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Insight | Time:Aug 30 2017 4:15PM
Arbitrage opportunity in toluene market
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1. Price spread of South – East China toluene supplies
CNOOC Huizhou’s second aromatics unit is slated to start up in end-Aug and begin production before end-Sep. The new unit, located in Huizhou, Guangdong has nameplate capacity to produce 350.2kt/yr of toluene, 372.9kt/yr of benzene and 125kt/yr of mixed xylenes. Its toluene production is earmarked to sell in domestic market, which means that about 20-30kt of products will be added to the market every month if the plant runs stably. The products will firstly seep into South China and Fujian markets.

South China market can also be an outlet for materials from East China. From the chart below, it can be seen that South – East China toluene price spread hovers at around 200-300yuan/mt in Jul-Aug, high enough the cover the freight. The arbitrage window remains open, and some East China supplies may flow into South China.

2. Price spread of domestic – imported cargoes
The price spread of domestic forward month cargo to CFR China cargoes had been fluctuating for several months, and widened to as high as -200yuan/mt in early Aug. As of Aug 29, CFR China price was assessed at $655/mt, equivalent to 5,247yuan/mt (inclusive of importing tax and VAT), and price of domestic forward month cargoes was assessed at 5,250yuan/mt. The arbitrage window closed for most of August.

3. Price spread of USG and Asian cargoes
The arbitrage window of Asia to US Gulf was closed for most of Jul and Aug, as FOB Korea – FOB USG toluene spread was not large enough to cover the freight which was at about $60/mt for 10,000 tons of cargoes.

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