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Sunday, October 17, 2021

Toluene arbitrage to US open but difficult to work: traders

The continuous surge in the US toluene prices opened the cross-Atlantic arbitrage in a westward direction for the first time since mid-February, Platts data shows.

However, traders said it was difficult to take advantage of this arbitrage opportunity, as there did not appear to be sufficient material available on prompt to put together a parcel big enough in order to secure a reasonable freight rate.

European TDI grade toluene was assessed at $1,120/mt FOB ARA for June loading Tuesday. However, some traders said it would be impossible to buy prompt molecules below $1,130-1,135/mt. There was more product available for July loading dates, but traders were uncertain whether the arbitrage would continue to be open then.

The July price in the US was last assessed at 390 cents/gallon ($1,185.60/mt) FOB USG, leaving over $65/mt to cover both ocean and inland freight rates, as well as to provide some margin.

Freight rates were heard at $40-45/mt for 5,000 parcels and at around $50-55/mt for 3,000 loads.

According to one shipping source, despite these difficulties, there has been one 3,000 mt parcel fixed on Kristin Knutsen from ARA to Houston, with a freight rate in low $50s/mt. This information has not been so far corroborated by the rest of the market.

US prices are currently underpinned by the strong gasoline market, which led to under-extraction by US refineries. However, traders felt there was sufficient capacity to ramp up toluene production locally and that the toluene market in the US might quickly cool off.

The European domestic market has been relatively balanced, as European producers adjusted their toluene production amid a lack of spot demand and stronger gasoline blending economics. As a result some traders felt that shipping product out could tighten supplies in Europe.

– Platts.com

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