By Shivangi Acharya, Alexander Borulev, Emily Burleson, Sue Koh, Mary Hogan
Across global markets, toluene prices in the second half of 2021 will depend on continued bullish prices in downstream benzene and a forecast resurgence in gasoline demand as more communities receive vaccines.
However, any surges in COVID-19 cases or logistics issues could delay expected higher gasoline demand and impact toluene as a result. Toluene’s high octane value can make it a valuable component in gasoline blending.
Demand for toluene disproportionation into benzene, paraxylene and mixed xylenes will be driven by the spot prices for the latter three aromatics, particularly benzene.
Heading into the second half of 2021, the toluene disproportionation (TDP) sector will continue to provide the main pillar of support for the Asian toluene market from South Korea and Japan. Demand from this sector has fluctuated with the health of paraxylene and benzene markets, however. South Korea, where TDP plants were running high, will likely take center stage for attracting barrels. Plant maintenance and earthquakes dented Japan's production and further fueled bullish sentiments.
Summer driving season for gasoline, which spans from mid-April to August, had yet to realize its full potential in May. As the year moves forward with vaccines across the region, relaxed social rules, improved consumer spending and mobility could open more opportunities for toluene.
Although China remains a mixed bag, East China trading houses had been sporadically emerging for parcels. Gasoline retail ceiling prices in China underwent a couple of upward revisions. It had been tracking the oil market uptrend in first half of the year, which could likely extend when oil producers stayed conservative.
From India, with the unprecedented surge in Covid-19 cases in Q2, much uncertainty lingered on demand recovery. Previously, India tried to implement new measures on toluene imports for 2021. With the pandemic bouncing back, such norms are unlikely to take off, however. With India heaving in length, supply pressure could weigh on Southeast Asia suppliers unless gasoline-blending re-emerges in the zone.
High demand for gasoline and profitable economics for conversion into benzene should support spot US toluene prices into the second half of 2021.
Crude futures are expected to top $70/b, then dip back into the upper $60s/b by autumn, according to S&P Global Platts Analytics. But fundamentals of healthy demand and limited supply could support prices beyond the limits of upstream energy influence.
Improved US toluene demand in early 2021 via disproportionation, combined with widespread freezing weather and related power outages throughout the US Gulf Coast in mid-February helped drive benzene prices higher than expected. Production and freight disruptions also meant that a high volume of the USGC toluene stocks were depleted.
US benzene prices nearly doubled to the multi-year peak of 520 cents/gal DDP USG in the eight weeks after the freeze, making for momentary estimated TDP margins of $290/mt and accelerating operating rates.
The benzene outlook is optimistic for the second half of the year. Spot demand from downstream US users peaked in the spring but should continue at a steady volume due to high demand for durable goods.
Toluene imports surged in March, when more than 45,000 mt arrived from Europe alone, US customs data showed. If the US price retains a premium over other regions, it could draw further large import volumes, especially while the summer Reid vapor pressure specifications incentivize aromatics for blending.
US gasoline demand should improve to 9.3 million b/d in August, Platts Analytics forecast in April. “The keys to the uplift in gasoline are the normalization of employment, the return to workplaces, and vacation travel this summer,” Platts Analytics wrote in its World Oil Market Forecast.
The European toluene market is expected to see stable supply conditions in the second half of the year, as well as improving demand from the gasoline blending sector due to summer vacations mixed with easing lockdown conditions across the continent.
Material tightness that raised premiums sharply in early 2021 was driven by a lack of domestic production capacity. Planned and unplanned maintenance turnarounds at major European production sites left material thin on the ground as petrochemical demand for TDI-grade toluene remained steady.
With outages potentially extending into June, availability is not expected to normalize until the second half of the year.
Demand has also been bolstered by strong US interest in European molecules. The export market will remain in strong focus going forward for European sellers.
Much of the bullishness for benzene in Europe has been driven by lost production from a planned maintenance at ExxonMobil’s Botlek refinery during the second quarter, with impact on material availability expected to extend into Q3. As benzene supply normalizes in Europe, this could see supply tightness ease, and demand for disproportionation drop.
