EPCA '18: Europe toluene, xylenes trade places in buyers' shopping list

07 October 2018 11:00 Source:ICIS News

LONDON (ICIS)--Momentum behind toluene’s price direction has lost steam after hitting a four-year high contract price for Europe in September.

And it heralds a time for trading places with xylenes in the pecking order for buyers’ shopping lists.

The decrease in October’s monthly contract price signals a shift in what is holding sway over the market.

For most of the summer, the price of crude oil’s dogged, at times explosive, climb upwards has been the most influential for toluene and mixed xylene (MX), because of its fundamental role in gasoline prices.

Aromatics are priced at a premium over Eurobob gasoline.

Toluene spot & contract, gasoline, crude $/tonne

Autumn is bringing a shift in gear. It seems an anticipated rebalancing of supply with cooler demand are creating resistance against the upstream price rise on the spot market.

The change to winter specification gasoline is reducing the pull on toluene as a blending component.

This change to winter specification automatically cuts the price of Eurobob gasoline, seasonally removing a slice of the absolute value of products priced in relation to it.

The restart of BASF’s toluene di-isocynate (TDI) plant has not proved the springboard to strong consumption from the chemical sector some had signposted for toluene earlier in the year.

It could be they are not at full capacity, and meanwhile another TDI plant’s apparent disrupted output in late Q3 is also seen to have dampened demand.

On top of this, the draw on toluene to make benzene from hydro-dealkylation (HDA) is nonexistent based on the numbers.

The spread between toluene and benzene has been in negative territory for months. In late September it stood at more than minus $160/tonne (see chart).

Received wisdom suggests toluene will be put straight into the gasoline pool by reformers when HDA economics are just not there.

Spread, Europe toluene and benzene, $/tonne

The perception that an arbitrage with the US may be “too risky” for toluene was also simmering away in the market at the end of September.

Opaque views into fourth quarter upstream pricing were adding to uncertainty.

The mood in the market is “more cautious” than it has been recently, said one trader, who speculated that “things will change soon”.

US, Europe toluene, $/tonne

The season of mists is also bringing an uptick in buying interest for fellow component xylenes. It was described as “much stronger” than toluene demand in early October.

This may be due to higher blending needs but was portrayed as most likely due to attractive margins for products downstream from MX, namely paraxylene (PX) and orthoxylene (OX).

At the same time, in early October there was trading demand for xylenes to export to the US.

There has led to a lift in prices seen on the distribution market, pushing xylenes truck values well above those for toluene.

Contango pricing for Asian paraxylenes was also being mooted as a bullish sign for xylenes.

All of this is not to say there are others with an expectation of a tighter toluene market.

One supplier held the belief toluene will “become short” in the European market in October, “especially as a result” of the arbitrage to the US market.

As we enter the fourth quarter and the gathering EPCA, these two blending products could be trading places as the most sought after aromatic sibling.

The annual EPCA meeting runs in Vienna on 8-10 October.

Picture source: TI Media Limited/REX/Shutterstock

By Vicky Ellis