Toluene Arbitrage from Europe to the US Attracting Attention

European traders are keeping a close eye on the potential toluene arbitrage from Europe to the US in April, sources said Monday.

A strengthening gasoline market coupled with depressed toluene prices in Europe are expected to facilitate westbound movement of cargoes across the Atlantic.

The European spot price of toluene was assessed $9.50/mt higher on Monday at $637.50/mt FOB ARA, as tightening fundamentals in Europe pushed prices higher. Over in the US Gulf Coast, April prices were last assessed at $674.88/mt FOB USG, putting the spread between the two regions below what is needed for profitably moving product from Europe to the US Gulf. May prices in the US Gulf were last assessed at $684/mt FOB USG.

However, if European gasoline cracks lower and benzene prices in the US remain strong, the arbitrage is thought likely to become attractive, sources said on Monday.

"Gasoline [in the US] is rising. People seem to think that the US will be a buyer in April. This is not bullish for toluene but realistically optimistic," said a Europe based chemicals distributor on Monday: "The octane demand in rising in the US," the same source added.

European toluene spot pricing has again hovered towards its gasoline blend value, following three months of demand driven by benzene conversion. As conversion margins have come under pressure, and the Western hemisphere driving season approaches, gasoline related pricing is expected to dominate into the summer, sources have said.

A second market source said that the toluene arbitrage to the US could work in April, depending on how European gasoline cracks develop. "The European gasoline cracks need to come off ... as long as European toluene is around the $630/mt, you should be able to move it to the US."

A third source said that if the European octanes market would remain balanced, the arbitrage to the US could start to look interesting.

"People are looking to move product to the US, but I haven't seen anything booked, yet," he said.