【SCI View】Q4 China Benzene Market Interpretation

SCI99

2019-10-17

Q4 China Benzene Market Interpretation

China’s benzene market fluctuated frequently in 2019.

At the end of March, the benzene market bottomed out. Afterwards, it maintained an uptrend. By mid-July, its prices rose by around RMB 1,000/mt totally. By comparison, the market plummeted after the National Day holiday, exceeding market expectations. There were three reasons for the decline.

The first is slipping crude oil prices. During the National Day holiday, international crude oil prices kept declining, due to sluggish economic data in the U.S. and rapid output recovery in Saudi Arabia. China’s benzene market was closed due to the holiday, so crude oil market guided the benzene market greatly. The second was that the regulation of output restriction on environmental protection was cancelled. On October 2, the output restriction was cancelled. The operating rate in the coking industry climbed to 61% from 55%. Increased supply of coal-based benzene pulled market prices lower, which weighed on the oil-based benzene market. The third was that replenishments reduced after the holiday. September 10 saw a round of replenishments in advance affected by the “buy up” mentality. And it was predicted that there would be rigid demand after the holiday. However, the cancel of output restriction subdued the demand.

How about the benzene market trend in Q4?

According to SCI, the market will lack upward momentum. Firstly, entering winter, the demand will thin in the U.S., which is also mirrored in negotiations of December cargoes. Secondly, with the opening of Asia-China arbitrage window opened, imports will successively flow into China. Thirdly, the supply will increase in Southeast Asia, in the wake of the end of operating load reduction. Fourthly, the demand in China will decrease, as downstream operating loads inch down and most large-scale styrene units will experience turnarounds.

Will Sinopec help support the benzene market?

Seen from the chart below, posted prices at Sinopec kept lower than Asian market prices in 2019, especially from April to July. It will be important to control sales pace and closely eye on the arbitrage window.

Is there any turning point?

The turning point will be the commissioning of newly added styrene capacity, such as Hengli Petrochemical, Liaoning Baolai Petrochemical Group. If Hengli Petrochemical puts its styrene units into operation, its sales volume of benzene will be reduced by a half, which will notably support the benzene market. Nonetheless, if Zhejiang Petrochemical put its benzene and styrene units into operation in Q4 simultaneously, and put phenol/acetone units in 2020, there will be 40kt of surplus benzene supply. Nonetheless, new units affect market sentiments and market expectations more. Moreover, it will take some time for new units to achieve mass production. So market players should look at the situation dialectically.

Is there any other support?

The posted price at Sinopec will guide the market to some extent. Despite lower prices, coal-based benzene has some disadvantage, such as no imports, limited storage tanks. Meanwhile, its speaking right is low in the benzene industry.