2014 Argus Media Group 24 Oct 13 20 Feb 14 25 Jul 13 3 Oct 13 12 Dec 13 20 Feb 14 Argus DeWitt Benzene and Derivatives Issue 14-7 | Thursday 20 February 2014 Global Prices $/t 1,392.50 ▼ cif ARA spot fob USGC spot 1,478.54 ▼ USGC benzene premium to USGC gasoline fob South Korea spot ¢/USG $/t Global naphtha prices 300 1,000 250 950 200 1,285.00 ▼ 900 hhh 150 hhh 850 100 87M gasoline = 0 800 50 21 Mar 3 Dec 13 Jun 5 Sep 26 Nov ARA benzene premium to NWE naphtha 20 Feb Singapore $/t 600 500 500 hhh 300 Naphtha 65 Para NWE 20 Feb USGC 400 $/t hhh 300 NWE naphtha = 0 Benzene = 0 200 21 Feb 13 24 Jan South Korea styrene premium to benzene 600 400 30 Dec 200 20 Jun 13 Copyright © 2014 Argus Media Group 17 Oct 13 20 Feb 14 21 Mar 13 Page 2 of 9 13 Jun 13 5 Sep 13 26 Nov 13 20 Feb 14 Argus DeWitt Benzene and Derivatives Issue 14-7 | Thursday 20 February 2014 Americas Benzene Americas prices Spot prices remained remarkably firm, despite expectations of improved supply and import volumes and weaker demand. February volumes traded in the 505-508¢/USG range. March trading was much more active, and as this reporting period moved on, any March ddp prices improved as the front of the price curve remained stable. Late last week, March ddp barrels traded as low as 472¢/USG compared to corresponding February barrels at 508¢/USG. The February/ March backwardation exceeded 25¢/USG until Wednesday, and Thursday it dropped to 15¢/USG. Some speculate efforts to support the March monthly contract price led to higher prices for any March barrels, and others suggested delays in import arrivals motivated buyers to cover March positions at the higher price levels. Most agree that inventories remain lean. Scheduled maintenance at several major production sites in February and March also constrained supplies. In its weekly report, the EIA reported Gulf coast (PADD 3) refinery utilization was below 90pc for the fifth consecutive week. That level is high for the season, but below rates attained in the fourth quarter. In the past three to four months, the direction of spot prices has often run counter to market fundamentals, as consumers and traders shorted the market and were forced to cover positions with little product available. Once again, fundamentals clearly indicate a downward price correction will occur in the near term. Refineries will begin to run reformers harder, as gasoline specifications shift to lower vapor pressure blends. With natural gas prices now at a five-year high, the light ends of the reformers’ material balance (hydrogen and LPGs) have considerably higher credits than they did two years ago. In March 2012, when natural gas prices were at a third of current prices, refiners ran reformers at reduced rates, or extremely low severity, to minimize the conversion of naphtha to light ends. This practice yielded less aromatics. This spring, reformers should be run at higher throughputs and higher severity, yielding more aromatics per ton of feedstock. Although domestic ethylene producers continue to maximize use of light feedstocks, pygas imports have supplement extraction units. As the US gasoline specifications shift to spring and summer grades, the non-benzene portion of pygas carries a better value in the US gasoline pool than it does on a naphtha-related basis in other regions. Because of this seasonal phenomenon, pygas imports should continue through the first semester of the year. The benzene-toluene spread should compel operators of conversion units to maximize rates whenever possible. Chinese domestic benzene prices are now well below the fob Korea price. The weakness of the China market and upcoming ▪▪ ▪▪ ▪▪ ▪▪ Copyright © 2014 Argus Media Group Timing Low High Mid ± Benzene ¢/USG fob USGC contract Feb 509.00 509.00 509.00 0.00 fob USGC spot prompt* 480.00 508.00 494.00 -7.50 Styrene ¢/lb fob USGC contract Feb 88.00 91.00 89.50 0.00 fob USGC spot prompt* 74.00 74.00 74.00 -3.00 Feb 71.00 71.00 71.00 0.00 Jan 87.00 90.00 88.50 0.00 Cumene formula ¢/lb fob USGC contract Phenol ¢/lb fob USGC contract Cyclohexane ¢/USG fob USGC contract Feb 461.93 461.93 461.93 0.00 marker with NG escalator Feb 454.03 454.03 454.03 0.00 *Prompt refers to current month, but if the publication date is on or after the 15th of a given month, then the spot posting will include current month and next month trades Benchmark margins ¢/USG Margin ± BTX US reformate extraction vs floor contract 100.35 +6.34 BTX US reformate extraction vs floor spot 106.99 +5.05 BT US reformate extraction vs floor contract 121.66 +6.34 BT US reformate