NWE hydrodealkylation conversion unlikely despite reaching 9-month high of $178/mt

An ample supply outlook in the Northwest European benzene market is leaving hydrodealkylation conversion unlikely in the coming weeks, despite the benzene premium over toluene diisocyanate reaching a nine-month high of $178/mt last week, according to Platts data.

Hydrodealkylation, or HDA, is one of several processes that entail converting toluene to benzene and operators globally need a premium ranging anywhere from $150-$250/mt to make HDA economics work. In Europe, HDA operators typically need around a $200/mt premium.

This comes as an oversupplied Asian market is pushing large volumes of benzene into global markets, weighing on European prices and leaving scant need for additional volumes from HDA conversion in the coming weeks, industry sources said.

Meanwhile, the toluene market continues to be driven by demand from gasoline blending this week, which was being propped up by interest from gasoline blenders in a tight domestic octanes market and arbitrage talk out of Europe to the US Gulf.

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One trader source expected the premium to decrease due to the contrasting outlook for the two products and leave HDA margins in negative territory.

“There’s a lot of material coming out of Asia — Europe has enough benzene and won’t need another source of supply,” the trader said added.

Northwest European benzene spot barges for delivery 5-30 days forward were assessed at $574.50/mt CIF ARA Wednesday, down $81.50/mt or 12% week-on-week, amid an increasingly bearish market as the glut of Asian material continues to hit global consumption hubs.

Toluene barge values stood at $486/mt FOB ARA, putting the benzene premium over toluene at $98.50/mt, approximately half of the premium which is needed to make HDA conversion profitable but 19% above the December average of $83/mt.

This comes after HDA has seen negative conversion margins throughout 2015.