Toluene Market Bearish on Crude Crash, Weak Coating Demand, and Eased Mideast Tensions

Key Highlights

• Toluene prices drop ₹2/kg due to low demand and oversupply
• Crude oil’s 13% fall in 10 days pressures aromatics market
• BTX margins under stress; toluene-to-benzene spread turns negative
• Pharma sector offers limited support amid broader demand slowdown

Domestic Toluene Prices Decline Amid Weak Market Sentiment

• Toluene prices in the domestic market dropped sharply by ₹2/kg, primarily due to increased supply and sluggish downstream demand.
• Current offers from traders on 60-day credit terms were noted at:
  1. ₹64.00++/kg ex-Kandla
  2. ₹64.50++/kg ex-Mumbai
• A sharp fall of nearly 13% in crude oil prices over the last 10 days has created a bearish sentiment across the aromatics segment, a market participant observed.
• Paint and coating manufacturers among the largest consumers remained largely inactive, with production levels scaled down owing to monsoon-related slowdown in end-user demand.
• Geopolitical tensions in the Middle East now appear to have stabilised. Meanwhile, a significant rise in US crude oil inventories last week added further pressure on global prices.
• Some support for toluene demand is expected to come from the pharmaceutical segment, particularly as API and intermediate manufacturers have started preparing for seasonal demand in July 2025.
• International Benchmarks – Benzene FOB Korea Futures
  A. 1H July 2025: $714/MT (down $20 week-on-week)
  B. 2H July 2025: $714/MT (down $20 week-on-week)
  C. 1H August 2025: $710/MT (down $20 week-on-week)

Supply & Demand: Supply Increases as Imports Arrive and Production Ramps Up

• Supply conditions improved  in July, as domestic manufacturers ramped up production and several import shipments are expected to arrive in the second half of the month, according to a trader.
• Demand from the pharmaceutical sector—a key downstream consumer—picked up from mid-June, providing some optimism, a market participant noted.
• An importer commented that most bulk buyers had already secured their July inventories during the Iran–Israel tensions last month, which may reduce buying interest in the current month.
• From a feedstock perspective, Asian benchmark FOB benzene futures are in backwardation, indicating a bearish market outlook.
• However, demand from other downstream segments such as packaging, paints, coatings, and inks remains weak—largely impacted by monsoon disruptions and subdued market sentiment across sectors.

Refining Margins Tighten; BTX Spreads Fall Below Breakeven

• Refinery margins are currently under pressure:
  a. The Naphtha-to-Toluene spread narrowed to $96/MT, slipping below the breakeven point of $150/MT.
  b. The Toluene-to-Benzene spread turned negative at -$53/MT, significantly lower than the breakeven margin of $90/MT.
• A leading indentor remarked, “A price correction in naphtha is increasingly likely, as TDP refiners require a margin of $37–40/MT to breakeven on toluene production.”
• India’s monthly demand for toluene is estimated at approximately 57,000 MT, of which around 9,600 MT is met by domestic producers like RIL and BPCL. The remaining ~45,000 MT is imported.

Global Oil and Gas Prices

1. WTI Crude Oil: Down 0.03% to $65.47/barrel
2. Natural Gas: Up 0.03% to $3.39/MMBtu

Feedstock Price Trends

1. FOB Singapore Naphtha: $565/MT
2. FOB Korea Toluene: $661/MT
3. FOB Korea Benzene: $714/MT

Expert Insights: Bearish Trend to Persist; JIT Procurement Advised

• Market Experts anticipates continued bearish sentiment in the toluene market in the short term, led by rising supply and weak demand from downstream sectors such as paints, coatings, and packaging. With the market entering an off-season lull, any sharp recovery in prices appears unlikely.
• Hence, buyers are advised to follow a Just-in-Time (JIT) procurement strategy, rather than building excess inventory.