extraction vs floor spot 117.91 +4.47 $/t USGC styrene premium to benzene 500 400 300 hhh 200 100 Benzene = 0 0 8 Aug 10 Oct 12 Dec 13 Feb heavy schedule of styrene maintenance will undoubtedly lead to benzene inventory builds in northeast Asia, and even larger export volumes to the US Gulf coast. Additional volumes could also move in from Europe, India, Brazil and Saudi Arabia. On the demand side, exports of US benzene derivatives remain uncompetitive. A US styrene producer would need to purchase benzene at 440¢/USG just to cover raw material costs for a styrene shipment to China, and would need to purchase benzene near 470¢/USG to justify shipments to Europe. Without relief on raw material costs, producers will be forced to cut rates until exports can be competitive. ▪▪ Page 3 of 9 Argus DeWitt Benzene and Derivatives Issue 14-7 | Thursday 20 February 2014 Americas Styrene One spot deal was reportedly done for 9,000t to South America, but terms of the deal were confidential. Producers offered volumes at 74¢/lb, and even at that level, the margin over raw materials costs is very thin. Traders indicated that purchase prices would need to move below 70¢/lb for US product to move to Asia, and only slightly higher for volumes to move to Europe. With all units in North America now operable, export volumes are critical to maintaining operating rates. If exports to South America and Mexico cannot fill the void, producers will need to cut rates significantly in March. Domestic demand from most segments remains sluggish. Very cold weather has complicated logistics and hurt consumption, particularly from the construction segment of the market. Contrary to the general bearish sentiment, one producer confirmed that the ABS segment has shown strong demand. Europe Benzene Europe prices February material traded down from $1,400/t early in the week to a low of $1,385/t, before picking up on short covering ahead of the end of the month. $1,410/t was confirmed done on Thursday. March pricing is lower, with $1,375/t trading twice on Thursday. First half of March traded at $1,385/t. All plants appear to be now running normally, but stocks are only just beginning to rebuild. Demand in February has been no more than steady, with consumers preferring where possible to postpone orders in the expectation of lower prices. The March contract price will be settled on 28 February and should show a modest reduction from February, but is likely to remain at a high level, at or above $450/t over naphtha. Energy prices have been rising this week. North Sea Dated has risen to above $110/bl from below $109/bl. Naphtha has risen to $925/t from $905/t. The euro has remained firm, above $1.37. Trade statistics show that net imports into western Europe rose by 156,000t to 714,000t in 2013, returning close to the level of 2011. Imports from central Europe rose significantly to 250,000t, while exports, which were principally to the US, more than halved. The EU net import total, which includes the exporting countries of central Europe, was virtually unchanged at 550,000t. Western Europe benzene annual net trade ‘000t United States South America North America North Africa MEAG East Med Africa Central Europe East Europe South Asia East Asia 900 exports ‐ imports 600 300 0 -300 2004 2005 2006 2007 2008 Copyright © 2014 Argus Media Group 2009 2010 2011 2012 2013 - Eurostat Timing $/t €/t Low High Low High Benzene cif NWE contract Feb 1,432.00 1,432.00 1,055.00 1,055.00 cif ARA spot prompt* 1,375.00 1,410.00 1,004.00 1,029.00 Styrene fca Rotterdam contract Feb 1,966.21 1,966.21 1,435.00 1,435.00 fob Rotterdam contract Feb 1,955.25 1,955.25 1,427.00 1,427.00 fca Rotterdam spot prompt* 1,616.81 1,644.22 1,180.00 1,200.00 fob Rotterdam spot prompt* 1,595.00 1,617.00 1,164.00 1,180.00 Feb 2,082.67 2,137.48 1,520.00 1,560.00 Feb 1,659.29 1,659.29 1,211.00 1,211.00 Phenol delivered ARA contract Cyclohexane fob ARA contract *Prompt refers to current month, but if the publication date is on or after the 15th of a given month, then the spot posting will include current month and next month trades Styrene Pricing has stabilized, with February trading at $1,595/t. March has retained a $20/t premium, done at $1,617/t. All plants are running, but there have been some cutbacks on EB/SM units because of narrow margins. Two large producers have been spot sellers, one a POSM operator, the other an integrated EB/SM player. A non-integrated EB/SM producer was seen as a buyer, as were traders, who continue to expect tightening in the forward market as demand