Buyers see price slide ahead

By Staff -- Purchasing, 12/8/2000

WITH THIS YEAR'S DRAMATIC RUNUP in crude oil and energy feedstock costs, the U.S. benzene market, as with many of the petrochemical markets, has been anything but quiet. Benzene saw substantial volatility in 2000, and in fact, benzene prices more than doubled in less than a year's time.

And though most analysts are forecasting that prices will soften in the near- to midterm, buyers and industry observers are keeping a close watch on the global crude-oil markets for an indication of which direction prices will take in 2001.

Pricing should erode, flatten

After this year's ramp-up in petrochemical pricing, most sources see prices slipping in the next few weeks, then flattening for much of next year.

Benzene buyers saw both contracts and spot prices rise about 50¢/gal from fourth quarter 1999 to second quarter 2000. From there, prices have trickled down through October. Buyers responding to our survey place third quarter 2000 price averages at $1.42/gal (contracts), and about $1.38/gal on the spot market.

Current benzene spot tags average about $1.35/gal. For contracts, the current average is about $1.40/gal. According to our data, which is based on buyer forecasts, prices will continue to slide somewhat before the end of this year. Then, buyers expect to see flat pricing through the first half of 2001.

"We see downward pressure on benzene pricing in the next couple of months, through year-end," says Duke Stiddart, procurement manager, raw materials, at Bayer Corp., in Pittsburgh, Pa. "There's a lot of material available in the marketplace and a lot of import material."

"Midrange, price projections depend on two factors-the price of crude-oil feedstocks and the performance of the economy," says Stiddart, adding that he expects benzene prices to come down slightly before the end of the year, and possibly a little more by the end of the second quarter of next year. However, Stiddart admits, "To forecast the benzene market, you really have to predict what crude oil prices are going to do."

Stiddart is responsible for commodity raw materials procurement for all of Bayer's five divisions, and has been buying approximately 30 million lb/month of benzene for the past 10 years, for use in the company's aniline and styrene toll production.

Stiddart says that for Bayer, benzene is a critical purchase, because it is tied into many contract agreements, based on formulas for other commodity purchases, including toluene and styrene.

Crude pricing drives market

Buyers' forecast of flat pricing for the first half of 2001 will be in the face of gradually decreasing crude oil prices, which should reach more moderate levels by mid-2001. Data from the U.S. Department of Energy's Energy Information Administration (EIA), based in Washington, D.C., predict a gradual slide for average west Texas intermediate crude oil spot prices, from about $30/bbl for December 2000 to about $25.59/bbl this time next year.

"Prices have been up this year with the rise in energy values," says Lindley Reubin, product manager for benzene and fuel products at Lyondell Chemical, based in Houston, Texas. "As the crude oil market has seen prices rise from about 14¢/bbl to about 38¢/bbl this year, benzene spot prices have risen from 70¢-80¢/lb to about $1.50/lb," he says.

Crude oil raises the price floor of the benzene price scheme. As crude oil prices rise, benzene spot prices rise, and contracts follow. Buyers continue to try to fight off price increases while they can, because when crude oil prices begin to come down, there is usually a lag time before benzene prices begin to move in that direction.

As crude oil prices continue to fall, and as buyers pressure suppliers for price reductions, look for the benzene price floor to slip marginally by a little more than 8¢/gal by the end of next year. At that time, buyers expect prices to average about $1.26/gal for spot tags, and about $1.31/gal for contracts.

Supply and demand

According to most sources, supply and demand for benzene appear to be fairly balanced-if not, then the market is a little long.

In addition, operating rates are high in the U.S., says Lyondell's Reubin. "Most crackers are operating near 100% recovery," he says.

Demand for benzene has grown steadily with the U.S. gross domestic product (GDP), and most buyers report that there is sufficient material available in the U.S. marketplace, both from domestic sources and from overseas producers shipping material into the U.S Reubin estimates that about 20% of the current supply volume in the U.S. market comes from foreign sources.

Material from overseas producers will continue to supplement domestic benzene producers' supplies, and will continue to keep a lid on the market's price volatility. "Benzene is truly a global commodity market," comments Bayer's Stiddart. "If market conditions are bad in one regional market, they're good in another," he says. This tends to keep the supply/demand situation in relative balance.

Though there is no major new benzene capacity expansions planned for the next year, Reubin says that capacity creep from some planned and unplanned maintenance turnarounds and upgrades should bring some additional capacity into the market. According to Reubin, Westlake Plastics, Los Angeles, Calif., has a turnaround planned for fourth quarter 2000, and Equistar Chemical also has a maintenance upgrade at its Houston, Texas, plant, which should be completed in the first quarter of 2001.

Of the many benzene producers in the domestic market, the largest include: Exxon-Mobil, Dow Chemical, Midland, Mich.; British Petroleum, based in London, England; Chevron Chemical Co., Houston, Texas; Koch Petroleum, in Salt Lake City, Utah; Equistar Chemical, Houston, Texas; and Shell Chemical, also in Houston.