The substitution of PS by PP seems to have reached a plateau, and estimates suggest global styrene demand will grow around 3% pa to 2020. Growing well in Asia, PS faces ongoing challenges in North America and Europe, where perhaps up to one-third of each market could be vulnerable to PP, but only with increased investment in production capacity for the latter. Substitution is not a threat to construction market-focused PS products - particularly insulation, where long-term demand outlook is good in both new build and refurbishment. There are other uses - such as snap-off multipacks for foods like yoghurts - where PS is clearly the material of choice. However, Shell's Alexander Farina painted a challenging picture for benzene pricing. Benzene went from oversupply in the 1990s to an over-tight market in the 2000s. The last decade marked introduction of tougher regulations on benzene content in gasoline, leading to the closure of on-purpose hydro de-alkylation (HDA) capacity. Before 2005, on-purpose swing capacity could add 20% to other (global) benzene production, which today has come down to a nominal 4%. This had left benzene supply very-heavily dependent on how reformers and steam crackers run. C6 pricing is therefore often driven by the demand for gasoline and olefins rather than the demand for benzene derivatives. Benzene prices have become much more volatile in combination with high and fluctuating crude prices. Current estimates peg benzene demand to grow by just over 3% pa, while supply is estimated to increase by about 2% pa. Despite these challenges, Farina has predicted price of benzene to remain competitive. However, ICIS poses certain questions: 1) What if new ethane-based crackers in the US 'crowd out" liquids-based cracker investments elsewhere? Might this sharply reduce the projected growth in benzene availability? 2) What if the legal wrangle over styrene being declared a carcinogen by the US Department of Health and Human Services leads to consumer goods made from PS being banned? 3) What if the propylene supply issues that have caused the surge in C3 costs are resolved? Unlike in benzene, on-purpose production of propylene is becoming ever-more popular. For example, several propane dehydrogenation (PDH)-to-propylene projects have recently been announced in the US and China. 4) What if crude oil pricing becomes even-more volatile, causing problems for more than just benzene? The petrochemical sector's enthusiasm for cheap shale gas has cost the petrochemical industry a lot in terms of record high costs for key feedstock propylene. As per ICIS, its impact is being felt down the chain to intermediates. This year, US propylene contracts settled at record highs, on persistent tight supply following a series of refinery shutdowns earlier in the year. The recent price surge took propylene beyond the levels seen in July 2008, stemming from tight supply, particularly of refinery-grade propylene (RGP) that accounts for around 60% of the US propylene market. RGP inventories in the US ebbed to 3 year lows in April triggered by several turnarounds in Q1-2011, which included the shutdown of 18 refineries. Along with the planned shutdowns, seven refineries had major outages of a week or more between January and March. The drop in supply pushed Q1 RGP spot prices up by 25% and by another 20% in April to 91 cents/lb at the end April. With this, RGP that normally trades at a discount to PGP, ended April at a premium of 4% over its 87.50 cent/lb PGP contract price. Along with rising RGP prices, the widespread use of light cracker feedstocks in USA, particularly ethane, has been factored as lending support to propylene contracts. Ethane, which yields little co-product propylene, accounts for 65% of US cracker feed slates, while naphtha, which yields around 10 times more propylene than ethane, accounts for only 15% of the feedstocks. Since US natural gas supply is forecast to grow steadily with the shale gas revolution, ethane is expected to remain more competitive than naphtha in the long term. Announcements of planned cracker expansions in the US point to ethane as the driver behind the prospective investments. Natural gas enjoys a definite cost advantage compared with crude oil, keeping US olefins feedstock base tight. Another market participant predicted that ethane will account for as much as 70% of US cracker feedstocks by 2015, while the use of naphtha will drop to around 7% in the same period. This anticipated lack of incremental propylene output from steam crackers has prompted planned investments in propylene production, but extra propylene will hit the market only after 2013. Some of the capacity additions include: Enterprise Products Partners’ planned expansion of PGP fractionation by 10% - adding 500 mln lbs/year of PGP production at Mont Belvieu. This will boost PGP capacity there to 5.4bn lbs/year in Q1-2013. Dow Chemical plans to operate a propane dehydrogenation (PDH) plant by 2015, at Freeport, Texas. The company is also exploring an option to commercialize its own technology to produce propylene from propane, with the potential start-up of a second production unit in 2018. US propylene production in 2010 was 31bn lbs, according to data from the National Petrochemical & Refiners Association.