US spot toluene, MX begin to bounce back amid upswing in crude

Source: ICIS News

2019/01/11

HOUSTON (ICIS)--US spot toluene reached an inflection point, increasing from the previous week with higher crude prices.  US spot mixed xylenes (MX) also averaged up with higher crude prices, increasing on the low end of the range.

The weekly range for US spot toluene increased to $2.08/gal FOB (free on board) in the US Gulf from $1.95/gal the previous week.

The weekly range for US spot MX was assessed at $2.07-2.15/gal FOB in the US Gulf from $1.85-2.15/gal the previous week.

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Although US gasoline consumption increased, demand remains weaker amid the winter gasoline season, during which demand for octane is typically lowest.

Weaker gasoline demand is expected to prevail throughout most of the first quarter until refiners begin preparing for the switch to summer gasoline in May.

Rising crude prices prompted increased liquidity in the spot toluene market, with two deals confirmed during the week.

That said, the economics for on-purpose benzene production remain weak amid negative margins between US spot toluene and US spot benzene stemming from ample benzene supply and weak downstream demand.

Benzene-toluene spread The negative spread between US spot benzene and toluene continues to discourage toluene consumption for on-purpose benzene production via selective-toluene disproportionation (STDP) and toluene disproportionation (TDP), as the following chart shows.

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The spread is expected to remain unfavourable through the first quarter amid weak demand for benzene and its derivatives as refiners focus their efforts on on-purpose paraxylene (PX) production via crystallisation units given the wide spread between PX and MX prices.

Despite upward pressure on the market, MX liquidity was thin following a production disruption at one of the PX units at Flint Hills Resources' Corpus Christi, Texas, West Refinery.

Flint Hills shut unit No. 2 at the refinery on 7 January because of a leak. The plant is shut so the company can replace the seal.

Flint Hills did not indicate when the plant would reopen.

The unit uses MX to produce on-purpose PX.

As such, the shutdown is unlikely to have a major impact on the market unless it extends into refinery maintenance season, as US MX and PX supply is healthy relative to weak domestic demand.

PX-to-MX spreadThat said, the spread between PX and MX remains healthy, with producers focusing on MX-to-PX conversion units over less-viable STDP and TDP given the negative spread between US spot toluene and benzene.

The following analytical chart shows the justifiability of MX consumption for on-purpose PX production.

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The spread is expected to remain largely healthy over the first quarter amid weaker demand for both MX and PX.

Major producers of US toluene and MX include ExxonMobil, Marathon Petroleum, Flint Hills Resources, Valero, Total and CITGO.