Blending demand for octane boosters in gasoline supported US toluene and mixed xylenes (MX) markets this year, a trend likely to continue into 2023 amid weak demand from petrochemical producers.
Toluene and MX have high octane levels and low Reid vapor pressure (RVP), making them attractive gasoline blend stocks to meet summer fuel requirements. In 2022, refiners blended more low-cost, low-octane naphtha into the gasoline pool, incentivizing blenders to purchase more high-octane, low RVP blendstocks, such as toluene and MX, to meet US summer fuel specifications and to meet the necessary octane value which naphtha alone does not provide.
Increased blending demand lifted the toluene RBOB blend value to a record 651.79¢/USG on 9 June, and toluene imports in the third quarter more than doubled from a year earlier to 166,045 t, according to Global Trade Tracker.
But toluene is also used as a feedstock to produce chemicals benzene and paraxylene (PX) in selective toluene disproportionation (STDP) units, and to produce benzene and mixed xylenes in non-selective toluene disproportionation (TDP) units, usually when chemical demand surpasses blending demand. Derivative benzene typically requires a minimum a 30¢/USG premium over toluene for two to four weeks to achieve breakeven STDP margins. Chemical buyers and blenders usually must buy toluene at a premium over blend values, or the value refiners capture for toluene by leaving it as an octane-booster in reformate. A decline in chemical demand caused derivative benzene prices to fall below toluene on 9 June at 650¢/USG, prompting reduced or shut operations at STDP units.
In the following six months, toluene's RBOB blend value fell by 52pc to 311.42¢/USG on 27 December amid the seasonal switch to winter fuel specifications. Similarly, toluene prices fell by 50pc since June to 347.5¢/USG on 27 December, because of the absence of seasonal octane demand as well as chemical demand from STDP and TDPs. With spreads of toluene over benzene at 16.5¢/USG on 27 December, toluene will remain more closely linked to octane-driven seasonality in 2023 as STDPs and TDP units remain at reduced rates or shut on inverse feedstock and derivatives spreads.
With toluene supply tight in 2022, blenders even purchased benzene derivatives ethylbenzene and cumene to satisfy their strong appetite for high-octane blendstock. This kept toluene, the preferred high-octane blendstock, at a slight premium over benzene in second-half 2022, rather than at a discount, as both aromatics were destined for the blending pool. The trend is poised to repeat in 2023, unless chemical demand for benzene rebounds over toluene.
Mixed xylene prices moved similarly to toluene in 2022. Both the MX price and RBOB blend value climbed to 680¢/USG in June, before falling back to near 300¢/USG in December, tracking the seasonality of high-octane demand. High MX blend values priced out downstream chemical paraxylene producers along the polyester chain, resulting in reduced operations at MX-PX conversion units in 2022. This spurred more PX imports to the east coast as PX operators maintain minimum rates on squeezed margins below the $200/t breakeven margin threshold.
The MX-PX spread averaged -$9/t in in the third-quarter during peak blending season, well below breakeven levels. Meanwhile, paraxylene imports averaged a higher 320,588 t from July through September 2022, compared to 183,013t in the same period of the prior year, according to GTT, as PX producers favored imported paraxylene rather than running MX-PX conversion units at a loss due to the elevated cost of feedstock MX.
Both toluene and MX are likely to remain coupled with blend values going into 2023, unless chemical demand increases for benzene and paraxylene. But with concern rising that a global recession in 2023 could dampen overall plastics demand, the gasoline blend pool may remain the top consumer of toluene and MX.
