FocusAsia toluene outlook bleak on high inventory at end-markets

14 June 2013 08:06  [Source: ICIS news]

By Ong Sheau Ling

Toluene prices are in decline in AsiaSINGAPORE (ICIS)--Asia's spot toluene market is on its seventh trading day of price decline on Friday, with no recovery expected in the near term as most end-markets are saddled with high inventory, market players said.

Abundant spot supply, languid demand and closed arbitrage window from Asia to the US, also contributed to the bearish sentiment prevailing in the market, they said.

On 13 June, spot toluene prices stood at an 11-week low of $1,085-1,095/tonne (€814-821/tonne) FOB (free on board) Korea for June and July parcels, $1,090-1,100/tonne FOB Korea for August loading, $1,095-1,105/tonne FOB Korea for September lots, ICIS reported.

“Market has fallen to quite a low level, but looking at the current factors, it is hard to say whether this is the bottom price,” a China-based trader said.

Spot prices started falling from 6 June, with a low-priced tender by Taiwan’s CPC Corp serving as the trigger, market sources said.

CPC tender was closed on 6 June at $1,000-1,100/tonne FOB Kaoshiung for July cargoes, when spot discussions for July were at $1,120/tonne FOB Korea.

“Sentiment is already weak, but the CPC tender and the August deal were the push factors for the price fall,” a Singapore-based trader said.

An August-delivery cargo was concluded late Wednesday afternoon at $1,100/tonne FOB Korea, which was $15/tonne lower than another August fixture settled in the morning session, according to ICIS data.

“This is shocking for me. I just bid at $1,100/tonne FOB Korea and I was booked,” said the surprised buyer.

Chinese players were baffled by developments upon their return to the market on Thursday after a three-day absence this week because of a public holiday.

“I am still trying to understand why prices fell so steeply, even though I know there are so many bearish factors,” a second China-based trader said.

High inventories in major consumer countries in Asia such as China and India, coupled with tepid downstream solvent demand across the region, dampened players’ confidence.

In China, stock levels were at around 130,000 tonnes, staying above 100,000 tonnes since end-February, according to ICIS China.

“With toluene market full of speculation, we can’t say for sure prices had hit the bottom,” another China-based trader said.

Dispatching material from ports has yet to improve to pre-Lunar New Year levels, even though some improvement were noted recently, according to Chinese traders.

The week-long Lunar New Year festivities in China took place on 9-15 February.

“Solvent demand is just normal, but gasoline blending has yet to see real signs of improvement,” a Shanghai-based trader said.

Even less toluene is used in gasoline blending, given its higher value compared to the other blending components, players said.

In India, toluene demand, especially as a solvent in paints and coating sector, was languid.

“The demand is really bad [in the paints and coatings]. Only pharmaceuticals are holding on,” an Indian trader based in Chennai said.

As a result, stock levels across major ports in India remained above 50,000 tonnes - more than double the country’s monthly requirement.

“Over-contracted volumes worsened the supply condition here. We have no choice but to negotiate less term volumes,” a Mumbai-based trader said who has term contracts for cargoes originating in Singapore.

Up to 8,500 tonnes of Singapore term toluene cargoes and 2,000 tonnes of South Korean term shipments will be moved to India in June, down from the actual term volumes of more than 20,000 tonnes, market players said.

Meanwhile, the sharp depreciation of the Indian rupee against the US dollar curtailed demand for imports. A weaker local currency makes imports more expensive.

The rupee hit a record low of Rs58.98 to the US dollar early this week.

Toluene ex-tank prices in the Kandla and Mumbai domestic market hit rupees (Rs) 71.5/kg – a 14-week high on 11 June, according to ICIS.

“Domestic prices just shot [up] solely on rupee depreciation. There is nothing to do with the demand. Demand is just bad,” a second Mumbai-based trader said.

On the contrary, spot cargoes were re-exported out of the country to southeast Asia for July at prices below $1,090/tonne FOB India, they said.

Oversupply of spot cargoes in the region may be exacerbated in the near term, with two southeast Asian producers planning to issue tenders to sell July-loading cargoes, market sources said.

Aromatics facilities coming back on stream from turnarounds, like the 27,000 bbl/day reformer of South Korea’s SK Global Chemical (SKGC), will also boost toluene availability in Asia, they said.

SKGC’s reformer is due to restart on 16 June after a month-long scheduled maintenance. In Japan, JX Nippon Oil and Energy has restarted its Muroran facility early this week.

“This is not good for the supply,” a South Korea-based producer said.

“Arbitrage to the US is still closed. Suppliers have to find ways to offload [cargoes], if not, China could be the only outlet left,” another South Korean maker said.

The Asia-US arbitrage window has been shut over the past two weeks, given a price gap of barely $20/tonne, which is insufficient to cover the sea freight charges, according to ICIS.

From South Korea, only 8,000 tonnes  of toluene will head to the US in June, and a slightly higher volume of 9,000 tonnes in July, comprising mainly term lots, market players said.

Japan, on the other hand, is shipping out 12,000 tonnes of toluene to the US this month, they said.

“There are less cargoes going to the US from South Korean as compared to May which is much more volume,” a second South Korean trader said.

($1 = €0.75)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

Author: Ong Sheau Ling

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