OUTLOOK ’19: US likely to become dependent on toluene, MX imports

HOUSTON (ICIS)–US toluene and mixed xylenes (MX) supply and demand fundamentals are expected to remain largely stable in 2019 as the market continues to track volatility in crude oil pricing and moderate growth in octane demand for the gasoline-blending pool amid growth in the gasoline export market.

Sustained growth in octane demand is likely to increase demand for toluene and MX imports looking forward.

Demand is expected to begin picking up early into the first quarter as refineries build up inventories in preparation for the switch to summer-blend gasoline ahead of the summer driving season, which occurs from April to mid-September.

Gasoline production has outpaced demand and 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.

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, heightened by slackening refined fuels production combined with rising demand growth from the Mexican people. 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.

Accordingly, consumers of toluene and MX in the US chemical sector will increasingly have to look elsewhere to satisfy demand as more octane is reserved for use in the gasoline-blending pool.

Imports of toluene and MX are likely to increase amid less availability in the US spot market, putting upward pressure on the market.

Stable-to-slack demand in downstream markets could counteract these pressures so long as no unforeseen production disruptions hit the market.

Demand for toluene for on-purpose benzene production is likely to remain weak, at least in early 2019, amid ample benzene supply and sluggish downstream styrene demand. Margins were largely squeezed throughout most of the year, with toluene often carrying a premium over US spot benzene prices.

North American toluene di-isocyanate (TDI) supply has been long through the second half of the year and no major change is anticipated in supply and demand balances in 2019. Some recent plant issues in Europe may help stabilise TDI availability at least through the early months of 2019.

Demand for MX for paraxylene (PX) production in the polyester chain remains mostly dependent on utilisation rates in Asia, where polyester production has decreased demand for US MX and PX in the global fibres market.

Chevron Phillips Chemical announced that it would shut its sole PX unit, located at its Pascagoula, Mississippi, refinery at the end of December. While the unit has a capacity of 495,000 tonnes/year and represents about 10% of US capacity, it represents roughly only 1% of global capacity.

As such, the US is expected to remain increasingly dependent on imports to satisfy chemical demand for toluene and MX aromatics over 2019, with price fluctuations in Asia playing a greater role than in years past.

Even so, crude oil prices will remain the biggest influence on the US toluene and MX markets in 2019. Fluctuations in crude oil prices are expected to directly impact toluene and MX prices, with lower prices expected to exert major downward pressure and higher prices major upward pressure looking forward.

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

Focus article by Lucas Hall

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