Sluggish Demand Fundamentals and Year-end Lull Pull down European Toluene Prices

Hamburg (Germany): Toluene prices in the European market skidded in the first week of January, experiencing a decline due to subdued demand and supply chain constraints. The final prices of Toluene are influenced by factors such as production costs and demand projections from end-use manufacturing units in the domestic market. Additionally, benzene prices in the US market continued to decrease as crude oil and naphtha prices remained stable, prompting retailers to reduce prices for Toluene and its derivatives.

Aramco has reduced February prices for European buyers by USD 1.50 to USD 2 per barrel. Despite Saudi crude being relatively more expensive than other regional options, a source from a North Asian refinery expressed satisfaction with the lowered prices, making it more affordable. The price cut, the most significant in 13 months, aligns with expectations, reflecting a softer Asian crude market. A Bloomberg survey of refiners a month ago indicated that Aramco would likely lower prices due to heightened competition in the Asian market and the availability of cheaper crude from the United States, Europe, and Guyana.

Another major factor impacting the overall prices of Toluene included the slow demand outlook from end-use manufacturing units such as Toluene Diisocyanate, coating, adhesives, and solvent industries. Ongoing geopolitical tensions and conflicts in the major trade route (Red Sea) have hampered the overall price dynamics of Toluene as retailers and buyers restricted themselves from placing any higher orders. Moreover, following the domestic demand outlook, the eurozone manufacturing pace is still contracted and restricted throughout the last quarter, and the final impact could still be witnessed in the selling prices of Toluene in the European market.

Due to limited processing activities, the essential components of the industry, known as steam crackers, are operating at rates that are not economically viable. These steam crackers play a crucial role in transforming naphtha and gas into fundamental chemical building blocks of Toluene. Chemical manufacturers usually aim to run these steam crackers at maximum capacity throughout the year to optimize their substantial fixed costs. However, the current situation has led to these facilities operating at rates that are inefficient and financially challenging. According to ChemAnalyst, Toluene prices in the European market are expected to gain at a steady pace amidst the continuous rise in naphtha prices accompanied by the increasing inflation rate in the eurozone, reaching 2.9% in Q4, marking a rise from the previous rate of 2.4%.