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Benzene's margins in Europe slide on demand slowdown risk

https://www.chemnet.com   Jul 31,2014 Platts
Northwest European benzene's premium over naphtha is coming off the 16-week high hit in the middle of last week despite a bearish naphtha trend, due to the risk of slowing downstream demand and a weakening US market, according to sources.

Benzene's premium over naphtha, a measure of benzene production margins, was assessed at $520.25/mt Tuesday, down by $43.25/mt from last Wednesday when it climbed to $563.50/mt, the highest level since early April.

Typically a spread of $250/mt is considered sufficient to break even.

Margins have come under pressure despite a steady decrease in the price of feedstock naphtha, which has fallen by 5.7% from the recent peak in mid-June. Spot naphtha was last assessed at $919.25/mt CIF ARA Tuesday, the lowest since early April.

Naphtha prices in Europe are on the slide at the moment, as discounted LPG is stealing downstream demand from naphtha and a weaker outlook for demand from Asia limits export outlets.

Benzene in Europe is also under pressure, however, as historically high prices have contributed to the destruction of downstream demand.

Benzene consumers feel that they would be unable to pass on a potential increase in feedstock costs to their customers, especially against the backdrop of a seasonal dip in August.

The spot benzene price was assessed at $1,439.50/mt CIF ARA Tuesday, down $25.50/mt day on day. Over the course of the week the benzene spot price has lost 3.9% focus shifted from short-covering to next month's contract price negotiations.

The July CP was agreed at $1,466/mt CIF ARA, which is $26.50/mt above current spot prices.

Meanwhile, US benzene prices fell to 502 cents/gallon ($1,501/mt) FOB USG by Tuesday's close, down by 39.95 cents week on week ahead of the arrival of imports and as all shorts now appear to be covered.

As such the arbitrage from Europe is open on paper, but few are likely to look to work it due to a steep backwardation in the US.
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