China faces bearish toluene on bloated supply, soft demand

SINGAPORE (ICIS)–China’s toluene prices could face downward pressure because cargoes are flooding the market.

Source: Andy Wong/AP/REX/Shutterstock

The timing could not have been worst when demand is shriveled and the outlook is dim.

The toluene prices in China were assessed at yuan (CNY) 5,000-5,060/tonne ex-tank east China at the close of trade on 18 January, down by CNY190-200/tonne, ICIS data showed.

The supply of toluene is rising in response to capacity add-on in China, the world’s No 2 economy after the US.

Any chance of downstream synthetic maker, Wanhua Chemical, in soaking up surplus is slim.

Currently in its trial run,Wanhua Chemical’s 300,000 tonne/year toluene di-isocyanate (TDI) plant consumes an annual 180,000 tonnes of toluene once the plant reaches full-load operation.

However, Wanhua Chemical may only run its new plant at a third of its total capacity amid oversupply.

In gasoline blending sector, the toluene market could face more challenges.

The blending market hinges on global crude valuations and if the world’s economy were to slow down, oil prices will be hit.

Toluene is mostly kept for refinery captive use due to regulations over drug making.

Crude was down on Thursday over worries that the US/China trade issues will curb global oil demand while US production hits record highs.

Meanwhile, the International Monetary Fund (IMF) in its World Economic Outlook recently issued a warning that global trade tensions will impact economic growth.

The erratic crude swing was what led to fluctuations in Chinese toluene prices last year.

In September 2018, domestic toluene spot prices hit a record-high since 2015, scaling up to CNY8,090/tonne east China and CNY8,075/tonne south China.

But the uptrend was reversed as the trade tariffs sparked off losses in global crude futures alongside steep falls in petrochemical prices.

Domestic toluene prices in 2018

Southern China recorded an all-time low in toluene prices while sharp price declines in eastern China toluene market became the norm.

In most of 2018, the toluene prices in east China were higher than those in south China; such a trend was rare.

This was mainly because of the booming capacity expansion in the southern regions, and this trend may stick this year.

Domestic toluene prices                                      CNY/tonne
	Lowest price in 2015-2017	Highest price in 2015-2017	Lowest price in 2018	Highest price in 2018
Ex-tank, south China	4,563	6,800	4,450	8,075
Ex-tank east China	4,325	6,250	4,525	8,090

HISTORY TO REPEAT ITSELF

China may continue to cut toluene imports in 2019 for a second successive year for domestic supply is on the rise given plant expansions.

China reduced toluene imports in 2018 owing to expanded local volume capacities and the Chinese yuan depreciation against the US dollar made imports unattractive price-wise.

China toluene import volume in 2014-2018

Source: China Customs

New toluene capacities in 2019
	Expected start-up time	Designed capacity (‘000 tonnes/year)
PetroChina Huabei Petrochemical	Q1 2019	300
Hainan Refinery Phase II	September 2019	150

Meanwhile, the start-up at PetroChina Huabei Petrochemical and Hainan Refinery’s Phase II project will add to the domestic toluene supply.

Although the increase is limited, it will pressure the market especially in the south given the marginal capacity additions in downstream industries.

It is noteworthy that new toluene supply from Hengli Petrochemical, Fuhaichuang and Zhejiang Petrochemical will be used in the toluene disproportionation (TDP) process to make benzene and xylene.

The spot toluene prices were higher than those of benzene as a sharp decline in benzene prices in the latter half of 2018 eroded the margins of TDP plants.

However, TDP producers still maintain high run rates since paraxylene margins remain robust.

Toluene VS benzene prices ex-tank east China in 2018

Focus article by Veronica Zhang

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