Asian Aromatics Hit All-Time Highs on Shrinking Supplies and Rising Feedstock Costs

Asian aromatics hit all-time highs this week on shrinking supplies and rising feedstock costs. Toluene and styrene monomer spot prices set new records Wednesday, assessed at $1,388.50/mt FOB Korea and $1,674/mt FOB Korea respectively while benzene was at a record high on December 5, closing at $1,477/mt FOB Korea.

Year-on-year, benzene has the strongest showing, soaring $362/mt or 33.09% since January 3. This is followed by styrene, which rose $336.50/mt or 25.16% and toluene, up $278/mt or 25.03% over the same period.

Meanwhile, isomer-MX closed Wednesday at a four-and-a-half-year high of $1,418/mt FOB Korea and paraxylene was assessed at a nine-month high of $1,657/mt CFR Taiwan/China.

BENZENE

Benzene can be derived from petrochemical reforming or distillation of coal tar as a result of the steel processing.

Benzene prices are well supported due to falling supply. In the US, supply is estimated to have been reduced by around 25% this year as refineries are now cracking lighter feedstocks with lower aromatics yields. Due to its free trade agreement with Canada, the US can only import styrene, a benzene derivative, from its northern neighbor. As such, it has to keep importing benzene to produce the monomer.

Over in China, coking benzene output from steel mills has fallen around 50% this year due to poor steel demand in the country.

On the other hand, new solvent and caprolactam capacities are starting up in China in 2013 and anticipated demand for benzene is estimated at more than 1 million mt/year.

As benzene prices firmed, Asian producers are seeking to increase production via toluene disproportionating methods, which in turn sent toluene to a record high.

STYRENE

The monomer comprises 80% benzene and 30% ethylene. With benzene surging, styrene prices have been rising but producers are barely breaking even as demand for styrene derivatives is weak as the cold weather approaches.

Demand for expandable polystyrene, used in the construction industry, will fall significantly in winter and record high styrene prices are not enticing buyers, industry sources said.

Polystyrene demand is also sluggish, particularly for high impact polystyrene, producers said. Producers such as South Korea's Kumho Petrochemical have slashed operating rates in November-December to around 65-70% as the cost of SM is considered too high and demand remains low.

TOLUENE

Toluene is well sought after as a feedstock for TDP and hydrodealkylation units that produce benzene. It is also fed into MTPX units to produce paraxylene.

Supply is shrinking in Southeast Asia as Thai Paraxylene, which is able to produce 144,000 mt/year of toluene, will stop offering spot cargoes staring early 2013. This is because Thai PX is expanding its PX and benzene units at Sri Racha and will use all of its toluene as feedstock.

As a gasoline blendstock, toluene is closely monitored especially since China will start levying a consumption tax of Yuan 1/liter or Yuan 1,364/mt ($217/mt) on liquid petrochemical products starting January 1, 2013.

The tax is targeted mainly at MTBE and mixed aromatics and it will raise the cost of gasoline blending. Consequently, toluene could end up being the preferred blendstock, thus reducing its availability as a petrochemical feedstock.

SPECULATION

While aromatics prices are firming on tight supply, speculation by cash traders in China has also contributed to price hikes. Cash traders are described as second- or third-tier traders who are unable to secure bank loans so they have resorted to buying imported products and re-selling them in the domestic markets to raise cash.

These traders are disengaged from the product chain and the money they raise from selling the commodities is re-invested into the property or stock markets for quick gains.

The presence of cash traders in the Chinese market has resulted in severe price distortion, according to a Sinopec source.

"They don't look at production costs at all and have very little understanding of the commodity markets. If they go bust, they'll just start up a new company and do it all over again," he said.