Analysis: Far East supply likely to quench India's thirst for toluene

Singapore — India's thirst for toluene appeared to have grown exceptionally strong over the previous year, but much of its needs would likely be satiated in the near term with supplies from east Asia amid geopolitical risks around the Persian Gulf region.

The key Asian importer has been bullish at buying toluene, drumming up its monthly intake of the aromatics product year on year, leading to the delivered basis physical cargo price to hit a near 14-month high.

The CFR India toluene physical marker stood at $785/mt in last Friday's Asian close, the highest since November 2, 2018, when it hit $857/mt, S&P Global Platts data showed.

The CFR India toluene price hike started during the onset of 2019, when levels were in the high-$500s/mt. The marker touched briefly a low at $639/mt on June 7, followed by a higher low at $687/mt on November 1.

The latest statistical data released by India's Ministry of Commerce and Industry showed that the country's November imports of toluene at 40,967 mt was the largest monthly volume in three quarters.

From a month-on-month basis, November volume was 18.8% more than October's 34,484 mt, and 16.6% bigger than the 35,133 mt imported in November 2018. Thailand topped the suppliers chart with 17,815 mt, followed by Singapore at 9,909 mt and then Middle East's Oman at 8,448 mt.

More noticeably, larger Far East toluene exports compared with Middle East's volumes indicated India's growing preference toward east Asian material.

Toluene from Thailand showed a big quarter-on-quarter growth in 2019. Thailand exported 23,066 mt in the first quarter, 28,518 mt in Q2 and 34,987 mt in Q3 into India, based on data released by the Ministry of Commerce and Industry. Thailand delivered 31,415 mt of toluene to India in October and November.

Malaysia's exports to India improved at 3,558 mt in Q1, 4,705 mt in Q2 and 5,587 mt in Q3. Between October-November, Malaysia's toluene shipments to India totaled 5,916 mt.

Although Oman's exports into India were advancing at 17,566 mt in Q2 and 23,818 mt in Q3, the total 122,029 mt received between January and November 2019 was still less than half the volume from east Asia, which supplied 295,076 mt of toluene to India over the same period.

India's steady monthly intake of toluene and the consistent upward trajectory on CFR India price implied that the south Asian country could have more room to digest further supplies for solvent-related businesses.

IRANIAN MATERIAL

Geopolitical risks involving the US and Iran places the latter -- a key toluene supplier -- at an unfavorable position.

Iranian material held some heft at meeting India's demand, as exhibited from the 49,728 mt import volume in March that was the biggest monthly volume for 2019, with Iranian supplies comprising 24.24% of the share.

However, Iranian supplies into India fell starkly of late. A key toluene supplier in Iran, known as Bandar Imam Petrochemical Complex, was heard to be away from maintenance during December, although this could not be verified directly with the company. The absence of Iranian material brought about tightness in the Indian market, local sources said.

Following last Friday's killing of a top Iranian commander by the US that sent oil prices raking up almost 5%, the US President Donald Trump has threatened to target 52 Iranian sites in retaliation if Tehran strikes back as tensions between the two countries escalate.

The developing events could hinder Iranian aromatics exports. Even in the event where supplies are available from both Iran and the Far East, chartering risk factors would steer ships away from the Middle East.

According to a ship broker source, war risk premiums for chemical tankers could range around "$40,000-$50,000 for a 14-day coverage" and varies across insurance companies.

Supplies from the Far East could maintain its allure among Indian toluene buyers on the ease of arranging chemical tankers.

As a local market source pointed out earlier, "toluene from Iran is no longer coming to India."

-- Sue Koh, sue.koh@spglobal.com

-- Edited by Manish Parashar, newsdesk@spglobal.com