The Market Structure for FOB Korea Toluene Flipped Into a Backwardation

The market structure for FOB Korea toluene flipped into a backwardation Wednesday, supported by tight supply of prompt-delivery cargoes and keen buying interest, said market sources.

Platts assessed the FOB Korea toluene marker at $1,137/mt Wednesday, up $7.5/mt day on day.

Cargoes for delivery in H1 and H2 July were assessed at $1,138/mt FOB Korea, and for delivery in H1 and H2 August at $1,136/mt FOB Korea Wednesday. The July/August time spread was assessed at $2/mt firming from minus $1/mt assessed Tuesday, with sources saying the backwardation might steepen going forward. The prompt spread for toluene had been in contango since early 2013, added sources.

In the morning, bids for July-delivery cargoes were seen at $1,135/mt FOB Korea, which gradually rose to $1,137/mt FOB Korea by mid-morning, said sources. There were no offers heard for July-delivery cargoes Wednesday morning.

Bids for August-delivery cargoes were seen at $1,131/mt FOB Korea, which climbed up to $1,134/mt FOB Korea before the start of the Platts Market on Close assessment process, against offers heard at $1,138/mt FOB Korea.

A trading source said July-delivery cargo availability was tight due to fall in sales volume from SK Global Chemical as it had started up its 1 million mt/year paraxylene plant in Ulsan in early June.

Toluene is used as a feedstock in paraxylene plants.

However, a China-based trading source said the market was firm in the prompt mainly due to traders covering short positions and did not entirely reflect fundamentals of demand and supply.