• PAGE ONE
• INDEX
• HOME

Benzene: Margins may be hit

A. Srikanth

THE North-east Asian prices of benzene have increased from around $195 per tonne fob Korea in June 1999 to the current levels of around $420-440 per tonne. The rise in prices has been attributed to sharp increases in crude prices over th e last few months and a tight supply situation for benzene. At the same time, the demand for benzene has been particularly high from the US, where it is used as an additive in petrol. Higher prices of gasoline, which co-incided with th e start of the driving season in the US, have lead to a greater demand for benzene.

Apart from being used as an additive in gasoline, the largest demand for benzene comes from the styrene segment. After a sluggish 1999, marked by weak pricing, the styrene market rebounded in the first quarter of 2000. The global prices of styrene have b een on an uptrend since last November. A tight supply situation for styrene resulted in lower output and higher prices. Nearly 21 per cent of Asian styrene capacity was down for turnarounds in April, in addition to outages faced by several North American producers. As styrene capacities restart production, there could be more demand for styrene.

However, benzene supplies are not expected to remain tight indefinitely. An additional supply of around 80,000 tonnes of benzene from South Korea is scheduled to arrive any time. Current projections estimate that the global market for benzene will contin ue to grow at 3.10 per cent per annum through 2002.

This could bring in some weakness in the price trends for benzene. At the same time any let up in crude prices (which however has been dragging for the last two weeks now) could change the demand-supply dynamics. In this background, benzene prices are ex pected to soften a little in the medium term. Already with falling US gasoline prices, there are signs of some weakening in the Asian prices of benzene. Spot benzene prices are currently assessed at $390-400 per tonne.

Indian benzene scenario is a little different with cumene (a precursor for phenol & acetone) accounting for a majority of the demand followed by linear alkyl benzene, cyclohexane (for caprolactum used for nylon 6 and nitrobenzene/nitrochloro benzene. Clo sure of all styrene manufacturing units has closed one outlet for benzene.

There is an installed capacity of around 5.04 lakh tonnes. However, due to rising demand, import of benzene is increasing. Going by the growth in consumption of the end-users, benzene demand is expected to be around 10-15 lakh tonnes by 2002. Given the c urrent firm price trends in global benzene, the domestic users could suffer from pressure on their margins.