US benzene prices reflect both the net short market in the US but also the alternative value of reformate as a gasoline feed. While benzene is very limited in terms of how much can be left in fuel streams, its refinery-based feedstock, reformate, is a key component in gasoline – albeit low octane – prior to reforming and even during reforming the benzene conversion can be limited if the gasoline value is higher and volumes are constrained. In the US, as well as in many other parts of the world, we are facing gasoline shortages and today more than 13 US states have gasoline prices above $5 per gallon. While that may be shocking to Americans, the car ride from Heathrow yesterday was in a very popular make in the US that currently costs more than $200 to fill up in the UK! So benzene is getting squeezed – its feedstocks are more expensive and some of the alternatives to making benzene currently offer better netbacks. While we see all polymer costs rising in the US and elsewhere, this US benzene surge is not good for US polystyrene producers at a time when the industry is trying to justify polystyrene’s existence in a “circular” world, and it is also inflationary for the epoxy businesses, and other consumers of both styrene and phenol.
We think the India styrene plan is ill-advised. The styrene market has had a brief moment in the sun over the last couple of years, but we believe that it has another leg down ahead, based on the recycling complications of polystyrene versus other packaging polymers. New capacity in China and likely weaker demand in the US and Europe should push the global market into oversupply for a prolonged period (if not permanently). This is bad news for styrene (or polystyrene) producers but very good news for the non-integrated producers of styrene derivatives targeting the durables markets – such as Kraton.
The relative strength in US propane versus ethane is something we have talked about before, with the strong export pull on propane, pushing prices higher, despite equally strong demand for ethane in US ethylene units and for export. The projects to consume propane coming online in the next 12 months overwhelm the projects to consume ethane in our estimate and consequently, we believe that the delta (in chart below) will remain high and may widen further. On a cost basis, this could put US propylene and a distinct disadvantage to US ethylene and at the margin might help ethylene derivative demand relative to propylene derivative demand – most likely in paint additives, but also in some polymers where polypropylene can be substituted with other materials – it may provide a bit of a lifeline for polystyrene if the polystyrene recycling initiatives gain traction. See our daily report for more.