OUTLOOK ’19: Europe toluene, MX markets to stay under crude’s spell in 2019

LONDON (ICIS)–Europe’s toluene and mixed xylenes (MX) markets approach 2019 – as many other petrochemicals will – in thrall to the rollercoaster performance of crude oil and the horror show laid on by the Rhine river.

But, besides these dramatic, eye-catching narratives, subtler twists of the story for supply and demand still prompt questions for Europe.

Prices should continue to take a cue from crude oil in 2019, with both toluene and MX “hugely correlated” with energy, according to a trading source.

After crude oil’s persistent spiral down to around $55/bbl in late December 2018, a wait-and-see attitude emerged in toluene and MX distribution markets as ever-falling crude and a holiday slowdown gave buyers pause for thought.

On the crude front, it is clear there are no certainties. OPEC’s decision to start cutting global supply by 1.2m bbl/day from January could help the oil market re-balance in the first half of 2019, but questions remain about its efficacy later in the year, as outlined in the ICIS 2019 Outlook article for crude oil.

Moreover, in the longer term the International Energy Agency (IEA) believes the crude oil markets could enter a period of renewed uncertainty and volatility, including a possible “supply crunch” in the early 2020s.

Its World Energy Outlook 2018, released in November and which looks at different future scenarios for the energy complex, stated the “risk of a supply crunch looms largest” in crude oil.

RHINE IMPROVES
2018 was dogged by weaker demand, first as BASF’s toluene di-isocyanate (TDI) plant was down early in the year and later hit by chronically low levels on the Rhine, down to around 40cm at the Kaub measuring point at the most critical time.

The weather could be blamed for a touch of deja vu in 2019.

Operating rates at BASF’s TDI plant could potentially continue being a conversation topic for 2019, if there is no consistent rain to boost water levels and prevent barges carrying toluene to Ludwigshafen.

Kaub measuring point, 121cm on 21.12.2018
Source: BfG

The Rhine was bound to recover by the end of 2018, after surging to 2m in mid-December.

At time of writing, it was forecast to revive to more than 3m at the critical Kaub measuring point by 25 December, according to Germany’s Federal Institute of Hydrology (BfG).

That would be a nice present to look forward to for all the logistics managers given such a headache in the second half of 2018.

The Rhine’s extreme lows have been dismissed by some sources as a one-off or an unrepeatable event, though is clearly seen as a risk by majors like BASF.

The German powerhouse is exploring alternative shipping methods “to make the site more resistant to low water events in the long term” after force majeures or halted production for products such as TDI in late November and methacrylic acid (MAA).

It is not the only firm to consider the strategic risks in future, with one distribution player recently noting the benefits of contracted volumes versus reliance on the spot.

The distributor praised the suppliers’ commitment to their contractual volumes in spite of the pains of the Rhine.

Pressure on the trucks market – for all petrochemicals including toluene and MX – has been pronounced in 2018.

Another petrochemicals distributor complained earlier in the year that margins for middlemen in the distribution market were being squeezed by hefty increases for barge-delivered material, while customers were reluctant to pay too much more.

Whether there is a knock-on effect on logistical planning, or a rethink on pass-through for truck business, is an interesting question for the coming year.

SUPPLY, DEMAND EDGE INTO LIMELIGHT
Toluene and MX exports to hungry markets in Asia, including India, could be a feature in 2019, trading feedback has indicated, which in turn would drive tighter availability in Europe.

After the crude oil dive in 2018, which has tugged down Eurobob gasoline, premiums for toluene and MX over gasoline have been riding high, aided by trader demand to try and export from Europe towards Asia.

Opportunities for arbitrage with the US have been on and off in the latter stages of 2018 and were often written off as “risky”.

Prospects for 2019 will be watched but described by some as best suited to any player with storage either side of the Atlantic.

2019 should be a gripping year, whether the crude oil volatility and weather-related angst of 2018 carries on, or supply and demand takes back hold of the steering wheel.

Focus article by Vicky Ellis