Asia’s toluene prices to fluctuate amid mixed fundamentals

SINGAPORE (ICIS)–Asia’s toluene prices are expected to fluctuate in the near term on the back of mixed demand-supply fundamentals amid weaker Chinese import interest, market participants said on Monday.

On 24 October, early bids were at $615-622/tonne FOB (free on board) South Korea for November, with December bids at $618/tonne FOB Korea, and no offers heard so far, several traders said.

The bids were stable from the prices at closing last Friday, when prices were assessed at $622-629/tonne FOB South Korea, according to ICIS data. 

Prices have been fluctuating consistently since the first week of October, rising consecutively for two straight weeks since 3 October from $590-600/tonne FOB Korea to above $625-630/tonne FOB Korea on average.

However, prices have remained stagnant and are starting to show signs of softening because of lacklustre Chinese buying interest for US-denominated November-loading cargoes, which has been weighed by the weaker yuan against the US dollar.

Bids from Chinese importers for November cargoes were mostly at $635-645/tonne CFR (cost & freight) China, which is barely a $20-25/tonne gap with FOB South Korea prices for November, making it unworkable for any seller to complete back-to-back business.

“If Chinese buyers cannot raise their bids, it is only natural for FOB Korea prices to move down to meet buying expectations since the Chinese is the largest import market still,” a key northeast Asia-based trader said.

Chinese buyers’ disinterest has been made worse by the steep descent in yuan-denominated prices. East China prices fell from CNY5,450-5,675/tonne ex-tank in the week ended 14 October to CNY5,325-5,475/tonne ex-tank in the week ended 21 October, according to ICIS data.

“After local prices took a turn for the worse, Chinese buyers are even more deterred to enter the import market,” one south China-based trader said.

The impending arrival of more than 60,000 tonnes of Asia-origin material for November is also proving to be a strong push factor for Chinese importers to stay by the sidelines.

Market players are expecting at least 30,000-35,000 tonnes of South Korea-origin cargoes; 6,000-9,000 tonnes of Taiwan-origin and 15,000-20,000 tonnes of southeast Asia-origin to arrive in November.

Despite poor buying interest from the Chinese, November cargoes have mostly been sold out by producers and contributed to the lack of lower FOB South Korea offers in the open market.

“Most November cargoes have either been sold to traders or producers had already sold out of material beforehand, so the prices will be highly dependent on the traders’ position,” one southeast Asia-based traders said.

Moreover, supply levels in the Asia region is likely to decrease further in December, with availability to be constrained by the restart of a key downstream toluene disproportionation (TDP) unit in South Korea by end-November after a scheduled turnaround. This has also been capping price decreases so far. 

The tighter spot supply situation will be exacerbated by the continuous high run rates of other downstream TDP units in South Korea and the scheduled turnarounds of some Thailand-based plants such as ROC’s 70,000 tonne/year unit and IRPC’s 130,000 tonne/year unit in November-February 2017. 

“The possibility of persistent liquefied petroleum gas [LPG] usage by some cracker-based units for December could further limit the number of spot cargoes from South Korea and Japan,” a northeast Asia-based trader said.

As a result, it remains to be seen if demand or supply will have more impact on FOB South Korea prices.

Picture (top): Toluene is used as a solvent in paints and thinners.

Focus article by Trixie Yap