OUTLOOK '13: Tight supply to support Asia toluene despite weak demand

26 December 2012 03:55  [Source: ICIS news]

By Jasmine Khoo

SINGAPORE (ICIS)--Asia’s tight supply of toluene, particularly in China, will continue to buoy up regional spot prices of the aromatics product in the next few months, even though demand is expected to remain weak, industry sources said.

Supply at China’s southern ports is at critically low levels, while traders in the region have been covering their short positions, thereby firmly supporting toluene prices, they said.

In mid-December, toluene inventory levels in eastern China were at 30,000 and at a very low 1,000-2,000 tonnes in the southern part of the country, market sources said.

Optimal inventory levels should be around 60,000-75,000 tonnes for eastern China and about 6,000-8,000 tonnes for southern China.

According to ICIS data, toluene prices assessed on a FOB (free-on-board) basis rose from $1,110-1,120/tonne (€844-851/tonne) FOB Korea on 10 August to $1,390-1,410/tonne FOB Korea on 14 December.

“China inventory levels are very low. Chinese traders are seeking cargoes…not so much [the] end-users. Our inventory levels are also very low; we only have one cargo left for January-loading,” a South Korea-based toluene producer.

For January-loading lots, the producer is offering $1,400/tonne FOB Korea, expecting toluene prices to either remain stable or continue rising in the near term.

Supply may further tighten in the first quarter, as South Korean producer GS Caltex may shut its Yeosu reformers for turnaround in February or March for about 40 days, market sources said.

Actual deals in the Asian toluene market, however, remains subdued as end-users preferred to wait on the sidelines, awaiting a clearer price direction. Sellers, on the other hand, were holding back offers until better profit margins can be made.

In the week ended 14 December, only one deal was concluded on CFR China basis for a December-loading cargo at $1,405/tonne CFR China, market sources said.

A China-based trader said he is not keen to seek cargoes actively during the rest of December given a dearth of enquiries from buyers.

With the holiday season approaching, demand is not expected to be good, he said.

“The market will probably remain this way until next February after the Lunar New Year is over,” the trader said in Mandarin.

The Lunar New Year falls on 10 February in 2013 and is usually celebrated in most countries in Asia.

Most market participants in southeast Asia deem the current toluene prices in the region as too high, squeezing their margins.

“The demand is so weak, and competition among the distributors [to sell toluene cargoes] is very strong. We really hope the prices can soften, because as distributors, we are caught between the sellers and the end-users,” said a southeast Asia-based distributor.

But a softening of prices does not appear probable given the current market situation.

“The situation in the northeast Asian region still seems tight. No one dares to buy anything now. It is all very uncertain,” the distributor said.

Another southeast Asian toluene producer is hoping “prices can fall a little”, but “the current price levels from [South] Korea are giving end-users a lot of pressure.

($1 = €0.76)


By: Jasmine Khoo
+65 6780 4359



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