Toluene's main chemical use is to make benzene and xylenes via several technologies. It is also used in solvents and to produce toluene di-isocyanate (TDI). Besides that, it is used as an octane booster in gasoline.
Three grades are available: TDI-grade over 99% purity; nitration (98.5%) for solvents and commercial (96%) for gasoline blending.
Overall demand in Europe is steady but lacklustre and is being mostly met by contract commitments, with minimal requirements for spot volumes. This year has also seen limited demand for toluene from the blending sector, with European toluene prices structurally high compared to energy costs.
The 2010 start-up of US major ExxonMobil's toluene disproportionation (TDP) unit in Rotterdam, the Netherlands, which converts toluene to benzene and xylenes, continues to keep European supply balanced.
Supply is finely balanced, while availability from Eastern Europe has tightened following several downstream TDI plants coming online since early 2012.
Bayer MaterialScience's 300,000 tonne/year world-scale toluene di-isocyanate (TDI) plant at Dormagen near Cologne is on track for start-up in the second half of 2014, and combined with another start-up from BASF expected to be running by 2015, this will continue to pull on European toluene. The European market has also seen a growing trend for exports this year to keep the supply/demand dynamic balanced.
European statistics agency Eurostat figures show that exports from the EU have risen by 41% during the first half of 2013 compared with the same period last year, an increase of over 40,000 tonnes.
Prices in Europe have been closely linked to those in the US Gulf region so far this year, with domestic players keen to keep an arbitrage window open from the ARA region into the US to balance the European market.
US numbers are pushing up above $4.00/gal ahead of September and October 2013, with several turnarounds over this period, bullish oil and energy pricing and improved derivative sentiment from the polyurethane (PU) sector all adding to the positive forward looking sentiment. European spot prices have seen a steady downward movement since the startof 2013, with a weak Asian market amid oversupply also helping pull prices down earlier this year. However, the gains seen for feedstocks and the US market are likely to reverse this trend in the coming weeks.
Most toluene is produced from the catalytic reforming of naphtha or from pyrolysis gasoline (pygas) coproduced in the steam cracking of liquid feeds. A very small amount is still produced from light oil formed by the carbonisation of coal, and small quantities are recovered as a by-product in styrene manufacture.
European pricing is expected to remain structurally firm into the fourth quarter of 2013, with balanced production output and strong US numbers offsetting weak demand outside of contractual volumes.
With benzene prices relatively stagnant over the summer holiday period, this has left hydrodealkylation (HDA) production of benzene via toluene economically unworkable, although a sharp upturn towards the end of the year may widen the gap between the two. Both products are struggling with the limitations of feedstock pygas, so price ideas tend to move in tandem, however.
The US market will continue to be the key direction driver for Europe. Players will remain keen to take advantage of any arbitrage window into the US, although it will be difficult to maintain a structural gap between regional pricing for exports.