Viewpoint: US toluene, MX facing derivative challenges

Increased global supplies of aromatics derivatives in Asia could curb chemical demand for US toluene and mixed xylenes (MX) in 2021.

US MX demand from the paraxylene (PX) sector is expected to remain limited on ample global supply, particularly following capacity expansions in Asia since the start of 2019. Since the start of 2019, more than 2mn t/yr of PX capacity has come online or reached commercial status in Asia.

Increased PX production in Asia has pulled down global PX prices, particularly in the US, as Asian producers are able to export PX and derivatives to the US East Coast, often at a cost advantage to US Gulf PX producers. Since peaking in November 2018, the US PX contract has fallen to 31.75¢/lb from 65.5¢/lb.

The decline in PX prices pushed MX-PX unit margins to near breakeven levels throughout much of 2020, and could keep margins at similar levels in 2021, curbing MX demand.

Toluene demand for benzene production is facing downward pressure from increased styrene production in China. Styrene is the main derivative of benzene, and exports to Asia and China are a key outlet for US styrene producers.

China has added more than 2mn t/yr of styrene capacity since the start of 2020, and is expected to add 250,000 t/yr more by the end of the first quarter in 2021.

Weaker PX and benzene prices could curb margins at US selective toluene disproportionation (STDP) and non-selective TDP units in 2021. Margins were thin throughout most of 2020, pushing operating rates around 50pc, until the fourth quarter as benzene tightness boosted prices and pushed some TDP operators to increase rates.

Benzene prices are expected to fall in early 2021 on increased imports, likely pushing STDP and TDP operating rates back toward the 50pc level.

Blending demand for toluene and MX is unclear, with some market participants expecting strong demand as lower refinery operating rates yield less octane. At the end of 2020 refiners and traders stored more toluene ahead of the expected increase in demand. Others expect near-term tightness in octane to be spotty, noting refiners may be able to increase toluene and MX supply as needed in 2021.

A change in US fuel specifications that sets a new RBOB gasoline standard from 1 January will alter the summer gasoline blending pool in northwest Europe, which could boost demand for reformate. That could narrow premiums for toluene and MX to reformate, pushing refiners to limit extraction of toluene and MX and keeping domestic supply balanced to snug.

By John Dietrich