HOUSTON (ICIS)–US toluene is expected to face downward pressure amid length in supply and sluggish demand.

Supply has increased as demand from the gasoline blending sector declined after the end of the summer driving season. Octane demand typically eases with the switch to winter gasoline following the US Labor Day holiday.

Refinery rates have remained healthy as refiners prepare for the impending 2020 International Maritime Organisation (IMO) regulations on high-sulphur bunker fuels, which will require ship operators to shift to fuels with lower sulphur content.

This has increased toluene supply as a byproduct of increased gasoline and diesel production.

Mexico will continue to be a top destination for US product, although the Mexican economy is growing at much lower rates than expected.

The US has been a net exporter, but the gap between exports and imports has narrowed considerably since the start of 2019.

Imports will continue to play a role, as expanding capacity in Asia weighs on overseas markets. As China increases its capacity across the aromatics chain, exports from other regions such as Latin America that had previously gone there are no longer needed.

Lengthy supply should improve margins for on-purpose benzene production, especially after the conclusion of some upstream outages. Demand has been weak, as toluene has remained at a premium to benzene, and downstream styrene has been sluggish.

Toluene disproportionation (TDP) units convert toluene into benzene and a stream of mixed xylenes. Selective toluene disproportionation (STDP) units convert toluene into benzene and a paraxylene-rich stream of xylenes.

With prices close to blend value, refiners have preferred to keep toluene in the gasoline pool, instead of extracting it for the chemical market.

The low season and a global economic slowdown has also hurt domestic demand for downstream products.

Demand is expected to pick up at the start of the spring season, when refineries build up inventory in the form of gasoline blendstock in preparation for the switch to summer-blend gasoline, ahead of the summer driving season.

Refiners and terminals have to switch to summer-grade gasoline by 1 May, while gas stations have to begin selling summer-grade gasoline by 1 June.

The primary chemical use of toluene is to make benzene and xylenes. Toluene is also used as a solvent that is present in paint thinners, nail polish remover, as well as in the manufacturing of nylon and plastic bottles.

Major producers of US toluene include ExxonMobil, Marathon Petroleum, Flint Hills Resources, Valero, Total and CITGO.

Focus article by Tarun Raizada

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