Europe toluene contracts face downward pressure for October

Truong Mellor

29-Sep-2014

LONDON (ICIS)–Players in the European toluene market are braced for some downward movement on October contracts, sources said on Monday, with weak derivative demand, healthy regional availability and limited export opportunities all weighing down on the market.

Spot activity has been limited in recent weeks, with no clear buying interest amid subdued demand and lower US pricing this month restricting any export business.

Sources felt that supply in Europe was ample, with sellers looking to place material but no real impetus among buyers. With talks for October contracts scheduled to begin this week, this is also keeping spot liquidity to a minimum.

Spot levels were initially assessed at a wide range, with gasoline prices around $900/tonne pushing buyers lower amid limited interest for blending purposes, while the upward movement on benzene helped support selling indications in a thin market.

There were also offers heard as high as $1,070/tonne last week, but many sources felt these were not realistic given current global pricing. US toluene traded last week at $3.55/gal FOB (free on board), which would support arbitrage opportunities out of Europe across the Atlantic at just above $1,000/tonne.

Asian toluene prices hit a 14-week low earlier in September amid sluggish aromatics sentiment in the region, and continue to languish below $1,100/tonne FOB Korea.

With European benzene spot levels edging up ahead of the contract settlement expected this week, there was the potential for some hydrodealkylation (HDA) demand in October.

H
DA production converts toluene to benzene, and with benzene prices moving above $1,300/tonne, one toluene consumer said that prices for European toluene around $1,000/tonne could be workable.

However, there is still some uncertainty about how sustainable European benzene prices are. With the Amsterdam-Rotterdam-Antwerp (ARA) region now leading the way globally, this is attracting imports from both Asia and the US, which will weigh down on pricing next month.

Additionally, benzene fundamentals do not support a bullish position into the fourth quarter, with downstream styrene looking specially sluggish and some phenol shutdowns also likely to curb demand.

European toluene contracts for September were agreed earlier this month within a range of $1,086-1,090/tonne FOB NWE.

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