The drop in US benzene pricing is likely a function of lower crude oil pricing and the overall impact this is having on oil product values. As the US has moved to much lighter ethylene feedstocks, the proportion of benzene that is coming from refining is overwhelming and alternative values for benzene or reformate in the gasoline pool are a strong driver of US and international pricing. Lower naphtha pricing for ethylene units outside the US will also hurt benzene values. By contrast, the stronger natural gas market – through the end of last week - supported ethane pricing in the US and we saw a step up in propane pricing – which have provided support for ethylene and propylene – also note that the analysis we published yesterday in the weekly catalyst suggests that the US can export ethylene to Asia at current prices – delivering ethylene into the region below current local costs. This should keep a floor under US ethylene pricing although any further decline in crude oil prices relative to US natural gas and NGLs will close this arbitrage.
Source: Bloomberg, C-MACC Analysis, November 2021
With the significant movement in crude oil prices and the oversupply of many basic chemicals and polymers in Asia, we would expect chemical and polymer pricing to fall in step with costs. This will create a bit of a moving target for anyone trying to play any trade arbitrage, including the export of ethylene from the US as discussed in today's daily report. If the fresh COVID concerns cause another uptick in consumer spending on durables, freight rates could start to rise again before anyone in Asia could exploit lower polymer production costs to move material to the US or Europe.
