This week's issue:
May 31 2004
News
Benzene Prices in Europe Escalate on Tight SupplyDemand
Sean Milmo
Although benzene prices in Europe have risen to their highest levels in around 20 years, producers do not
appear to be contemplating new capacity to ease pressure on sup-plies. As a result, producers of benzene
derivatives are potentially facing a period of persistently high pricing for their key raw material, which will be
difficult to pass on to customers. Polystyrene producers are considered to be among the most vulnerable
because of the intense competition they are meeting from polypropylene suppliers in certain plastics
segments.
The contract price of benzene has risen by around 60 percent since late last year to €566 ($684) per metric
ton, while the spot price is up 70 percent to around $750 per ton. Nonetheless, oil companies are shipping
relatively large quantities of reformate to the US to help meet rising demand for gasoline in that country. In
contrast, gasoline demand in Europe has been declining, mainly because of the increasing consumption of
diesel in cars.
“The amount of benzene that could be produced from all the reformate being exported across the Atlantic is
equivalent to 500,000 to 1 million tons,” explains Paul Hodges, chairman of International eChem, a UKbased consultancy in aromatics.
“The feedstock is available for extra supplies of benzene, but the processing plant is not,” he continues.
“Refiners are quite content to send reformate to the US because the price which they can get there for it as
a blend in gasoline more than meets the transportation costs. But they could be gaining higher value from it
as benzene.”
Lack of benzene processing facilities from C7/C8 streams are not the only cause of high benzene prices,
although they are a major factor. A series of outages among benzene units in Europe has contributed to the
shortages, and the soaring price of crude oil has triggered inventory building by benzene users.
The spread between naphtha and benzene spot prices has traditionally been around $100 or less per ton,
but in mid-May, it widened to more than $370 per ton. However, benzene prices in Europe are expected to
soften in the summer, especially if crude oil prices begin to slide, and that gap could start to close. “We may
soon see the spread with naphtha prices come down to $120 to $200 with a level of around $200 being
more likely while supplies remain tight,” says Mr. Hodges.
However, analysts generally expect the European benzene price to continue to face upward pressures in the
foreseeable future. As a result, its usual ratio to the price of naphtha could be permanently changed.
“The traditional spread with naphtha is already history,” says John Bonarius, a consultant at CMAI Europe,
London. “Worldwide, there are a number of new benzene projects over the next three to four years, but the
additional capacity is unlikely to be enough to satisfy growing demand and avoid a deficit in supplies for
sometime.”
New gasoline regulations in the European Union, which limited benzene content to 1 percent in 2000, led to
a surplus of benzene. In 2001, the spread between naphtha and benzene prices was, for a period, virtually
eliminated. “A lot of benzene units in Europe were closed down, especially since the poor margins did not
justify maintaining old plants,” says Mr. Bonarius.
While production capacity has contracted, benzene demand has been growing at an average of 4 to 5
percent annually. Styrene demand has been rising at a similar rate.
“We are seeing a relatively fast level of growth in other derivative areas as well,” says Jenny Bouch, a
consultant at Jacobs Consultancy, London. “In the phenol sector, the phenolic resins segment is
comparatively mature, but bisphenol-A demand is growing very rapidly.”
The last sizeable addition to Europe’s benzene capacity was the opening of a $25 million extraction unit at
Shell’s refining and petrochemicals site at Moerdijk, the Netherlands, in 2002. It is able to extract around
500,000 tons per year of benzene from streams at Moerdijk and from other Shell and third-party facilities in
Europe.
In addition to pyrolysis gas from ethylene, which accounts for around half of benzene supplies, the main
sources of the material are reformate and units for hydrogen dealkylation (HDA) and toluene
disproportionation (TDP). But painful memories of the effects of crash in benzene prices a few years ago
linger, and refiners are cautious about drawing up plans for new capacity.
“The long-term average utilization rate of HDA plants has been around 40 percent because of the many
occasions when the price of the toluene input was higher than that for the benzene output,” says Ms. Bouch.
“Even with the current high benzene prices, an investment in an HDA unit is not economically attractive.”
“Probably capacity will initially be increased by an expansion of extraction capacity from reformate,” she
continues. “But first, refiners will have to be much more confident about the longer-term outlook for the
benzene supply-demand balance. In the meantime, benzene prices will stay high.”
However, nonintegrated benzene consumers could decide to invest in their own production capacity,
probably through HDA or TDP units.
“The nonintegrated derivative producers are under the most pressure to invest upstream,” says Mr. Hodges.
“They could form alliances with refiners to gain access to feedstock for new capacity or they could set up
consortia with other benzene users. For example, a polystyrene and a polyester producer could link up to
share the output of benzene and paraxylene from a TDP unit.”
Polystyrene makers have been struggling to cope with soaring benzene costs. Since the beginning to this
year, European polystyrene prices have risen by as much as 25 percent. A gap of about 10 percent has
opened up with polypropylene prices.
“There were expectations that the balance between the two polymers would have changed in favor of
polystyrene because of the tightness in supplies of propylene,” says Andrea Borruso, a petrochemicals
consultant at STI International, Zurich. “Polystyrene would have been competitive in segments like thermoforming for CD packs.”
“Polystyrene prices should come down in the next three to four months,” he adds. “But it will be bad news for
polystyrene producers if benzene continues to be high. There is not enough demand downstream to sustain
high polymer prices.”
Nevertheless, operators of Europe’s naphtha ethylene crackers, which account for the vast majority of the
region’s olefin plants, are finding that their operating economics are considerably improved by the high
prices for benzene and other by-products like propylene.
For every 3.25 tons of naphtha feedstock, a typical cracker produces one ton of ethylene, around 0.4 tons of
propylene and 0.2 tons of benzene, according to Jacobs Consultancy. “Because of the high by-product
credits, a West European coastal producer can be as or more cost-competitive than a cracker in Saudi
Arabia based on low-cost ethane,” explains Roger Newenham, a Jacobs consultant. “European crackers
have not got to that point yet, but it is possible that it could be reached soon, particularly if naphtha prices
come down while there is still a wide spread with benzene prices,” he says.