Toluene Prices Decline as Benzene Future Contracts Weaken; FY Closing Slows Market Activity

Key Highlights:

• Price Drop: Toluene prices fell ₹5/kg; import offers now at ₹68.50–69.00/kg.
• Bearish Futures: FOB Korea contracts show consistent weekly drops across April–May.
• Cautious Demand: Year-end inventory pressure impacts buying; packaging and paint sectors show strength.
• Spread Insights: Naphtha-to-toluene spread narrows below breakeven, while benzene spread remains favorable.

Toluene Prices Decline Amid Weak Market Sentiment

• Toluene prices have experienced a sharp decline of ₹5/kg, primarily driven by bearish market sentiment. Importers' offers stood at ₹68.50++ per kg (ex-Kandla) and ₹69.00++ per kg (ex-Mumbai) for advance payment terms.
• Traders' offers remained mixed but trended lower, with quotes at ₹68.00++ per kg (ex-Kandla) and ₹68.50++ per kg (ex-Mumbai) for immediate payment terms. The price drop is largely attributed to a significant correction in FOB Korea Benzene contracts.
• Future Contracts of FOB Korea Toluene:
  A. 1H Apr: $820/MT (Down $20 this week)
  B. 2H Apr: $819/MT (Down $20 this week)
  C. 1H May: $818/MT (Down $20 this week)
  D. 2H May: $817/MT (Down $20 this week)
• Traders and bulk buyers remain hesitant to make inventory decisions as benzene future contracts continue to show backwardation.

Supply & Demand: Year-End Inventory Pressure Hits Domestic Demand

• The supply situation remains stable, with a steady frequency of vessel arrivals throughout March. However, the domestic market witnessed a notable decline in liquidation compared to the first half of March due to the financial year closing. Most consumers are trying to avoid carrying forward inventory into the next financial year's ledger.
• Primary consumers such as the packaging, paints, coatings, and ink industries demonstrated strong demand. However, bulk drug consumers showed significantly weaker purchasing activity. The market turned bearish due to corrections in upstream crude oil and benzene contracts.
• From a BTX perspective, the naphtha-to-toluene spread has narrowed to 75, falling below the breakeven threshold of $150. On the other hand, the toluene-to-benzene spread remains favorable at $113, well above the breakeven mark of $90.
• India's monthly toluene consumption stands at approximately 57 kt. Domestic producers, including Reliance Industries Ltd. (RIL) and Bharat Petroleum Corporation Ltd. (BPCL), supply around 9.6 kt per month, while the remaining demand of nearly 45 kt is met through imports.

BTX Spread Analysis: Narrow Margins, Mixed Signals

• On the global front, upstream crude oil benchmarks showed minor fluctuations. WTI crude oil prices registered a marginal increase of 0.80%, settling at $68.82 per barrel. Meanwhile, natural gas prices witnessed a notable decline of 1.16%, closing at $3.93/MMBtu.
• Feedstock Prices:
  1. FOB Singapore Naphtha: $630/MT
  2. FOB Korea Toluene: $707/MT
  3. FOB Korea Benzene: $820/MT

Expert Opinion: Short-Term Bearishness, Post-March Recovery Hopes

• It is anticipated that a mixed trend in toluene prices this week, primarily influenced by bearish upstream and feedstock prices. However, seasonal demand in the paints and coatings sector is expected to provide some support to prices post-March.
• Buyers are advised to exercise caution while building inventory, as the market remains on a bearish trend