Europe-US tol arb could widen in pre-driving season

22 February 2008 16:40  [Source: ICIS news]

LONDON (ICIS news)--The possibilities for European toluene arbitrage to the US are being limited by volatile crude and gasoline in both regions but could change on the opening of the US driving season in March, market participants said on Friday.

Spot March toluene was valued at $915-935/tonne (€622-635/tonne) FOB (free on board) Rotterdam, with the last confirmed deal at $927.03/tonne CIF Duisburg on Thursday .

In the US, meanwhile, toluene was valued at $3.14-3.16/gallon FOB USG (US Gulf), equivalent to $955-960/tonne FOB USG. 

The previous day’s deal was seen as being equivalent to $912/tonne FOB Rotterdam. At the time, US toluene had just edged over the $3.50/gallon FOB USG mark, equivalent to $1,008/tonne FOB USG.

So volatile were market conditions in the US though, that traders said it was unlikely that any use would be made of the pricing opportunity.

“There is and there has been a decent potential arb to the US, but the US market is extremely volatile,” said one trader. 

"It would be risky to try it. It should be more workable in March with the driving season, which should strengthen the market quite a bit.”

The driving season is the peak time of the year for US gasoline consumption, usually inaugurated by US Memorial Day on 31 May. Pre-buying, however, is expected to begin in March, with toluene - a major component of gasoline blending - seeing an upturn in demand. 

Buying was expected to begin earlier than usual this year.

“Driving season buying gets earlier every year,” said a broker source. “And this year, with crude prices so high, pushing gasoline up, it’s likely that people will be stocking up earlier than usual.”

Another trader source said that earlier February arbitrage deals had been done but not during the past two weeks. Market talk was that as much as 10,000-20,000 tonnes had found its way to the US since the beginning of the year.

“We may set some March volumes, though, if prices move up further,” the source said.

A source at a major producer, meanwhile, said that if the current situation continued, Europe could move into oversupply despite a major turnaround within the region.

“There is one major spot toluene seller in Europe, which is going into turnaround in March,” the source said.  

“In the absence of a US market, Europe goes net long and if people are storing material on the basis of this turnaround and gasoline demand but not finding the window, it could mean that people could soon be looking to place material in the market.”

($1 = €0.68)

For more on toluene visit ICIS chemical intelligence

By: Peter Salisbury
+44 20 8652 3214

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