INTERACTIVE: Asia toluene hinges on Chinese demand, TDP op rates

28 June 2017 04:35 Source:ICIS News

SINGAPORE (ICIS)--Asia’s toluene price movements in the third quarter of the year will be heavily influenced by demand and supply developments in China as well as the operating rates of downstream toluene disproportionation (TDP) units in northeast Asia, according to market sources.

The regional market has been suffering from weaker-than-expected buying interest from Chinese importers in the first half of the year amid the dismal performance of both the downstream chemical and gasoline blending sectors as well as a rangebound yuan-denominated market, according to market participants.

Domestic prices in China have been rangebound – mostly between CNY5,000-5,500/tonne ex-tank in the past two months – because there was no clear market demand and no signs of demand improvements from any key downstream sectors.

The lack of trading liquidity and limited number of trading parties in the market have also heavily contributed to the narrower-than-expected fluctuations in yuan-denominated prices.

“The market is not moving much despite the fluctuations in crude prices and this is starting to be a cause of concern for all of us,” one east China-based importer said.

Weak but stable demand from downstream toluene diisocynate, benzoic acid, trinitrotoluene sectors persisted in the first half of this year and there has not been any explicit signs that conditions will improve, sources said.

(please view the infographic below in full screen mode)

A spate of ongoing scheduled maintenance shutdowns and low operating rates from these downstream units are likely to continue until mid-July or even early August amid stringent environmental and waste checks by government-appointed officials at key regions in east China and northeast China.

Moreover, with hotter weather drawing near, it remains to be seen if some of the smaller specialty chemical units will still be in operation because of the high utility costs required.

Despite the uncertainty surrounding downstream sectors, market sources are turning to expectations of improved gasoline consumption during the Chinese driving season in September and October which will help boost demand for blending.

This spike in demand could in turn push importers back out into the market for more cargoes, duplicating the surge in import volumes during the August to October period in the past few years.

However, there are concerns that ample gasoline inventories and high gasoline production from both teapot refineries and oil majors’ refinery units could dampen any potential demand growth from the blending sector, according to sources.

The run rates of refineries in China remained high in the first half of this year, with state-owned facilities operating at an average of 70-75% and teapots at 60-65%.

“There is still cautiousness about when the gasoline demand season will show its head because of the slower-than-expected vehicle sales domestically and limited gasoline export quota for the third quarter of the year,” one east China-based trader said.

The magnitude of this demand improvement, on the other hand, is also dependent on new plant start-ups for the third quarter of the year in various parts of domestic China – some of which have been delayed since May.

Company

Location

TOL (kt/y)

Output

Est. start-up period (as of Jun 2017)

(kt)

Sadara Chemical

Al Jubail, KSA

140

35

Q3 2017

KPIC (debottleneck)

Onsan, Korea

30

13

Jul-17

CNOOC Huizhou

Guangdong, China

350

117

Aug-17

Petrochina Yunnan

Yunnan, China

600

200

Aug-17

Jinling Petrochemical

Jiangsu, China

300

50

Oct-17

Hongrun

Shandong, China

120

60

Jun-17

Jingbo

Shandong, China

360

120

Aug-17

Total in 2017

1900

594

Total in China 2017

1730

547


While some units have confirmed their timelines to start up, there continues to be uncertainty as to whether these units will be able produce on-spec material for domestic sales on schedule.

“We still do not know when these plants will be able to deliver cargoes to their customers and what their exact plans are yet so it will be hard to foretell if the growth in supply will be matched with the demand rise in August-September,” a second east China-based trader said.

Meanwhile, downstream TDP operating rates in northeast Asia – particularly in South Korea and Taiwan – will likely be a wildcard in determining the extra supply availability and the price trend of toluene in the second half of the year.

The usage of toluene from these downstream units has been stellar in the first half of the year, as the economics continue to remain healthy amid a healthy spread between benzene-toluene and isomer xylenes and toluene.



The likelihood of high operating rates to last until the third quarter of the year is high, but much hinges on the demand and producer inventory levels of both benzene and isomer xylenes within the region.

“We need to see the economics for Parex units as well, since the isomer xylenes will have to be absorbed for paraxylenes production ultimately,” one northeast Asia-based trader said.

Stability, however, is expected within the southeast Asian market because of the unchanged operating ratios of the units for most parts since January this year, market players said.

“The most amount of volatility is still expected in the northeast Asia region, but the market is definitely long in supply,” a southeast Asia-based trader said.

Picture (top): Toluene is used as a solvent in paints and thinner (REX/Shutterstock)

Focus article by Trixie Yap
By Trixie Yap