AFPM '19: US toluene, xylenes demand to improve in Q2

Author: Lucas Hall


HOUSTON (ICIS)--Demand for US spot toluene and xylenes is expected to increase over the second quarter as refiners exit maintenance season and prepare for the spring and summer gasoline seasons, heading into this year’s International Petrochemical Conference (IPC).

Demand for octane-enhancing aromatics like toluene and mixed xylenes (MX) typically increases by late March ahead of the switch to summer-blend gasoline in May.

According to the Environmental Protection Agency (EPA), gasoline produced for warmer months must carry a lower Reid Vapor Pressure (RVP) in order to reduce gasoline volatility and prevent excessive evaporation, in turn increasing demand for octane.

Gasoline production has outpaced demand and this has driven inventory levels well above normal, drastically cutting into margins. However, strong growth in distillate demand has driven diesel prices higher, offsetting poor gasoline margins and sustaining growth in gasoline production.

US refineries are primarily tooled to maximise gasoline production but because refiners must produce gasoline in order to get diesel fuel, gasoline production will remain robust through 2019.

Refiners are expected to keep their operating rates high in anticipation of healthier demand for diesel as shippers prepare for the International Maritime Organization’s (IMO) 2020 regulations for bunker fuels, which will require ship operators to shift to fuels with much lower sulphur content than currently allowed.

Some refiners are carrying out measures to maximise middle distillates like diesel over lighter distillates like gasoline in preparation for this switch, which will likely result in a fractional decrease in overall gasoline production looking forward.

Nevertheless, US refinery operating rates are anticipated to remain high to fuel strong demand for US fuel exports, particularly from Mexico.

With flattening year-on-year growth in gasoline consumption in the US, US refiners have to look to international shores to find growing demand.

The Mexico market will continue to be a growing destination for US-produced gasoline, buoyed by slackening refined fuels production and rising domestic demand growth. Despite ambitions by the country’s newly elected president to boost domestic oil output and curb fuel imports from the US, Mexico will remain an increasingly important destination for US refiners.

As such, toluene and MX supply available in the chemical market is expected to decrease as refiners focus their efforts on higher-value gasoline production.

US benzene-toluene spread

The negative spread between benzene and toluene is expected to continue to discourage toluene consumption for on-purpose benzene production into the second quarter as producers focus on more advantageous on-purpose PX production.

The following chart shows the spread between US spot benzene and toluene.

ICIS Editorial Chart goes here

The spread between US spot benzene and toluene has remained negative since the week ended 7 September, resulting in negative margins for on-purpose benzene production via toluene disproportionation (TDP) and selective toluene disproportionation (STDP) units.

TDP units convert toluene into a mixture of benzene and mixed xylenes, while STDP units convert toluene into benzene and a paraxylene (PX)-rich stream of xylenes.

US PX-MX spread

Meanwhile, the US spot PX-MX spread is likely to remain healthy throughout the year amid lost PX production in the domestic market, as well as increased demand for PX in the global market amid growing downstream polyester and polyethylene terephthalate (PET) demand.

The following analytical chart shows how justifiable MX consumption is for on-purpose PX production.

ICIS Editorial Chart goes here

Steadily increasing PX demand in the spring and summer months is likely to push prices higher and maintain healthy PX margins over MX.

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

Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the IPC takes place on 24-26 March in San Antonio, Texas.

Focus article by Lucas Hall