Market and product

China’s toluene import demand is expected to stay weak amid ample shoretank inventories and poor gasoline blending demand, several market players said on Monday.

Domestic demand has remained stagnant since end-March to early April as inventories continued to pile up at shoretanks following the arrival of post-Lunar New Year purchases, traders said.

Inventory levels were at 136,000 tonnes in east China in the week ended 6 May, up by more than 55.9% from early March when it was at 87,200 tonnes, according to ICIS data.

Chinese imports, meanwhile, hit a high of 99,899 tonnes in March, the highest seen since April 2014, when shipments totalled 130,401 tonnes, according to official customs data.

Buying sentiment from key downstream sectors have softened as a result as end-users said that they can afford to postpone their prompt purchases given the sufficient supply in the domestic market.

“Nobody is in a rush to buy cargoes, even though demand from the solvent sector is still stable and unchanged, because of the expectation that yuan-denominated prices can fall further amid high stocks,” an east China-based trader said.

As a result of high inventories, fluctuations in yuan-denominated prices have been narrow. Yuan-denominated prices have been assessed within the CNY4,775-4,850/tonne ($734-746/tonne) ex-tank range in the past two weeks, according to ICIS data. On an import parity basis, excluding 2% import duty, this was at $615-625/tonne equivalent.

This, in turn, has weakened import interest from key Chinese traders who said that there have been no incentives to procure CFR China cargoes – largely offered at $640-660/tonne CFR China – if domestic prices were much more competitive.

The second reason for the weak import demand was the fact that gasoline blending demand in domestic China has yet to pick up and this has limited the amount of offtaking activities, marke players said.

“While demand from consumer markets such as solvent, agricultural and pharmaceutical sectors have been steady, up to 20,000 tonnes/week, we are not seeing a pick-up in gasoline blending demand yet which is a heavy contributor to toluene demand,” a south China-based trader said.

The weak demand for toluene was attributed to other competitively-priced blendstocks such as mixed aromatics and alkylated oil. Ex-tank prices for both products were at CNY4,600-4,700/tonne on average in east and south China, according to market players.

This further decreased the incentive for private blenders to buy toluene for gasoline blending, they added.

The sufficient gasoline stocks in domestic China from key refineries and producers, in addition, has limited the amount of private gasoline blending activities happening in the market, several traders said.

This is occurring despite the rise in retail RON90 gasoline prices by CNY165/tonne since 27 April to CNY6,665-7,200/tonne, ICIS data showed.

“Technically margins are healthy because of the rise in retail gasoline prices, but there’s too much gasoline available and demand is not growing at a much quicker pace,” one north China-based trader said.

Despite the weakness in demand, a price floor is still expected for yuan-denominated cargoes.

“The typical gap between mixed aromatics and toluene is CNY150-200/tonne, where mixed aromatics should be lower. If the gap narrows, blending demand for toluene should get better and prices should not go anywhere further south,” a key east China-based traders said.