FocusTight supply to support Asia toluene prices in October

01 October 2012 07:20  [Source: ICIS news]

By Jasmine Khoo

SINGAPORE (ICIS)--Spot toluene prices in Asia will be supported throughout October by tight supply, which is expected to offset downward pressures stemming from poor demand, market sources said on Monday.

Toluene prices have started to weaken about two weeks ago, falling by an average of $35/tonne (€27/tonne) to $1,185-1,195/tonne FOB Korea on 28 September, in line with crude futures, according to ICIS.

Brent crude is currently trading at above $111/bbl, down from $116-117/bbl two weeks ago.

Throughout August up to the middle of September, toluene prices had steadily increased on expectations of tightening supply of prompt cargoes in Asia, particularly in the northeastern part of the region.

In Japan, JX Nippon Oil and Energy’s Mizushima B refinery had to be taken off line in mid-July with no definite restart date, while in South Korea, a scheduled turnaround at SK Energy’s reformers in Ulsan, with an 820,000 tonne/year toluene capacity, is expected to last up to the end of the month.

Toluene producers in southeast Asia have limited surplus cargoes to sell to the spot market as their output is mostly for captive use of their downstream plants.

“Demand is hardly changed from the previous weeks…there will always be demand, [the difference is] just whether [it is] good or bad. It is hard to see any improvement in the near future because of macroeconomics. The current price level is comfortable. Sellers are willing to let go at this price, and buyers can accept it,” said a major southeast Asian buyer.

In the Indian market, some 3,000-4,000 tonnes of toluene from Thailand flowed into the market, slightly easing the shortage of the material in the south Asian country.

South Korea-based producers noticed an increase in enquiries for large volumes of toluene – around 10,000 tonnes – from Indian buyers last week. But actual deals were limited as most South Korean producers do not have enough cargoes in their inventory to make the sale.

Most market participants said that as demand is unlikely to change anytime soon given the gloomy macroeconomic situation, crude oil futures and supply would be the main driving forces of toluene prices in Asia.

Demand for toluene in China weakened ahead of the country’s week-long celebration of its National Day and this exerted a downward pressure on prices.

“Prices have just begun softening…it is only natural for end-users to anticipate further price declines because of lower crude prices. This is why they [end-users] are purchasing in small quantities now to keep inventories lean,” said a China-based trader.

The Chinese markets are closed for the whole of this week.

“No one wants to come back after the holidays to find that they have made losses because prices are even lower than the current levels,” the trader said.

South Korean producers, on the other hand, expect the resumption of buying activities next week should buoy up prices.

“[Chinese] inventory levels are very low now, and supply is tight. We expect Chinese import prices to go up because demand will become better after the holidays,” said a company source from a major South Korea-based producer.

Another South Korea-based manufacturer concurred, saying: “They [Chinese buyers] have to buy cargoes because of the limited supply. [South] Korean makers are also more willing to sell after the holidays because we expect prices to be higher.”

($1 = €0.78)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
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By: Jasmine Khoo
+65 6780 4359

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