After a bumpy descent in 2001, benzene tags are starting to edge-up and are expected to continue rising slowly in second quarter 2002. Producers just nominated price hikes of 10-15 cents. While demand is not increasing much at present, anticipated seasonal increases in gasoline prices are expected to nudge prices. Benzene supply is plentiful. Demand stalled in 2001 with the slowing economy. But, overall market conditions are expected to improve by third quarter, which will boost benzene orders.

"Current demand for benzene is very poor, as demand remains weak across all derivatives," says Jim Enright, vice president for benzene and derivatives, DeWitt & Co., Houston, Texas. In 2001, he notes, demand fell "19-20% from 2000 figures."

Analysts pin soft benzene demand at the end of 2001 to cyclical activity and the generally lackluster economy. For instance, Alex Lidback, director—benzene and styrenics, Chemical Market Associates Inc. (CMAI), Houston, says the usual year-end inventory liquidation played a role in benzene's fourth-quarter demand decline. So too did a slide in styrene and cyclohexane exports due to high gas-related transport costs and lower worldwide demand, he says.

A number of sources expect benzene demand in 2002 to expand, though not until the second half. Enright says, "Most market players agree that demand bottomed out at the end of 2001, and a slight rebound for 2002 is expected." However, he predicts that the next few months "will be tough, as styrene turnarounds and poor sales continue to plague the market."

Benzene demand may not have recovered yet, but pricetags, which tumbled in the past year, are now rising and will show strength through the next few months, according to industry observers. While supply won't be a concern in coming months, benzene tags are expected to follow gasoline prices on their annual climb.

In fact, prices have been increasing since the end of 2001. Analysts say early in first quarter 2002 contract prices for benzene were about 75¢/gal, up from 70¢/gal in December. Spot prices jumped to around 81-85¢/gal, after dipping to the low 60s in fourth quarter 2001. PURCHASING's transaction prices show January benzene tags averaging 76¢ /gal.

Overall, based on benzene's relationship to crude oil and gasoline prices, Lidback expects prices to "track upward in the second quarter." For the March-May timeframe, Enright notes "pricing is stronger," citing growth in demand and "reduction in co-product benzene supply from the para-xylene related production units."

Already, "benzene pricing has resisted significant downward price movements despite" less demand and adequate supply, says Enright. February's producer-issued price of 90¢/gal is an example of benzene's pricing strength prior to second quarter, though Enright expects actual prices for that month to be closer to the 83-85¢/gal range.

And though benzene tags are expected to rise, there are conditions that could counter higher prices in the next three to four months. For instance, Enright expects the sale of "speculatively-stored products and imports" to exert some downward pressure on benzene tags.

Though prices are forecast to rise, buyers won't have trouble with benzene supply for the foreseeable future. Domestic production is down due to reduced demand, but imports and new capacity could easily meet any increases in order volume.

"There is plenty of benzene available," says Lidback. In addition, "imports continue to arrive at a good clip" and "speculative players have been storing benzene to take advantage of higher prices," Enright notes.

In terms of capacity, BASF-ATOFINAS new steam cracker in Port Arthur, Texas, which started commercial production in December 2001, will have flexibility to increase benzene production.