China Insight: Toluene prices flat on weak China demand

07 May 2012 00:00  [Source: ICB]

Persistent slow demand in China and restart of production units in South Korea to keep prices down

Toluene prices in China and the rest of Asia are expected to remain flat in the near term at around nearly $1,200/tonne (€912/tonne) as a result of persistent weak demand and ample ­supply, traders said.

Prices have been range-bound in the $1,200-1,240/tonne FOB (free on board) Korea level since 24 February 24, 2012, as assessed by ICIS. On the morning of April 27, toluene prices slipped $5/tonne to $1,205-1,215/tonne FOB Korea compared with the previous day's close.

Toluene supply in the key South Korean market is expected to be high from May following the restart of production at units at Yeochun NCC (YNCC) and Honam Petrochemical following turnarounds in March-April, regional traders said.

"It is a long market. There are still offers for second-half May loading cargoes out there and next week is May," said a key ­regional trader on April 27.

But the key reason behind the high supply in South Korea is the persistent slow demand from the region's largest market, China, since the start of this year, traders said. Trading on a CFR (cost and freight) China basis has been slow, thanks to poor demand from the downstream solvents sector in China, which has been struggling with the impact of a slower economy, a local trader went on to add.

Toluene supply in east China's shore tanks have been limited at about 45,000-50,000 tonnes in recent weeks because of lower imports this year, while supply from some local Chinese refiners has also been reduced since March on greater use of toluene in gasoline blending, said some traders. "[Looking ahead], some ­players are betting that the market will pick up pace in the second half of May or June, due to ­blending demand," said the same trader. Meanwhile, domestic ­market prices in Chinese yuan have also been persistently lower than US dollar value of the product since February, accelerating the ­slowdown in demand for ­imports, they said. Demand from southeast Asia has also been sluggish in recent weeks, as buyers are still holding ample stocks.

Downstream demand in ­southeast Asia has also been slow, ensuring limited interest for imports from local distributors, said regional players.

Similarly, importers in India are sidelined and hoping for a drop in FOB Korea values, said an India-based trader.

Ex-tank prices have been rising in the recent weeks in the India domestic market due to the depreciation of the Indian rupee versus the US dollar.

This has pushed away end-­users who were buying limited quantities, traders added.

Additional reporting by Ariel Chen

By: Mahua Chakravarty
+65 6780 4359

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