picks up seasonally and shutdowns reduce supply in Asia and, to a more limited extent, Europe. Trade statistics show that styrene imports into western Europe rose to 500,000t in 2013, following the closure of the INEOS Marl unit in the fourth quarter of 2012. Imports from the US doubled compared with the previous year, to 400,000t. Imports from the Middle East fell to low levels, in part because of shutdowns, but also because of the redirection of exports from the Mideast Gulf towards Asia-Pacific. Product continued to move into Scandinavia from Russia. Page 4 of 9 Argus DeWitt Benzene and Derivatives Issue 14-7 | Thursday 20 February 2014 Europe ‘000t Western Europe styrene annual net trade United States MEAG East Europe South America East Med South Asia North America Africa East Asia North Africa Central Europe 600 Phenol 400 exports - imports disruption, but the market remains generally well supplied. Consumers have been managing inventories tightly in the expectation of lower prices in March and April. 200 0 -200 -400 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 - Eurostat Cyclohexane Weather and shipping delays have caused some minor NWE styrene premium to benzene $/t 700 500 500 400 400 hhh 300 hhh 300 200 Benzene = 0 Eurobob = 0 100 15 Aug $/t cif ARA benzene premium to Eurobob 600 600 200 February demand has been flat as consumers have reacted to high prices, reflecting benzene values. March is expected to be stronger. INEOS has announced the formation of a joint-venture company with Sinopec YPC for the construction of a phenol/ acetone plant in Nanjing, China. The partners will each own 50pc of the company, which will be called INEOS YPC Phenol (Nanjing). The plant is scheduled for completion at the end of 2016. Cumene for the unit will be provided by the local partner. 100 17 Oct 19 Dec 20 Feb 21 Feb 13 20 Jun 13 17 Oct 13 20 Feb 14 Asia-pacific Benzene Asia-Pacifc prices Crude prices were relatively firm during the week amid encouraging US economic data and continuing Libyan supply disruptions. North Sea Brent crude was at around $108-110/ bl, while Dubai crude was at about $103-105/bl. Singapore 92R gasoline prices were also firmer at around $113-115/bl. Naphtha prices rose, tracking a rebound in crude values, to around $928-934/t cfr Japan during the week. The cracker maintenance season has started in Asia-Pacific, although several of these shutdowns will take place concurrently with their respective refineries shutdowns. Up to 1.5mn t of arbitrage cargoes are expected in Asia in March, with the bulk of them scheduled to arrive in the first half of the month. The Asian benzene market edged lower during the week ended 20 February, influenced largely by last week’s downturn in downstream styrene monomer (SM) prices in the region. Sentiment also turned more bearish this week on the back of a reduction in a key Chinese producer’s listed offers. Supplies Copyright © 2014 Argus Media Group $/t Timing Low High Mid ± Benzene cfr South Korea contract Feb 1,344.80 1,350.00 1,347.40 0.00 cfr Taiwan contract Feb 1,350.00 1,360.80 1,355.40 0.00 cfr Asean contract Feb 1,350.00 1,356.80 1,353.40 0.00 fob Korea spot prompt* 1,280.00 1,290.00 1,285.00 -28.00 cfr China spot prompt* 1,300.00 1,355.00 1,327.50 -17.50 cfr China month avg Jan 1,343.33 1,375.71 1,359.52 na Styrene cfr Taiwan contract Jan 1,673.00 1,673.00 1,673.00 0.00 cfr China spot prompt* 1,590.00 1,610.00 1,600.00 -24.00 fob South Korea spot prompt* 1,575.00 1,585.00 1,580.00 -20.00 *Prompt refers to Mar/Apr for benzene fob Korea and Feb/Mar for styrene and benzene cfr China also remain high, with poor demand from other downstream sectors like phenol. Page 5 of 9 Argus DeWitt Benzene and Derivatives Issue 14-7 | Thursday 20 February 2014 Asia-pacific South Korea benzene premium to Japan naphtha $/t 500 450 400 hhh 350 300 Japan cfr naphtha = 0 250 21 Feb 13 20 Jun 13 24 Oct 13 20 Feb 14 Benzene assessments on a fob South Korea basis for March slipped to $1,295/t by Wednesday this week from $1,310/t at the end of last week. Assessments for April loading edged higher on Wednesday to $1,285/t, up from $1,282.50/t seen last Friday. Sentiment was mostly bearish among market participants, resulting in a slowdown in deals this week. Trading activity was its most active last Friday, with several deals done for April loading at $1,281-1,284/t fob South Korea. Few cargoes for April loading subsequently sold at $1,280/t earlier this week. The intermonth spread for March- and Aprilloading cargoes were at a $10-20/t backwardation this