FocusChina's toluene supply glut to stifle Asia demand in 2010

07 June 2010 09:12  [Source: ICIS news]

By Mahua Chakravarty

China warehouseSINGAPORE (ICIS news)--Demand for toluene in Asia is likely to remain sluggish through the rest of 2010, as it will take some time to digest China's record-high inventories of the product, traders and producers said on Monday.

The toluene supply glut in China which is above 200,000 tonnes amid a lack of demand from the gasoline-blending segment – will take a few months to draw down. As a result, demand for toluene in China, Asia's largest market for the product, is likely to be slow in the second half of 2010, a South Korea-based trader said. 

“It's hard to use toluene, as it's more expensive than [other blendstocks like] reformate and MTBE,” added the trader.

A number of blenders in China were also using mixed aromatics, which were at least about yuan (CNY) 1,000/tonne ($146/tonne) lower than toluene prices in the domestic market, according to a southern China-based trader, who added that there had been some imports of mixed aromatics from southeast Asia this year.

Demand for toluene from other downstream segments, including solvents, was steady; however, there was limited impact on the market due to the persistently high stocks in eastern and southern China, traders said.

Since March, there has been an excess supply of toluene in China, with inventory levels rising to more than 150,000 tonnes in the eastern part of the country. This was prompted by a flurry of imports from late 2009 in anticipation of strong demand in the summer from the blending sector.

In 2009, strong demand for toluene from China’s gasoline-blending segment resulted in imports surging by nearly threefold over the previous year, to 790,932 tonnes. From January to April, China' toluene imports ballooned to 304,264 tonnes, according to data from China Customs.

The likelihood of toluene stocks dwindling rapidly in the near term appears dim, as Chinese importers have also locked themselves in to hefty monthly term cargoes of about 40,000 tonnes, which were much higher than the levels seen in 2009, local and regional traders said.

Some importers were refusing to lift term cargoes, as they had been making losses from holding on to higher-priced cargoes for months now, traders added.

Due to China's high stock levels of toluene, supplies of the material held by exporters in South Korea – China's largest source of toluene  Japan and southeast Asia have also increased.

A number of desperate sellers were seeking buyers in southeast Asia and India. They were also exploring options outside the region to draw down the regional balance, traders and buyers added.

Adding to the overall difficult situation was a high level of production from regional crackers and reformers, which had seen healthy margins for most of this year. But, if the current supply glut and slow demand situation continue into the second half of 2010, aromatics producers would be forced to implement production cuts, a South Korea-based market player said.

“Makers will have to cutback [production] if there is very little demand from China,” he said.

Toluene is often used as an octane booster for gasoline blending in the US and parts of Asia. On Monday, spot toluene prices in Asia were assessed lower than last Friday’s close at $700-715/tonne FOB (free on board) Korea, according to global chemical market intelligence service ICIS pricing.

($1 = CNY6.83)

For more information on toluene and other aromatics, visit ICIS chemical intelligence
Read John Richardson and Malini Hariharan’s Asian Chemical Connections blog
To discuss issues facing the chemical industry go to ICIS connect

By: Mahua Chakravarty
+65 6780 4359

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