Toluene Raw Materials: Indian Outlook For March 2023

Toluene, an essential chemical compound in the global market, has been experiencing a mixed trend in March 2023. The international market saw toluene prices opening at 891 $/mt FOB Korea and jumping nearly 13$ in the first week to 904 $/mt on increased demand from China. However, prices fell almost 10$ in the second week to 894 $/mt due to upstream crude and naphtha prices. 

Here are the upstream factors that will affect the toluene outlook in March 2023:

Crude Oil Price Movement

The unpredictable nature of crude oil prices has caused some ups and downs in the market. Earlier this month, benchmark WTI prices opened at 77.53 $/Barrel and rose to 79.67 $/barrel in the first week. This surge in demand from the Asian market and the weaker dollar helped to drive up crude oil demand.

However, things worsened when news broke out that the US Federal Reserve was planning another interest rate hike to counter inflation. This led to a market recession fear, which caused crude prices to crash almost immediately. WTI March contract prices fell nearly 4.53$ to 75.14 $/barrel on 10th Mar 2023 before regaining 76.67 $/barrel.

Will Crude Oil Prices Stabilize?

The G7’s price capping and oil sanctions have also affected Russian oil production, causing further market turbulence. Having said that, there is some good news on the horizon. China’s robust economic recovery and Russia’s decision to trim its oil production will help stabilize crude oil prices moving forward. Moreover, with the demand from Asian markets still strong and the weaker dollar, the future of crude oil prices displays an upward trend.

As the crude oil market remains a vital component of the global economy, monitoring price changes will be crucial for investors and businesses alike.

Naphtha Price Movement

Feedstock naphtha prices in Singapore began at a strong $723/metric ton on 1 March 2023. The price increased by $13 in the first week due to strong downstream demand and positive buying sentiments from Asian refiners. However, the price fell sharply with crude oil in the last week to $724/metric ton FOB Singapore.

Naphtha To Benzene Conversion

In Asian refineries, the conversion of naphtha to benzene is profitable when the price spread between the two is at least $150/metric ton. Currently, the spread is at $207/metric ton, which is well above the break-even level. However, the high price of naphtha has limited margins for propane conversion in integrated crackers.

To increase margins in olefins, Asian integrated crackers plan to replace feedstock naphtha with LPG, resulting in increased natural gas demand and decreased demand for naphtha from integrated crackers.

Naphtha Outlook

The outlook for naphtha in March 2023 looks mixed due to volatile crude prices and narrowed conversion margins in integrated crackers.

Benzene Price Movement

The Asian benchmark FOB Korea benzene market has been on a rollercoaster ride since March 2023. The prices opened low at 924 $/Mt on 1 March 2023 but soon surged by about 20$ in the first week, reaching 944 $/Mt. However, the prices lowered back by nearly 13$ in the second week to settle at 931 $/Mt due to lowered crude oil and naphtha prices.

The benzene prices are under pressure as the conversion cost to downstream products looks negative due to narrowed cracking spreads. The downstream solvents phenol and styrene prices are also below the break-even range due to lower prices caused by weak demand.

Benzene To Styrene Conversion

To make matters worse, the benzene to styrene conversion requires a price spread of 200 $/Mt but is now at 150 $/Mt, below the break-even level. Similarly, the benzene to phenol conversion requires a price spread of 400 $/Mt but is now at just 60 $/Mt, far negative for the producers.

Benzene Outlook

As a result, the benzene outlook looks bearish for March 2023, as significant price corrections are anticipated to bring downstream conversion break even. The current market conditions require producers to be cautious and keep a close eye on the developments in the industry to make informed decisions. The benzene market is dynamic, and staying ahead of the curve will be crucial for businesses to succeed in the long run.

Toluene Price Movement

On the domestic front, toluene prices fell nearly 8 Rs/kg in two weeks to Rs.  81++ Ex Kandla and Mumbai due to weak demand and high port inventory. In addition, demand for Toluene did not improve as anticipated from pharma, paints coatings, and packaging due to the Holi festival holidays and the financial accounting year closing ahead. According to an importer’s opinion, it limited the buyers’ purchase of raw materials. In the second week, domestic manufacturer Reliance Industries also reduced their toluene prices by 4 Rs/kg to Rs. 82++ Ex Hazira.

Naphtha To Toluene Conversion

Refiners remain positive on naphtha to toluene conversion as cracking is healthy and above the break-even level, despite the volatility. However, toluene as a feedstock conversion to benzene has narrowed to 37$ and is a negative for the crackers. Nevertheless, the higher price spread in naphtha to toluene of about 30$ compensates the toluene to benzene required price spread deficit to some extent, although the actual spread required is 95$.

Toluene Outlook

The domestic outlook for toluene in March 2023 looks mixed due to high inventory at all the ports and poor demand from downstream, resulting in lower domestic manufacturer prices, which makes toluene bearish.

Insight

The toluene market faces challenges in both the international and domestic markets. The uncertain market conditions force businesses to remain cautious and vigilant to stay ahead of the curve. The industry players must monitor the developments closely to make informed decisions and identify potential opportunities to overcome these challenges and pave the way for a prosperous future.

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