Europe toluene market faces August decreases

LONDON (ICIS)–European toluene players are anticipating a decrease on the upcoming August contract settlements, players said on Thursday, with sluggish demand from the gasoline blending sector keeping downward pressure on prices.

Premiums for toluene have been slightly firmer since the start of July, with numbers as low as $40/tonne over the benchmark Eurobob price initially heard this month. A range of $55-75/tonne was seen this week, while other sources valued the premium over gasoline at $60/tonne.

Eurobob gasoline was trading below $430/tonne midweek, which would put toluene spot levels around the $500/tonne mark. July Europe toluene contracts were agreed at $560/tonne.

“West Africa has been importing more,” said one toluene consumer. “But this has mostly been [pryolysis gas] pygas. The US remains very weak. It makes sense for refineries to cut back rates, but then it becomes a question of what happens to the crude stock.”

While gasoline pricing dynamics are expected to determine August toluene values, some sources in the market suggested that this could shift in the coming weeks.

The consumer felt that conversion rates rather than gasoline blending could start to drive the toluene market.

Continued bullishness for European benzene this week due to some prompt availability constraints has the toluene market carefully watching the spread and the possibility of ramping up output from its hydrodealkylation (HDA) units, converting toluene into benzene.

However, there remain concerns about the sustainability of the benzene/toluene spread as a healthy margin is needed for a prolonged period to make HDA production viable.

Given the steep intra-month backwardation for August and even lower September numbers, it remains unclear whether the economics for HDA production will hold.

“We saw negative margins earlier this year,” said one toluene industry player this morning. “So there are concerns about the sustainability of the spread. It takes some time for the toluene to reach the market as benzene.”