The premium of European toluene over gasoline hit a new all-time low July 16, amid a long European market and returning buying interest.
Platts assessed the premium of July CIF ARA toluene over the Eurobob gasoline FOB AR swap at $30/mt on July 16, down $9/mt on the day, at the level of a trade on an offer seen in the Platts Market on Close assessment process and at the lowest level since Platts began assessing the toluene premium in November 2017.
The August premium over Eurobob gasoline was assessed at $31/mt on July 16, $1 above the July premium, but also at an all-time low.
The drop follows from another fall in premiums during the week ending July 10, when the premium was assessed at $39/mt, down $26/mt week on week.
According to sources, the lower premiums have driven fresh buying interest, as buying toluene at record low premiums became an attractive alternative to producing in house.
With toluene production costs remaining at a premium of around $60/mt, purchasing toluene at the current premiums is a cheaper option.
"There is no incentive to produce margin ton more, only to producer margin ton less," a trader said on July 17.
The bids started to come from various market participants, not just from blenders as was the case a few weeks ago, the trader said.
Earlier this week, sources reported an interest for toluene for August delivery dates, indicating a market flipping into contango.
"That is normal for a long market," the trader said on July 15.
Nevertheless, August is only marginally above July, a few dollars, a European consumer said July 16.
What next?
While the lower toluene premiums have placed that measure of the market under focus in recent weeks, market sources have also pointed to recent moves in gasoline as a bigger factor in toluene outright values.
"A swing in premiums between $30/mt and 40/mt was a big factor when gasoline is relatively stable and when the coronavirus wasn't present, but now we have swings in gasoline of a few hundred dollars so it is more important to look at gasoline in the current environment," a source said.
The Eurobob FOB barge market front-month swap has averaged $394.21/mt so far this month, from $365.20/mt in June and $198.96/mt above the average of April.
Mobility rates in Europe are said to be improving, with increased driving activity and higher crude oil prices responsible for the steady recovery in gasoline prices over the second and third quarters.
"If gasoline demand is increasing, as an octane booster you would use toluene so toluene demand might increase," a source said.
