US STDP margins gain ground amid higher benzene prices, stronger SM demand

New York — US toluene conversion margins have strengthened in recent weeks amid rising benzene prices and a simultaneous decline in spot toluene values, S&P Global Platts data showed Nov. 3.

Selective toluene disproportionation (STDP) margins were last estimated Oct 2 at just over $47/mt, a stark change from negative margins seen throughout much of 2020. STDP units, which produce benzene and paraxylenes via toluene as a feedstock, have been heard running at reduced rates throughout much of the year amid poor economics and sources noted that unit operators have been running just to meet contractual obligations.

Much of the margin gains have come over the past week with support seen in the US benzene market, where prices have risen sharply over the past two weeks. Benzene's strength is directly correlated to an uptick in styrene export demand that comes amid talk of delayed capacity start ups in Asia coupled with declines in styrene inventory levels in China. This led to a surge of exports with some 75,000 mt of styrene heard fixed for November loading. An additional 30,000 mt were heard fixed for December loading. The gains in styrene have pulled benzene prices higher and prompt spot benzene on a DDP USG basis has risen 31 cents since mid-October to close November 3 at 175 cents/gal. The November benzene contract also settled up 14 cents at 155 cents/gal. November DDP offers were seen Nov. 3 morning as high as 200 cents/gal while corresponding bids were at 172 cents/gal.

While the gains in benzene bolstered STDP economics, margins also saw some support via declining toluene prices. Prompt spot toluene on an FOB USG basis has fallen 17 cents since Oct. 15, closing Nov. 2 at 147 cents/gal. The declines come amid increased production tied to Citgo's restart at Lake Charles, Louisiana. Citgo, which has an estimated toluene capacity of 400,000 mt/year at Lake Charles, was forced to shut operations following Hurricane Laura in late August. The additional supply, coupled with seasonally softer demand for toluene from the gasoline blending segment, has put downward pressure on pricing, sources said.

The shift in margins has been a welcome change from the poor economics seen throughout much of 2020. Margins were positive briefly in April amid the height of the coronavirus pandemic in the US and sharp declines in crude and RBOB but for the most part have been negative with toluene's premium to benzene averaging 9.6 and 8.8 cents in Q2 and Q3, respectively.

Looking forward, STDP margins are expected to remain strong through 2020 on strength in benzene associated with supply side constraints. Sources have noted a sharp decline in Korean exports to the US with just over 23,000 mt shipped in October, down sharply from nearly 77,000 mt shipped in September. Additionally, Phillips 66 announced that it would not be restarting it's Alliance refinery following planned maintenance in 2020 as originally planned. The Alliance refinery has a combined benzene capacity of 341,000 mt/year via hydrodealkylation and reforming. Sources have noted that lower refinery run rates, tied to decreased demand for gasoline and jet fuel, have also curbed domestic benzene production.