Changes to Chemical & Gasoline blending component trade flows in H2 2023
Perhaps the key development around these new trade flows is the recent consumption tax announced by China, which has raised tax rates for several blending components including mixed aromatics from July onwards. These are now levied at the same rate as naphtha. With cheaper naphtha acting as the base component for gasoline blending in Asia, refiners in the region are now more likely to extract high-value products such as toluene and mixed xylenes.
The growth of PX/polyester capacity has lowered operating rates across Asia, with slower demand also pushing down margins, so many traders have looked at longhaul options to move volumes—a key solution being the US gasoline blending pool, where supplies have been tighter.
One of the main reasons for this beyond some post-COVID improvement in fuel consumption is the shift in crude oil seen since Russia’s invasion of Ukraine. Western markets are now short of blending components as Urals barrels have been taken out of the markets in both Europe and the US. The oil cut supplied out of the Middle East to compensate provides lighter CPP output, meaning that those higher-octane chemicals are more valuable to gasoline blenders.
Historically, many of these high-octane blend components came from Europe into the US, but the Continent has seen a tightening as well following the Ukraine conflict which has lowered exports. This has opened the Asia to US movement on aromatic blendstocks more recently, but also seen a growth on intra-European trade flows for chemicals such as ethylbenzene (EB) and cumene.
Primarily used as precursors to styrene and phenol, weak European demand has lowered derivative run rates and freed up feedstock that is now being channelled into the blending pool—moving from chemical sites like Gonfreville and Terneuzen into NW Europe and the UK.
Looking at the Chinese market after the implementation of the consumption tax, gasoline blenders there have been forced to opt for similar high-octane chemicals as these imported components drop off. This has seen EB diverted away from styrene production into the blending pool, limiting styrene output just as demand has started to improve following a sluggish recovery period after the Lunar New Year.
Chinese inventories have dropped to their lowest point in almost a year as a result. In the near-term, this is likely to pull more styrene imports from the Middle East and the rest of Asia as stocks run down and production output is capped by a tightness on EB.
After the peak summer season for gasoline demand, the global market for blend components is likely to ease and premiums over gasoline should follow suit. Toluene and mixed xylenes may find some support for demand in the coming months in China, as more downstream units are poised to come online. More styrene and phenol production should pull on those precursors that have been diverted into the gasoline pool (EB and cumene), and these units will also push up benzene demand through the rest of 2023.
Even with some additional benzene capacity coming by late 2023, the Chinese market is expected to be tight as demand requirements outpace new supply. The toluene that has been exported from NE Asia into the US gasoline pool may find itself moving back into local benzene production to feed the growing deficit in China.
It is a similar story for the polyester chain in China: 7 million tonnes of annual PTA capacity is scheduled to come onstream between now and the end of the year—bringing with it an additional 4.5 million tonnes of PX consumption. The xylenes feedstock may find that demand into the blending sector dries up in H2 2023, but chemical consumption will improve as these new units come online.
Source: Clarkson Plc