OUTLOOK’ 14: New PX capacity to constrain spot Asia toluene supply

10 January 2014 06:41  [Source: ICIS news]

By Ong Sheau Ling

OUTLOOK’ 14: New PX capacity to constrain spot Asia toluene supplySINGAPORE (ICIS)--Spot availability of toluene in Asia will be limited this year given the massive capacity of downstream paraxylene (PX) - totalling 6.47m tonnes - that will come on stream largely in the second half of 2014, industry players said.

“Liquidity [in the toluene market] will drop with even a key South Korean maker buying cargoes themselves,” a South Korean trader said.

SK Global Chemical (SKGC) has a 1.3m tonne/year PX plant in Incheon, South Korea that is scheduled to start up in July 2014, while its joint venture with JX Nippon Oil & Energy - a 1m tonne/year PX unit in Ulsan - is due to begin production in June.

Jurong Aromatics, which is another joint venture firm of SKGC, also has a new 800,000 tonne/year PX unit in Singapore that will come on stream in June.

“With less [toluene] trades in the market, price direction becomes more unclear,” a separate South Korean maker said.

Spot toluene prices on a free-on-board (FOB) Korea basis have been on a downtrend since the start of the year, tracking losses in the key Chinese domestic market, as well as in the US and European markets.

At midday, toluene prices stood at an average of $1,140/tonne, down by $30/tonne from the start of the year, according to ICIS.

In the Chinese market, traders are busy liquidating their high inventory of toluene ahead of the Lunar New Year on 31 January, industry sources said.

The Lunar New Year is observed in most parts of northeast and southeast Asia, but is celebrated the longest in China.

“Traders want to cash out and reduce their stocks,” a Chinese trader said.

As of 9 January, toluene inventories stood at 92,400 tonnes at Jiangsu – east China’s largest market – almost double the typical stock levels of 50,000-60,000 tonnes, industry sources said.

A major northeast Asian maker, which has lower sales of term toluene volumes, is expected to sell more spot cargoes in the first half of the year, they said.

This could create further downward pressure on the Chinese market, which is the biggest importer of the aromatics product in Asia, they said.

“Inventories in South Korea is slightly on the higher side,” a second South Korean producer said.

With regional producers under pressure to offload cargoes ahead of the Lunar New Year holidays, many players expect prices to be on a downtrend for the rest of January.

“Spot prices may land at $1,120/tonne [FOB Korea for February and March cargoes] next week or even [at] $1,100/tonne [FOB Korea] by end of January. We can’t see the bottom price yet,” a Singapore-based trader said.

Chinese demand is likely to fall towards end-January, as several downstream solvent plants will be shut ahead and after for the Lunar New Year period.

The shutdown at the downstream plants may last for a month, traders said.

Meanwhile, gasoline blending activity in China has been moderate, with blending margins using toluene as octane booster not as healthy as compared with last November, Chinese blenders said.

Toluene importers in southeast Asia and India are procuring cargoes on a “hand-to-mouth” basis, as the downstream solvent sectors in these areas are showing no significant improvement in market conditions, players said.

“Solvent growth in India is near negligible. We will only see any improvement when the new government settles in in the second half of the year,” an Indian trader said.

India will hold its national elections starting May.

In south east Asia, “there are just these few [toluene] buyers and we are receiving several offers. This is not a good sign”, said a second Singapore-based trader.

“The oversupply situation hasn’t improve at all,” a second South Korean trader said.

Towards February, many market players are at a loss on how toluene prices would behave.

“There are just too many factors affecting the [toluene] prices and with traders’ speculation, it is harder to predict,” a second Chinese trader said.

Last year, spot toluene price movement had largely been driven by market sentiment, giving little heed to energy market fundamentals, industry players.

Post-Lunar New Year, overall manufacturing and gasoline blending activities should pick up gradually across the northeast Asian region, as weather conditions warm up, traders said.

“Perhaps some demand will somehow support prices towards the end of the first quarter,” a third Chinese trader said.

“One thing for sure is that once the big PX units start-up one by one from June, we should feel the toluene supply crunch gradually and hopefully lend support to prices,” a third South Korean producer said.

A number of market players expect spot toluene prices to increase in second-half of the year because of the new PX start-ups, leading to higher premiums settled for 2014 term contracts.

“Whether [the toluene] market will be really tight [in the second half] will depend on whether the new PX plants will start-up on schedule,” a third South Korean trader said.

Run rates of the new PX plants, as well as those of the downstream polyester facilities, will also come into play in determining Asia’s toluene supply conditions after June, he said.

Additional reporting by Jenny Yi and Samuel Wong

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

Author: Ong Sheau Ling

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