Benzene strengthens support to downstream nylon chain

Benzene prices surged 13-16% in March across regions while US numbers hit a four-month high in the first week of the month. In Asia, a strong demand for May cargoes supported prices to go up while in European bullish sentiments caused prices to jump. In US, derivative styrene’s demand for benzene held firm as participants eyed export opportunities to Europe, which ultimately led to reductions in benzene supply locally. In Latin America, benzene prices rose week on week tracking key global markets higher.

Asian benzene marker, the FOB Korea was assessed at US$755-756 a ton while US spot benzene prices rose 16% to US cents 249.70-249.80 per gallon FOB USG. European spot benzene price averaged US$702-703 a ton CIF ARA while FOB Rotterdam values were at US$712-713 a ton, both up 16% on the month.

Naphtha prices for March averaged US$530 a ton CFR Japan, up US$98 from previous month. The market took severe beating in the first three weeks but recovered sharply in the last on crude oil support.

Thus, the rapid rise in benzene prices over naphtha has widened the spread between the two. European benzene margins jumped to a US$368 a ton premium over naphtha, as benzene exports out of the ARA to the US Gulf Coast shortened supply length in Europe. Similarly, the premium over USG naphtha US$306 a ton and that in Asian markets was close to US$240 a ton. So far in 2015, the spread averaged US$183 a ton for Asia, US$281 a ton for Europe and US$223 a ton for US. In normal business conditions, a premium of US$250 a ton is termed as sufficient to cover production costs.

The spread has widening from February as more material was absorbed by US, but it will take a while for the supply chain to absorb all the molecules around. The benzene market was in ample supply since the beginning of the year as a combination of high cracker run rates and turnarounds at downstream SM units left an abundance of material in the European region.

Market experts expect the spread to widen further when downstream SM units are back online in the second quarter which would spur an uptick in demand for benzene.

Meanwhile, caprolactum prices surged slightly in March on the back of supply snug, increased demand and rising benzene prices. Demand increased as run rates at nylon chip and nylon textile makers picked up. Sinopec and DSM Nanjing Chemical adjusted up their settlement for March. Asian caprolactum spot prices averaged US$1,650-1,690 a ton in March, up 8% from last month. Similar, numbers for US averaged US$1,425 a ton, up 2% and Euro1,548 a ton in Europe, up 1% over February.

Nylon chip prices picked up on support of the rally in benzene and firming caprolactum markets amid decent downstream demand and low inventory. In China, as downstream mills resumed operation, overall operating rate picked up. However, buying interest remained cautious given inventory built up earlier. In non-textile-yarn, cord fabric and fishing net yarn, buying interest for chips was mild, with prices held stable. Offers for Taiwan-origin chips averaged US$1,980-2,000 a ton, up 7% from February. In China, bright conventional spinning nylon-6 chips were priced at US$2,247-2,430 a ton while semi-dull chips were offered at US$2,350-2,480 a ton.

Nylon filament yarn prices looked up on raw material costs while prices of staple fiber and cord fabric were on a firm note. In China, although nylon yarn sector was picking up, orders were still limited on lusterless end demand against surplus supply, exerting resistance on price hike of nylon yarn. Overall demand was seen not active enough, thus producers resumed production slowly. In China, semi-dull FDY70D/24F was traded at US$2.95-3.01 a kg, up US cents 2 while FDY40D was pegged at US$3.29-3.47 a kg, up US cents 3-5 from February.

Thus, the spurt in benzene had a quick percolating effect of the nylon chain as prices all along were seen rising in March. Expectation of a further surge in benzene values will only add to the escalation and buyers will seek to replenish as much as possible to balance cost and pricing of their end products.

Courtesy: Nylon Price Forecast Report – April 2015