Chemical Conversations: Aromatics Outlook

Author Argus

Jeff Eickholt, talks to leading aromatics experts Simon Palmer, Anjani Singh and Santosh Navada about the Argus Benzene and Toluene and Xylenes Outlooks:

Price and trading trends over the next 12 months
Major supply and demand changes on the horizon
Insights to help subscribers make better business decisions

This podcast is delivered by Argus’ aromatics experts using data and insight from the Argus Benzene Outlook and Argus Toluene and Xylenes Outlook.
Get more information and request a free trial


Jeff Eickholt: Hello, everyone. I'm Jeff Eickholt, aromatics market analyst here at Argus. Thank you for joining us today for this Chemicals Conversations podcast for benzene and toluene and xylenes outlooks. Joining me today is Simon Palmer, Vice President of Global Aromatics, Anjani Singh, Lead Consultant, Toluene, Xylenes, and Santosh Navada, Aromatics Market Analyst based in Asia. We'll be discussing the global aromatics markets.

Simon, What do you think the next 12 months look like for price and trading trends for benzene?

Simon Palmer: Benzene has the habit of being the aromatic product that tends to lead the charge when prices move, whether that's up or down. Because it's largely a co-product, and in many instances is actually produced as a byproduct it also tends to overshoot when prices go up or down. Perhaps this is because it's got one of the most liquid of all the petrochemical spot markets. But prices also tend to be highly reactive to events and short-term sentiment. This being said, benzene is worth watching closely because it's a key feedstock in a number of the most powerful economic barometers in our industry, such as phenol and styrene.

Considering this, I'm looking for benzene prices and trading activity to lead the charge in finding a market bottom after the recent sharp declines from what, nearly $2,300 a ton back in June, down to around $850 a ton later last month. To me, there seems to be a looming conflict of sorts between relatively firm crude price forecasts, a generally tight outlook for gasoline range products, energy inflation in Europe, and some of the dire macroeconomic predictions that are out there. How the market navigates through the next 12 months or so is really gonna be fascinating. But we expect margins are gonna compress, arbitrage is gonna try and normalize. But products will always search out the best return, wherever that might be.

Jeff Eickholt: What about toluene and xylenes?

Anjani Singh: Toluene and xylenes are a little bit different than the benzene market that Simon was discussing. So, toluene and xylene, what we are expecting is that in summer, we will get another short supply regime, and the prices might flare up again in summer. And the problem will be more severe in the U.S. than any other region, because aromatics is a major blending component for gasoline fuel, whereas other regions have some other options such as ethers, MKB, methanol, and other components which are high in octane. So, we are expecting that gasoline prices will support the aromatics, specifically toluene and xylene prices, and that we have also seen...when we saw the spread between toluene and benzene, toluene when prices went a little bit higher than benzene prices. So that was a bit unusual, and that's mostly getting support from gasoline prices.

So, we are expecting to see that. The other thing that we are witnessing is that refiners are making decisions to close because they are expecting that the gasoline demand will decline. So, that is resulting into shortness of supply of the higher blending...higher octane blending component such as toluene and xylene. So, that will give another pause to the prices of aromatics molecules here, specifically in the U.S. And then there are normal things that happen. They are not abnormal things, but they are normal now. Like, you will get a demand peak in summer, you will have hurricane season in the U.S. Gulf Coast. And then in spring, you will have maintenance, like, a plant shut down for maintenance issues. So, all those normal will cause abnormal condition, and that will give another price boost to aromatics. So, we will see cyclic kind of behavior for the aromatics prices. Sometimes it will flare for a very short term, and sometimes it will go down a bit, and again it will come back. So, that is where I think could be the next 12 months.

Jeff Eickholt: Are there any major supply and demand changes on the horizon?

Simon Palmer: Let me take that one for benzene, Jeff. There are a lot of often conflicting factors which impact supply and demand in one way or another. The market has two major geographical areas of interest. The East of Suez, we're constantly reminded that benzene is just a passenger as the aromatics markets grow and mature. Paraxylene is the product that matters. It's one of the few on-purpose products in the aromatic suite, and it really is the driver for most current production, and certainly almost all of the growth. Benzene largely just comes along for the ride, and production capability is just a function of where the paraxylene is needed.

In many ways, there's a bit of a natural conflict between PX and benzene, as most of the integrated PX complexes are premised on maximizing the yield of paraxylene and minimizing the volume of coproduct benzene. How this all balances out is one of the most interesting aspects of these markets. In the Atlantic Basin, however, it's much more of an issue of a lack of feedstock, which really is something that underpins how these markets are struggling to grow. The growth in benzene derivatives is slow, certainly compared to polyester. But there is some growth, and there is a willingness to invest. And really, the availability of feedstocks for benzene recovery is just not keeping pace. As we've seen, in the last few years, refineries are closing both in the U.S. and in Europe. Some of the older smaller olefins, steam crackers are shutting down.

And the same cracker feed slates generally getting lighter. This all really eats into the amount of benzene-containing streams that are available to be processed locally in the Atlantic Basin. As time goes on the supply chain just becomes more and more reliant upon imports of feed, imports of benzene itself. And imports of derivatives or indeed just a combination of all of the above. I think it's worth mentioning, again, that in the Atlantic Basin the reliance on imported molecules of whatever description is getting to a scale that we've really not experienced before.

Jeff Eickholt: What about toluene and xylenes?