week. The backwardation spread for March and April on 19 February narrowed by $10/t on the back of a hike in April values. An overnight hike in US benzene prices also supported this upwards movement in prices for April-loading cargoes. Benzene oversupply in this region remained a cause for concern, especially as demand from the SM sector that is the largest downstream component in Asia, is nearing a lull period. Demand from the SM sector is expected to dip in the March-April period because of a series of scheduled turnarounds. SM prices hovered close to $1,600/t cfr China this week after taking a sharp dip last week. Benzene production from regional crackers and reformers remained largely stable this week. A key South Korean producer was operating its No.1 reformer at high rates following a small fire at this unit about two weeks ago. Production margins based on naphtha as a feedstock remained positive, backed by a wide $359/t spread between benzene-naphtha prices this week, but it was $22/t lower week-on-week. Asian sellers continued to look for opportunities to ship more cargoes in February to the US given the current stable to weak market fundamentals and the strong US benzene market. It was estimated that South Korea exported around 38,000t of benzene to the US during 1-15 February. It also exported another 12,000t to Taiwan, 6,000t to China and 2,000t to Japan. It was forecast that total exports from Japan and South Korea for the US will reach 60,000-70,000t by the end of Copyright © 2014 Argus Media Group February. The freight rates for 5,000-10,000t of benzene from South Korea to the US Gulf coast was at $58-68/t. An Indonesia-based producer is planning to issue a tender to sell benzene next week, with details disclosed next week. Benzene supplies in southeast Asia are ample at present, which are dampening prices and sentiment. The discount on fob southeast Asia prices from fob South Korea prices was at about $10/t and higher, according to some market participants, but a regional producer denied that the discount has crossed the $10/t mark yet. Styrene Asian styrene prices moved within a narrow band during the week, as markets failed to find direction after a sharp price drop last week. A further inventory buildup in China this week showed continued sluggishness in buying activity and weighed on Asian styrene prices. Buying activity will likely only start picking up in March. But the extent of actual demand growth from the key EPS and PS segments is still in question, dependent on various macroeconomic fundamentals including economic growth in the large export and domestic styrenic markets. There was more clarity about supplies. Asian supplies are expected to fall, with nearly 1.4mn t of styrene capacity either shut or ready to be shut for planned turnarounds during February. Another nearly 3mn t of styrene capacity is due to be shut during March. The economics of standalone styrene producers in Asia have begun to look weak, with ethylene prices continuing to stay high at around $1,450/t cfr China and benzene prices just under $1,300/t fob South Korea. Such standalone units, which comprise around 30-35pc of Chinese Asia Styrene shutdown schedule Company Location KTA Duration Month Shuangliang PC Jiangyin, China 420 30 days GPPC Kaosiung, Taiwan 130 25 days 15 Feb- 11 Mar Asahi Mizushima, Japan 320 60 days 20 Feb- 17 Apr Early Feb-early Mar SP Chemical Taixing, China 320 30 days End Feb-end Mar NSSM Oita,Japan 240 40 days 25 Feb-7 Apr Asahi Mizushima, Japan 390 30 days 7 Mar - 31 Mar Idemitsu Chiba, Japan 210 30 days Mar Tianjin Dagu Tainjin, China 500 30 days Mar LG Chemcials Daesan, Korea 170 20 days 20 Mar - 10 April Samsung Total Daesan, Korea 650 21 days Mid Mar - early Apr NSSM Oita,Japan 190 35 days 14 Mar-19 Apr SECCO Caojing, China 650 42 days Mar-Apr GPPC Kaosiung, Taiwan 200 47 days Mid Apr-early Jun Chiba SM Chiba, Japan 270 30 days May TSMC Kaosiung, Taiwan 160 21 days 2H May-Jun ZRCC Ningbo,China 620 42 days May-Jun Formosa Mailiao, Taiwan 600 40 days Early Sep- mid Oct Page 6 of 9 Argus DeWitt Benzene and Derivatives Issue 14-7 | Thursday 20 February 2014 Asia-pacific styrene production and a lowering of these operating rates, will also curtail styrene supplies. This expected tapering of supplies is one reason most market participants believe that styrene prices may have hit a bottom in Asia and will rebound in March. Chinese styrene inventories at key ports this week rose by another 10,000t to more than 160,000t, staying above typical 70,000-80,000t levels. Inventories are