Price and market trends: Asia toluene outlook bleak on high inventory at end-markets

21 June 2013 09:58  [Source: ICB]

Bleak outlook as combination of factors including high stocks, poor demand and plant restarts pull down prices

Asia's spot toluene market was on its seventh trading day of price decline on 14 June, with no recovery expected in the near term as most end-markets were saddled with high inventory, market players said.

 

 Toluene demand in India as a solvent in its paints sector was weak

Copyright: Rex Features

Abundant spot supply, languid demand and a 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.

BOTTOM PRICE
"The 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. 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 the toluene market full of speculation, we can't say for sure prices have 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 improvements 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 the paints and coating sector, was languid.

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

As a result, stock levels at major Indian ports remained above 50,000 tonnes, more than double the nation'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 in week ending 16 June. 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.

RUPEE DEPRECIATION
"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. "This is not good for supply," a South Korea-based producer said.

Key facts

  • Spot toluene prices are in steep decline.
  • Market drivers include abundant spot supply, languid demand and closed arbitrage to the US.
  • High inventories in China and India and tepid solvent demand hitting confidence.
  • Aromatics facilities coming back on stream following turnarounds.

By: Ong Sheau Ling
+65 6780 4359



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