Pandemic wedges open Europe-Northeast Asia toluene arbitrage

London — The upheaval in global markets caused by the coronavirus pandemic has wedged open an atypical Europe-Northeast Asia route for toluene arbitrage flows, with China beckoning for surplus barrels for domestic gasoline-blending use, according to industry sources.

The CFR China toluene was assessed at $355.50/mt on April 30, a premium of $65.25/mt over TDI ARA FOB toluene.

On Monday, CFR China toluene was assessed at $360/mt, its highest level since March 25. The premium to TDI ARA FOB toluene Monday was $73.75/mt.

Market sources said European suppliers had been actively approaching Asian counterparts to offload the current surplus and had found an outlet in China.

"Several deals were done recently [involving shipment to China], blenders are on the purchasing side there," a European producer said April 30, adding that the market would have "no more product available until late May."

A second European producer said late last week that some of the toluene was sold from the US, through the Amsterdam-Rotterdam-Antwerp hub, heading to China.

Unlike in refined product markets where West-to-East Asia flows are common, long-haul journeys in aromatic markets such as toluene pose greater risks.

European toluene producers, after struggling to place the material in the local downstream market, where demand for gasoline blending is low and storage facilities are nearly full, were relieved to be able to export the material and remove some of the pressure on such facilities, sources said.

Regular Indian importers of European toluene initially received offers around the $350s/mt, Asian sources said, but there turned out to be no availability.

Although India has rolled out zoning plans to reopen selected areas for business, the country's demand in relation to the nationwide lockdown situation remains underwhelming, which is leading importers to abstain from locking in more cargoes.

Looking ahead, while some market participants viewed the arbitrage as having narrowed sharply, the demand for European toluene is likely to persist in the short term, as traders are likely to look for material to send to China.

"A lot of people sold [toluene in Asia], hedged and now need cover," a trader said Friday.

With the Europe-Asia arbitrage window open for the past week, sources say previously abundant toluene supplies in Europe have shrunk, with thinner volumes remaining for May.