Europe toluene direction unclear ahead of US driving season

11 February 2013 12:26  [Source: ICIS news]

DirectionLONDON (ICIS)--The European toluene market continues to struggle with illiquidity, sources said on Monday, while it remains unclear whether the upcoming US driving season will spur any extra demand.

Following some spot deals at $1,310/tonne (€983/tonne) and $1,320/tonne early in January for export purposes, the spot market has been inactive. Prices have gradually drifted downward despite some initial resistance from sellers, who cited balanced supply levels as a reason for maintaining offers above $1,300/tonne.

However, lower global pricing, as the year unfolded, pulled domestic offers down to $1,290/tonne. February contracts were eventually settled at $1,275-1,279/tonne, down by as much as $46/tonne from the previous month, as buyers argued that European pricing needed to move in line with global markets in order to make export business viable.

There was speculation from one producer that the upcoming US driving season – when toluene is used in large quantities as an octane booster in gasoline – could help support an upturn in European demand.

“There are also some upcoming turnarounds,” the producer added. “This could further tighten the market.”

However, other sellers are not so sure about any positive upturn on demand from the driving season, arguing that the toluene/gasoline differential is too skewed at present.

“It is difficult to say what will happen,” said one seller. “The US could determine pricing in Europe, but the differentials over gasoline seem to be quite high at present, so it’s unclear how much impact this will have.”

One potential factor which could help determine toluene pricing is the outlook for European benzene, which has seen prices soar since early 2012 on the restricted availability of feedstock pyrolysis gasoline (pygas).

Pygas is used for steam cracking in the BTX (benzene, toluene, xylene) extraction process, which means that toluene prices often follow the general direction of the benzene market as they share the same upstream fundamentals.

While pygas availability is expected to remain limited, as refiners opt to utilise lighter feedstocks, several styrene and phenol shutdowns will mean that benzene demand is likely to start easing off from March.

This could bring benzene pricing down, which in turn may impact toluene levels and make the gasoline pool a more viable outlet for the market.

However, one aromatics producer remained unconvinced.

“Fundamentally, and globally, benzene will stay tight for a lot of reasons,” the producer said. “[Benzene] prices may ease a bit in Europe with the [derivative] turnarounds later this year, but we don’t expect too much downward movement.”

($1 = €0.75)


By: Truong Mellor
+44 208 652 3214



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