Toluene Market Faces Downward Pressure with Incoming September Shipments

Price

• Toluene prices were reduced by ₹2/kg to ₹76++ Ex-Kandla and ₹77++ Ex-Mumbai on advance payment terms by traders.
• Importers also offered lower prices, quoting ₹78.50++ Ex-Kandla and ₹79++ Ex-Mumbai on 60-70 days credit terms for immediate lifting.
• Week-on-week, domestic Toluene prices fell by nearly ₹4.5/kg, driven by bearish market sentiment.
• According to a market participant, the significant price drop today can be attributed to the arrival of several vessels in the first week of September 2024.
• Bulk buyers are currently focusing on just-in-time procurement rather than building inventory, as the market remains mixed and bearish. Buyers are anticipating further corrections in Toluene prices.

Demand and Supply

• Supply remains ample, with a substantial number of Toluene vessels scheduled to arrive in the first week of September 2024.
• Traders are concerned about rising inventory levels at ports, compounded by active Toluene imports at Kakinada Port on the East coast, which is altering market dynamics.
• The arbitrage window between Mumbai and the South market appears to be closed, which could lead to a buildup of West coast inventories and potential liquidation challenges, as noted by a South market trader.
• While demand from primary bulk consumers is robust and expected to remain strong through September and October 2024, demand from the packaging and inks sectors has sharply declined.
• This decline is due to severe rainfall disrupting plant operations in Gujarat this week. Additionally, as ink and packaging manufacturers increasingly adopt Toluene-free policies, demand for Toluene has been decreasing each quarter.
• India’s Toluene demand is approximately 57,000 MT per month. Domestic producers, including RIL and BPCL, contribute around 9,600 MT, while an average of 45,000 MT is imported monthly.
• In the petrochemical cracking dynamics, Toluene Disproportionation (TDP) unit margins remain healthy due to higher Toluene-Benzene margins. The Naphtha to Toluene price spread stands at $137, compared to a breakeven spread of $150.
• Meanwhile, the Toluene to Benzene price spread is $195, well above the breakeven spread of $95, which compensates for the deficit in the Naphtha to Toluene cracking spread. As a result, TDP crackers can withstand up to a $75 crash in Toluene prices.

News

• In the international market, upstream crude oil benchmark WTI prices increased by 0.69% to $76.42/barrel.
• Natural gas prices rose by 0.75% to $2.15/MMBtu. Downstream, FOB Singapore Naphtha prices were at $663/MT.
• FOB Korea Benzene prices were at $995/MT, and FOB Korea Toluene prices were at $800/MT.

Expert Opinion

• It is expected that Toluene prices are expected to remain bearish this week due to surplus inventory and lower replacement costs. Import activity on the East coast is likely to affect supply dynamics and may lead to price corrections. Buyers are therefore advised to continue with just-in-time procurement rather than building inventory.