Europe toluene blend premiums up but for mixed reasons

Focus article by Rhian O’Connor

LONDON (ICIS)–Premiums for European toluene over gasoline have risen again towards the end of the week, although market participants point to a number of reasons behind the increases.

European toluene continues to be valued in line with gasoline values (Eurobob plus a blend premium), with limited other avenues for product.

During the week blend premiums were reported as low as $37/tonne over Eurobob, approaching what many in the market saw as a floor value.

The reasons for the falls included oversupply of gasoline components, weaker gasoline prices, and lower blending demand.

However, in the second half of the week premiums were going up again with a number of factors behind the move.

Firstly, a producer was heard to be bidding for TDI-grade material at $103/tonne above Eurobob. Traders do not see this as normal business with one saying it had more to do with the producer’s selling price this month.

The producer itself pointed to weak economics and saw a need to correctly value TDI-grade material and potentially lower production.

“TDI [-grade] should have a price above nitration grade ……… At one point the market really contracted, there were no sales for a producer to produce TDI.  We cannot produce at that level, we are losing money on every tonne. The current price is not reflecting a profit for the producer. [We may] stop the unit. We have to do something,” said the producer.

This lower production may be happening across the board, with producers choosing not to extract high-purity toluene, but instead keep it in pygas or a toluene-xylenes (TX) aromatics mix for blending.

Whatever the reason, the bid has served to differentiate between TDI-grade toluene and nitration-grade, with TDI-grade said to be valued more towards $60/tonne than $40/tonne above Eurobob.

A second reason for the improvement in blend values is some upward movement in gasoline itself.

“The momentum on gasoline had changed a bit. It’s gone from $550/tonne to $570/tonne. It’s simply a case of momentum,” said a trader.

The final reason given is the potential for increased demand from the US for gasoline components. North American refineries have now reached a tentative agreement with striking workers. In addition, the upcoming driving season may stimulate volumes in the US – the IEA this week reported a spike in gasoline consumption.

“I heard someone claiming pygas [aromatics-rich refinery stream containing toluene] was tightening up in Europe. They saw pygas shipped in volume to US. ….This may tighten benzene, toluene and xylenes,” a distributor said.

Europe toluene was valued on Thursday 19th March at $615-635/tonne FOB (free on board) Rotterdam, with Eurobob at up to $575/tonne FOB ARA (Amsterdam-Rotterdam,-Antwerp) and blend premiums at $40-60/tonne.