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Singapore — Octanes demand from the gasoline segment is expected to be the key driver for the US aromatics market in 2020, with demand from the chemical segment for both toluene and mixed xylenes seen lagging, as length in the global paraxylene market negatively impacts production economics in the US.

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Commodities 2020 | S&P Global Platts

The expectation is that weak paraxylene pricing will keep the PX-MX spread narrow, resulting in weaker demand for mixed xylenes and poor economics for crystallization and Parex units. Similarly, weaker paraxylene pricing is expected to pressure toluene conversion economics, curbing demand for toluene from STDP units.

These dynamics will put increasing importance on aromatics as octane boosters, particularly toluene.

If demand for aromatics as an octane booster slackens, as historically happens during winter gasoline production, aromatics prices could contract and extraction economics would become increasingly important. Weaker pricing could lead producers to push reformate directly into the gasoline pool, thereby tightening aromatics availability in North America.

Toward the latter part of H1 2020, demand from the gasoline segment should be firm and blend values will set a floor for both toluene and mixed xylenes.

In Europe, toluene enjoyed support from octane demand in Q4 2019 and was favored over mixed xylenes for blending due to its higher octane rates and ample supply.

Due to mixed xylenes' lower RON value, it has attracted lower bids from gasoline blenders, but these have failed to entice producers, with limited spot packages for sale. This is unlikely to change, with demand for mixed xylenes from both chemical and gasoline markets set to remain low in the first half of 2020.

The gasoline market is expected to see good support in H1, with the ripple effect of the IMO 2020 regulations for marine fuel coming into effect from January 1. This leaves room for toluene premiums to gasoline to maintain a higher level, despite the market currently showing a deep backwardation that has kept interest in material locked to the prompt end of the market.

NEW PLANTS IN CHINA

Meanwhile in Asia, there is an expectation among producers and traders that isomer-MX pricing will remain firm in H1 2020 due to the startup of new paraxylene plants in China, several of which are expected to buy mixed xylenes during their start-up phase.

In the second half of 2019, strong demand for aromatics gasoline blendstocks was also observed, especially in the third quarter.

India is set to introduce the next stage of BS-VI gasoline standards in April 2020, which could also impact aromatics demand and supply balances. The next stage of BS-VI gasoline standards in India will primarily reduce the sulfur content from 50 ppm previously to 10 ppm from April 2020 onwards, while the aromatics content remains unchanged from 35% previously.

According to S&P Global Platts petrochemicals analyst Eshwar Yennigalla, the switch in gasoline specs in India could support demand for aromatics for blending purposes.

"Due to the change in sulfur specifications, the various blend components used to achieve the desired could be different from the previous gasoline blends to cover the resultant octane changes. This could result in higher toluene, MX and reformate blending relative to naphtha and directly disrupt their availability for benzene and PX production especially in the first half of 2020," Yennigalla said.

Commodities 2020 | S&P Global Platts

-- Gustav Inge Holmvik, gustav.holmvik@spglobal.com

-- Kevin Allen, kevin.allen@spglobal.com

-- Simon Price, simon.price@spglobal.com

-- Edited by James Leech, james.leech@spglobal.com