Petrotahlil - The price of European toluene has dropped by around 45% since the start of this month, with most of the losses coming during the week of March 9, after OPEC+ members failed to agree on further production cuts.
Platts Toluene TDI has plunged by $265.25/mt since the last day of February, to be assessed at $311.25/mt on Friday, suppressing market liquidity and sending market participants to the sidelines.
This was attributed to sharp losses in upstream oil prices and the spread of coronavirus pandemic outside Asia, making it harder for market players to pinpoint the correct outright price for the materials.
The resulting lack of liquidity kept market participants on the sidelines waiting for market to stabilize to gain more clarity on its state.
New price lows?
With the cloud of uncertainty over the European aromatics market, some sources are not expecting to see strong market fundamentals that will support toluene prices in Europe.
"The toluene market is getting long with imports from southern Europe coming in to [the Amsterdam-Rotterdam-Antwerp hub," a trader said.
These imports come in tandem with output from refineries in ARA region and as a result, market sources are not rejecting the option that refineries will soon start reducing run rates.
"The only thing that could stop the market getting long is refineries cutting back production because margins are so poor," the trader said.
Even as toluene prices dropped to all-time lows, buying appetite remained muted in Europe, failing to provide any hints of a recovery. With most of Europe in loackdown due to the coronavirus, already struggling domestic demand for toluene had been hit fairly hard, a source said.
"Much less demand for gasoline and jet fuel, with the whole world on lockdown," the source said.
Moreover, the European toluene market will no longer be able to rely on demand from US consumers to support prices in Europe. The trans-Atlantic arbitrage window to export European toluene to the US, the main driver of the European toluene market as of early March, had finally closed, following the turbulence in the upstream oil complex. Several market sources agreed that this export opportunity had faded.
"There is no demand from the US," the trader said, adding that there were no bids for DDP material from the US Gulf Coast even for April.
Nevertheless, not all European market players have lost hope of a toluene price recovery. Some sources said the current low price environment could act as a catalyst for a revival of demand.
A sharp decrease in prices across the whole aromatics segment has shifted gasoline blenders' preference for their blending components, according to some sources.
"People will sell pygas into the blending pool," another trader said. "The benzene market will get tight."
Pygas is used as a feedstock for benzene production, and is valued by market at one third of benzene prices plus two thirds of the naphtha price, according to the second trader.
Using Platts data, pygas prices in Northwest Europe are around $215/mt basis Friday prices for benzene and naphtha. This makes pygas, which has an octane number close to toluene ones, an attractive component for gasoline blenders.
"Flexibility of [gasoline] producers allows them to try and find a product up for sale with the highest value," the trader said.
With the benzene market drying up, toluene producers might be faced with an option to run toluene disproportionation, producing benzene and selling it to meet the demand.
"Low toluene prices makes it more attractive to run disproportionation," the second trader said.
As a result, the flow of toluene to disproportination is likely to reduce spot material available in Europe, balancing out lackluster levels of demand.
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