Asia toluene firm on prompt Chinese demand despite squeezed TDP spreads

SINGAPORE (ICIS)–Asia’s toluene has been firming for two weeks on the back of strong prompt Chinese import demand, despite squeezed spreads for toluene disproportionation (TDP) makers, sparking talks if these gains can be sustainable until November.

  – China domestic prices up on prompt short supply

 – Downstream TDP production margins squeezed

 – Sustainability of price gains unclear

The FOB (free on board) Korea prices last closed at $831-865/tonne on 29 October, according to ICIS data, with limited discussions in the morning of 30 October.

Domestic prices in China likewise have gone up to more than CNY8,050/tonne ex-tank on average, according to ICIS data on 29 October, as short-covering activities were even more evident, since it was near the month-end closing.

Shorter prompt supply has been and is continuing to be the key reason for the continuous uptrend of yuan-denominated prices, with some producers in south China halting deliveries because of production issues since the week ending 19 October, according to market participants.

This situation is likely to persist into mid-November, they added.

However, deliveries could resume by the end of the week ending 2 November, they said, adding that the prompt-forward price spread was at least at a  backwardation of CNY300/tonne.

“The market is already starting to show some minor signs of weakness after news that supply tightness will ease soon and offers are starting to come down,” one domestic Chinese trader said.

Meanwhile, squeezed downstream production spreads for benzene and mixed xylenes via the TDP process have limited the amount of bullish market sentiment.

The average of benzene-toluene and mixed xylene-toluene prices was close to negative, ICIS data showed.

Worries of some feedstock ratio adjustments – more usage of mixed aromatics instead of toluene – in downstream TDP production rates also emerged, since producer economics for toluene were much higher than that of benzene.

This was against the backdrop of persistently wider naphtha-toluene spreads as well.

“It still remains to be seen if there will be any changes in TDP operating rates adjustment because this Chinese demand could only be a short-term thing,” one northeast Asian trader said.

Furthermore, should some producers consider to switch production to toluene instead, the supply balance will be adjusted slightly, other market participants added.

Top image: Car seat. Toluene di-isocanate (TDI) is mainly used for the production of polyurethane (PU) flexible foams used in upholstery, mattresses and automotive seats. (Photo by Oleksiy Maksymenko/imageBROKER/REX/Shutterstock)

Focus article by Trixie Yap