Anjani Singh: We are expecting the demand to now come back to normal or go even beyond that, because of the COVID lockdown. There are some places in China where it is still there, but that will get over mostly next three months. That is what is expected. And then you'll see that GDP for a lot of developing economies are coming, and they're a lot better than what we have expected. Recently, we heard that GDP for India was pretty high. So that was very encouraging from demand perspective. So, we are expecting that demand to come back, and then even surpass because there is lot of pent-up demand there. So, that is specifically for the energy side of the demand. Chemical side and plastic side of the demand are also recovering back. We are already seeing that PET prices are maintaining its higher level, and the margins are pretty good, even if the crude prices have declined a little bit below $100 a barrel. So, that chemical side is also going a lot better.

Now, if you see the negative margins that was there for TDP, it is slowly getting less negative, and it is expected that it will reach the breakeven in next month or two. So that will also improve the chemical demand as well. So, we are expecting demand to improve. And then on the supply side of that, we are expecting some weather-related event, or some feedstock Saturdays, or some logistics challenges might be coming because of the hurricane season. We are expecting the winter weather will be very unpredictable. So that will cause also a lot of disruption, specifically in Europe and the U.S. Gulf Coast. So that is worth watching. But it is good that we just keep track of the things and be ready for that.

Jeff Eickholt: What other key insights can readers take away from the outlooks to help make better commercial decisions?

Simon Palmer: One of the key takeaways, Jeff, is that, whenever you're developing a perspective on these markets and constructing a price and margin forecast, you really need to try and take a holistic view of the entire value chain, rather than one that's focused on a single product or a discrete geography. We try to encourage consideration of all the alternatives when tackling specific commercial decisions, or indeed developing a company's own forecast or viewpoint on these markets. There's always the option to make or buy, for example, which is a classic alternative open to many companies in these markets, as is the option to make locally or move barrels around the world to the best location. Knowing all the alternative values for a given commodity is really table stakes for any commercial decision-making, whether you move up or down the value chain, or between the major trading hubs around the world. Questions like are you better off processing internal feed, or bringing in feed from the outside? Is the product worth more in the gasoline pool, as Anjani mentioned earlier, than it is in the chemical markets? Is making the product creating optimum value, or should you just buy it, or perhaps import the derivative from a lower price market?

In developing our forecast and the narrative which surrounds it, we try and open all of our minds, including the minds of anybody who reads it to the fact that in most instances, there are viable alternatives. And knowing what the value or the costs of realizing those alternatives is really valuable in making the best commercial decisions or developing the optimum strategies.

Jeff Eickholt: Anjani, do you have anything to add?

Anjani Singh: I would like to add a couple of things which are good to watch for next couple of months and maybe a year from an inside perspective. So, just for example, the spread. The spread between commercial-grade toluene and RBOB, which we have seen going beyond 200 cents a gallon, and now it is coming back below like 100 cents a gallon. And normally, it is 30 to 40 cents a gallon. So, we can see the spread went up 10 times in last couple of months. So, we have to see watchful how that goes on going forward. But still, a spread is not quite normal. Similarly, MX-5211, like, mixed xylene 5211 grade to 843 grade, that spread was zero for a couple of weeks. I would say three, four weeks continuously. That was totally unforeseen. Now it is coming back to normal, almost like 30, 35 cents a gallon. So, that is also worth watching. Normally, it is 10 to 15 cents a gallon.

Now, benzene to toluene is spread. That also went to negative. These spreads are worth watching, and there is lot of insight into that. They tell you that the market depends upon the gasoline market or energy demand is higher than the chemical demand. So whichever drives the market, that impacts the spread. And then the margins which were negative for a long time now, is coming back to normal.

The other thing is that we have to look into the energy dynamics this winter. We have to be really watchful because it's not just weather conditions, it's also the situation there between Europe and Russian. People need to be looking into their inventory levels and all those things, and better be ready for the winter, because we are expecting there will be very short-term need for high energy demand in winter. They have to closely watch the inventory levels over there, specifically in Europe and the U.S. Gulf Coast because the market will be severely impacted. We have also seen severe winter freezes in the last two years.

There is lot of insight related to the weather, geopolitical situation, and gasoline demand driving the prices, and that is going to continue. And the COVID situation is getting better now, with better control, GDPs are improving. We are expecting demand to improve while the supply will be really restricted. So whenever it is good time, the refineries have to build up their inventory levels to higher levels, and governments be better prepared for something which might happen for a very short term.

Jeff Eickholt: I'd like to chime in here, as well, just on an aspect of the outlooks that I like to look at. Having a background in pricing risk, I'd really like to highlight the upside and downside risks for each of the regions. This just allows me to quickly get a feel for what might be impacting prices going forward. Santosh, do you have anything to add?

Santosh Navada: The outlook also contains charts which provide a clear picture of different parameters such as inventory change, consumption forecast, and supply forecast. In addition, the pictorial representation of different spreads helps in gauging the market situation at a glance.

Jeff Eickholt: Well, thank you, Simon, Anjani, and Santosh. That's all the time we have for today. I wanna thank our listeners for joining this edition of our Chemicals Conversations podcast. For more information, visit us at

This podcast is delivered by Argus’ aromatics experts using data and insight from the Argus Benzene Outlook and Argus Toluene and Xylenes Outlook.
Get more information and request a free trial

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