Asian toluene prices are likely to scale new highs next year, driven by strong buying interests from China and firmer energy values, industry sources said on Monday. "It all depends on the Chinese," a producer said. Spot prices have been steadily rising since the fourth quarter of this year, hitting its highest level since October 2008 on Monday at $880-890/tonne (616-623/tonne) FOB (free on board) Korea, based on data from ICIS pricing, a global chemical market intelligence service.

Chinese consumers and traders had been snapping up toluene cargoes despite high inventory levels due to strong availability of credit, which could be traced back to the government's massive fiscal stimulus package, industry sources said. "Since players can borrow cheaply by using easy credit, there will be further speculation in the toluene market," a Chinese trader said in Mandarin.

Demand for toluene has been firmly supported by the downstream gasoline blending sector in China, which would remain lucrative if energy futures continued to trend higher, said Korean trader.

US crude futures were hovering at $78/bbl levels on Monday morning, which rebounded strongly from a low of about $30/bbl in December 2008.

Ahead of the Lunar New Year in February, buyers would have to procure fresh cargoes but not in huge volumes, regional traders said. There could be some price pressures from the expected influx of deep-sea cargoes during the month, some players said. "The opening of the arbitrage window since this November has attracted a flood of deep-sea cargoes from Europe and the US Gulf to reach Asia in 2010," said a Korean producer.

These deep-sea cargoes will hit the Chinese market in February could temporarily dampen buying interests and cause toluene prices to fall, market sources said. But demand typically picks up after the Chinese holidays, starting around the middle of February in 2010, market players said. “Despite an expected price dip in February, quarter one still looks good," a Chinese trader said in Mandarin.

"The Chinese are really confident about next year. If their bullishness sustain, toluene demand will definitely strengthen. Prices will climb higher," a regional trader said. Toluene prices were also likely to be supported on the supply side, industry sources said. Several hydrodealkylation (HDA) and toluene disproportionation (TDP) units were still shut and plans for restarts were underway in view of better margins, producers said. "Toluene supply may tighten to exert upward price pressure if these [TDP and HDA] units are to start up," a Japanese trader said.

In Taiwan, however, a TDP unit would be shut for most of 2010 for modification, while other TDP and HAD facilities in Japan would undergo maintenance in the first half of next year.