Europe toluene market driven by HDA dynamics

LONDON (ICIS)–Healthy domestic availability, weaker US pricing and static benzene values ahead of September are keeping downward pressure on the European toluene market, sources said on Thursday.

“There is plenty of material around at the moment,” said one major European consumer, adding that it had bought two TDI (toluene di-isocyanate) grade spot parcels at $1,075/tonne FOB (free on board) this week for HDA (hydrodealkylation) production.

HDA production converts toluene to benzene, and with benzene spot prices currently hovering just below $1,400/tonne, sources felt this would make toluene at $1,075/tonne economically viable. The consumer also noted that it had to take gasoline prices into account, which are currently around $940/tonne FOB.

Although the benzene spot market has seen limited activity in August, some scheduled European cracker turnarounds in Q4 and at least one planned US aromatics unit maintenance shutdown  in September is likely to keep pricing and sentiment in Europe bullish for the rest of 2014 following the seasonal slowdown this month.

While spot offers for European toluene cargo had been steady around the $1,100/tonne level for some time, there was a growing sense that pricing had to move lower in August. Spot prices in the US are currently around $3.65/gal FOB, meaning that European numbers would have to be closer to $1,050/tonne to make any exports across the Atlantic workable.

Other HDA producers in Europe were showing buying interest for toluene at $1,060/tonne.

“The market here in Europe is being driven by HDA dynamics,” said one source. “It is currently the best indicator for pricing.”

Sources in the European market also noted that there is an open arbitrage window from Europe to India at present, but that there was no real movement of material despite this. One buyer speculated that the logistics of such business could be difficult, impeding any exports from Europe.

European toluene contracts for August were confirmed at $1,138-1,140/tonne FOB NWE earlier this month.

With spot deals being done ahead of September contract talks, it is thought that this would help the negotiation process with players being better able to gauge pricing sentiment, in a European market that has struggled with illiquidity and a clear lack of direction in recent months.