Toluene Margins Squeezed ; Price Hike Seen as Crucial for Refinery Economics

 Key Highlights

• Importers raised Toluene prices to ₹66.50–67.50/kg; buyers show limited participation due to lower replacement costs.
• Rising geopolitical tensions and firming upstream crude are fueling bullish price expectations. 
• Refinery margins remain under breakeven levels, intensifying pressure for Toluene price recovery. 
• Pharma demand shows signs of revival; overall consumption remains cautious but improving.

Importers Lift Domestic Toluene Prices Amid Limited Buyer Interest

• In the domestic market, importers have raised Toluene prices by ₹3/kg.
• Bulk deals are being offered by importers at ₹66.50++ per kg (ex-Kandla) and ₹67.50++ per kg (ex-Mumbai) on 60-day payment terms.
• However, market participants noted that buyers remained largely neutral, showing limited interest due to replacement costs hovering around ₹57–58/kg.
• Importers continued to hold firm on their offers, anticipating a strong rebound driven by poor refinery economics. 
• Several traders, having built inventory at ₹62.50–63.00/kg (ex-Kandla), are unwilling to liquidate at current levels, expecting a further uptrend in FOB Korea assessments.
• The sharp rise in domestic Toluene prices is attributed to ongoing geopolitical tensions between India and Pakistan, coupled with the recent spike in upstream crude oil and naphtha prices.
• FOB Korea Toluene futures remain in backwardation, suggesting a bearish short-term outlook.
  A. 1H May 2025: $651/MT (up $10)
  B. 2H May 2025: $650/MT (up $8)
  C. 1H June 2025: $647/MT (up $8)

Pharma and Coatings Sector Demand Provides Limited Market Support

• Supply conditions remained stable, supported by regular vessel arrivals at Indian ports. However, liquidation was sluggish.
• The pharmaceutical sector, one of the major downstream consumers, witnessed a slowdown in April production. Activity has since picked up in May 2025, providing some support to the market. Buying sentiment improved this week, driven by uncertainties stemming from geopolitical tensions.
• Most end-users continue to adopt a wait-and-watch strategy, primarily due to the lower replacement cost environment.
• Other downstream segments such as packaging, paints, coatings, and inks registered moderate demand levels.
• From a BTX margin perspective, the naphtha-to-toluene spread has narrowed significantly to $91/MT, well below the breakeven level of $150/MT. Meanwhile, the toluene-to-benzene spread is negative at $31/MT, compared to the breakeven requirement of $90/MT. These margin pressures highlight the urgent need for a recovery in toluene prices to support refinery operations.
• “A price recovery in toluene is crucial for refiners,” noted a leading indentor. With downstream demand rebounding and upstream crude oil prices firming up, toluene prices are likely to find support.
• India’s monthly toluene consumption is estimated at 57,000 metric tons. Of this, approximately 9,600 metric tons are produced domestically—primarily by Reliance Industries Ltd (RIL) and Bharat Petroleum Corporation Ltd (BPCL)—while the remaining 45,000 metric tons are met through imports.

Global Chemical Market News

• In global markets, upstream crude benchmarks recorded modest gains. WTI crude oil rose by 0.77% to settle at $62.39 per barrel, while natural gas edged up by 0.11% to $3.64/MMBtu.
• Feedstock Prices:
  1. FOB Singapore Naphtha: $561/MT
  2. FOB Korea Toluene: $651/MT
  3. FOB Korea Benzene: $682/MT

Expert Insights: Buyers Urged to Build Inventories Ahead of Potential Rebound

• Market anticipates a bullish trend this week, underpinned by geopolitical tensions and strengthening upstream prices. Additionally, increased buying interest from downstream sectors is expected to lend further support to prices.
• Buyers are advised to consider building inventories, as a sharp rebound appears likely