Weak Demand Impacts Toluene Demand in the European market

Hamburg (Germany)- The prices of Toluene in the European market have continued to move downward due to a decline in the construction market and the proportional demand for Toluene from the paints and coatings sectors. Moreover, the most crucial factors having a direct impact on the prices of Toluene in the domestic market include naphtha and the energy prices required for its production. Gasoline inventories in the Amsterdam-Rotterdam-Antwerp (ARA) refining and storage hub increased. In the last few weeks, the European market has been witnessing a slump in naphtha prices, which has proportionally impacted Toluene prices. Quotations were observed at USD 1105 per MT, FOB Hamburg, in mid-Q2 2024.

Recently, the German Construction Industry Federation (HDB) presented a more pessimistic outlook for Germany's construction industry for the coming quarters of 2024. Contrary to previous forecasts, the sector is now expected to shrink by 4% this year. The primary cause of this decline is weakness in the residential construction segment, where sales are anticipated to drop, and public construction projects are expected to fall short of initial projections. Europe’s largest economy is facing challenges such as rising interest rates, increasing inflation, and economic stagnation.

Europe's naphtha margins have declined amid rising US stockpiles. Furthermore, in southern Germany, sections of the Rhine River remained closed to cargo shipping due to increased water levels following heavy rainfall in the area, as reported by navigation authorities. This uncertainty in the supply chain have restrained the buyers from placing higher orders. For chemicals that are less energy-intensive and have costs more closely linked to crude oil prices rather than natural gas and electricity, such as major packaging plastics like polyethylene and polypropylene, European producers might remain in the mid-range of the cost curve.

Regarding the market dynamics of Toluene, its consumption in the automotive industry has been uncertain. Although the automotive industry in the European market is improving, the restricted supply of Toluene from the Chinese market has also restrained its demand volume in Europe.

ChemAnalyst expects that Toluene prices in the European market may remain stable in the coming weeks due to a decrease in new orders and backlogs. The report also highlights an increase in both exports and imports, along with a slowdown in supplier Toluene deliveries. The external and external factors both had combined to impact the toluene prices as the continuous restrain in the supply between the European region and Asian market has declined the demand from the international market.