Price and market trends: US benzene/toluene spread down sharply

Downstream US styrene outages have depressed benzene prices while fuel blending demand has raised toluene prices, almost eliminating the spread between the two aromatics in the US for the first half of 2015.

Benzene, which has a wider variety of market uses, is normally valued higher than toluene. Through most of 2014 the spread between US benzene and toluene was above or near $1/gal, averaging $1.16/gal for the first half of 2014 and 90 cents/gal for the year.

For the first half of 2015, however, the spread has averaged less than half a cent/gal. Currently the spread is reversed, with US benzene assessed at $2.75-2.83/gal FOB (free on board) and US toluene at $2.95-3.08/gal FOB on 19 June.

A wide spread of benzene over toluene encourages the use of toluene disproportionation (TDP) and selective toluene disproportionation (STDP) to produce benzene. But running TDP and STDP units has been uneconomical through much of the first half of this year because of the narrow or reversed spread.

CRUDE EFFECTS

The spread had been narrow in the beginning of 2015, as crude oil values neared the low point of a plunge which began in the second half of 2014, and as an extreme winter in parts of the US limited downstream demand.

Although downstream demand recovered as winter receded, downstream styrene outages limited benzene uptake while toluene’s use as an octane booster in gasoline has kept toluene prices on a steady climb.

Outages in downstream styrene in the US kept benzene uptake limited domestically. The year began with two styrene plants on force majeure, one which continued into February and the other into the second half of March. A third plant began a 65-day turnaround in April and a fourth a 21-day turnaround in June.

In the first quarter of 2015, US benzene inventories were 30% higher year on year, according to American Fuel & Petrochemical Manufacturers (AFPM) statistics.

The low uptake contributed to low prices early in the year, with benzene valued below the low $2.20s/gal throughout the first quarter. Toluene was valued close to or above benzene in the first quarter.

However, global downstream outages beginning in March, especially in major styrene exporter South Korea, strengthened demand for US styrene exports which supported US benzene. Arbitrage into the US had been closed much of the first quarter, so the renewed demand pushed up benzene prices, temporarily widening the benzene-toluene spread in April.

The spread, however, reversed again in mid-May as a flood of benzene imports arrived in the US, in large part from South Korea, due to reduced global benzene uptake. US benzene prices plummeted on the long supply. Toluene, with steadily increasing demand from fuel blending, continued to rise.

Demand for toluene as an octane booster rises seasonally with the changeover to summer fuel blends.

In warmer months, fuels that evaporate less than winter fuel blends are mandated to be sold in the US – from 1 June to 15 September. To achieve this, refineries use higher volumes of expensive octane boosters such as toluene instead of cheaper options such as butane.

US Benzene/Toluene spread narrows

Production for summer fuels starts several months prior to the mandated sale dates, as early as April. Toluene is often kept in refinery streams when used for fuel blending, limiting the supply for downstream chemical uses, for instance as a solvent in the paint industry or for toluene di-isocyanate (TDI) production. In the tight market, toluene values must rise to entice producers to extract toluene from refinery streams.

GASOLINE PRODUCTION

The seasonal cycle for toluene blending demand has been amplified this year by increased gasoline production.

In the first half of 2015, weekly gasoline production in the US has been an average of 4% higher than a year prior, according to US Energy Information Administration (EIA) statistics. The increased production is most pronounced in recent months with April 5% higher than the year prior, May 2% higher and the first half of June already 6% higher.

Looking ahead, many of the forces narrowing the benzene-toluene spread in the first half of 2015 look to be temporary. The spread is likely to widen when styrene outages in the US resolve, increasing benzene uptake, and when summer blending demand subsides and loosens the toluene market.

The two US styrene plants on turnaround were scheduled to restart before the end of June. Summer blending demand for toluene could last into July.