FocusAsia’s toluene demand to remain weak on oversupply

30 July 2010 07:16  [Source: ICIS news]

By Mahua Chakravarty

SINGAPORE (ICIS)--Toluene demand in Asia is expected to remain lacklustre in the weeks ahead with prices likely to remain range bound due to a supply glut over the past four months, traders and producers said on Friday.

Trading had been extremely slow in regional markets for the past few months and there was a prevailing sense among Asia players that the rest of 2010 would remain dull.

“If China does not buy by end of August ahead of the long holidays in October then there is very little hope for this year,” a southeast Asia-based distributor said.

Supply glut had kept toluene prices in Asia range-bound for the past two to three months, amid extremely thin trading.

On Friday, spot prices were at $750-760/tonne (€570-578/tonne) FOB (free on board) Korea, $10/tonne higher than the previous day's close, according to ICIS.

Prices had been stuck in the $720-760/tonne FOB Korea range since mid-May, as regional sellers were desperately seeking outlets across Asia amid languid demand, said traders.

There was a drastic slowdown in demand from China particularly from March 2010 due to a huge build-up in shore tank inventory following frenzied buying since end 2009. China is the largest market of toluene within Asia.

Inventory levels in eastern China rose to as high as 200,000 tonnes in the May-June period, the record highest seen, which have declined to the current levels estimated at about 160,000 tonnes, traders said.

The huge stockpile was a result of traders anticipating at the time that there would be strong demand for toluene from China’s gasoline blending pool in summer months, as seen last year.

But demand did not pick up this year due to the competitive pricing of alternative blendstocks like methyl tertiary butyl ether (MTBE) - at $740-745/tonne FOB Singapore on Friday - and ample availability of mixed aromatics, which were also being used for blending in China, traders added.

As a result, spot demand for toluene imports had slowed down but supply was persistently high from countries like South Korea, Japan, Singapore, Thailand and the Philippines.

Suppliers in Asia had been running their plants at an average 80-90% level as aromatics margins were in the positive territory for most of this year, traders and producers added.

“There is no change in the situation, and since May there is a continuous oversupply,” the distributor added.

Consequently, distributors in China, southeast Asia and India were holding high stocks, which was capping prices and demand in the local markets, they said.

In India, stocks in Kandla were reported to be about 25,000 tonnes, double the monthly import requirement.

Due to high stocks, ex-tank prices have hovered in the Rs38-40/kg ($818-861/tonne) range for the past few weeks and demand has been subdued.

“I don’t think the market situation will improve [in the second-half of 2010],” said a Korean trader while a Japanese trader said: “Fundamentals of toluene are likely to remain weak.”

($1 = €0.76 / $1 = Rs 46.48)

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By: Mahua Chakravarty
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