high, although not alarming, given that China imported an average of around 300,000t of styrene on a monthly basis in 2013. Chinese domestic prices during the week moved in a narrow range of 11,000-11,100 yuan/t ex-tank, or an equivalent import parity of $1,525-1,535/t cfr China. They remain depressed and nearly Yn100/t lower than the Yn12,000/t and above seen during January. Some Chinese EPS units have restarted after the lunar new year holiday, but many still remain shut. EPS production is expected to ramp up once the cold weather conditions moderate and construction activity picks up. It is crucial to any recovery in Asian styrene demand, with nearly 6mn t of EPS production capacity in China and a third of styrene demand coming from this segment. Imported cargoes traded mostly in a $1,595-1,610/t cfr China range for March. The market continues to remain in contango with the March-April spread at around $15-17/t. The spread with naphtha was assessed at $646/t, $20/t higher than last week. The spread with benzene rebounded to around $288/t, $33/t higher from last week. Argus DeWitt Petrochemical Review Downtown Aquarium Houston, Texas March 25, 2014 In-depth analysis of the global petrochemical industry. www.argusmedia.com/tx-petrochem Argus DeWitt Benzene and Derivatives is published by the Argus Media Group Registered office Argus House, 175 St John St, London, EC1V 4LW Tel: +44 20 7780 4200 Fax: +44 870 868 4338 email: sales@argusmedia.com ISSN: 2053-6259 Copyright notice Copyright © 2014 Argus Media Group. All rights reserved. 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Rapid changes in the gasoline market and its impact on blendstocks Conference Highlights Current demand and production outlook for MTBE across major Asian markets, with an emphasis on China Upcoming refining capacity and gasoline consumption growth in Asia-Pacific and the Mideast Gulf and its impact on octane requirements New MTBE investments, capacity and production technology options Factors influencing MTBE pricing and forecasts Competition and limitations of alternate blendstocks — reformate mixed aromatics and methanol Confirmed Speakers Sophia Liu Business Development Huntsman Polyurethanes Mark Tinkler Commercial Director Fortrec Roel Salazar Fuels and Octane Consultant Argus DeWitt Ray Hogger Country Manager ED&F Man Clarence Woo Executive Director ACFA and many more.... 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You agree that, unless otherwise expressly stated, we own all intellectual property rights in all event materials and delegate lists. 6. You may not film, photograph or otherwise record all or any part of the event without our prior written consent. 7. You must comply with all applicable laws and any health and safety requirements (including no smoking signs) in respect of the event. Privacy and Marketing 1. Any personal data you disclose to us will be processed in accordance with the Data Protection Act 1998 and our privacy policy. 2. Your personal data may be used by us and carefully selected third parties to inform you about other products and services that may be of interest to you via telephone, post and/or email. If you do not wish to receive such marketing information, please contact us. 3. You agree that we may use your company name in marketing promotions in connection with this event. 4. We may record (by audio and/or visual means) all or part of the event. You agree that we may use and distribute such recordings for the purposes of training, publicity and documentation. General 1. It is your responsibility to arrange appropriate insurance cover for your attendance at the event. 2. You are fully responsible and liable for any loss or damage caused by you to property or individuals at an event. 3. Except in respect of death or personal injury caused by our negligence or for fraud, our total aggregate liability in connection with the event shall be limited to the fee paid by you. 4. You are responsible for safeguarding your own property at the event. We accept no liability in respect of any damage to, or theft or loss of, your property. 5. These Terms and Conditions together with the registration form set out the entire agreement between you and us. 6. If any provision of these Terms and Conditions (in whole or in part) is found by any competent authority to be unenforceable or illegal, the remainder of provisions shall remain in force. 7. These Terms and Conditions shall be governed by the laws of England and you agree to submit to the exclusive jurisdiction of the English courts. DeWitt