Lead: On Friday, the lowest transaction price for toluene at Shandong refineries fell to 7,520 yuan/ton, compared to 7,750 yuan/ton the previous week, marking a 3% decline. The primary reasons are a bearish shift in external market sentiment and a significant drop in mixed xylene (MX) prices dragging down the toluene market.

1. Shandong Toluene Prices Continue to Decline Significantly

Against the backdrop of fluctuating Middle East tensions and volatile international crude oil prices, supply and demand fundamentals have had a limited impact on toluene prices, with market sentiment playing a dominant role in price movements. During the week, sales performance at Shandong refineries showed a divergence. While higher-priced toluene moved smoothly due to active procurement from the chemical industry, sales of lower-priced material were hindered. Recently, only active buying from the chemical sector has provided strong support for toluene prices, while demand from the oil products sector remains very limited.

Simultaneously, toluene units at some enterprises in the Panjin area are shut down, and supply in the Beijing-Tianjin-Hebei region has not yet recovered. The arbitrage window for toluene from Shandong to surrounding regions remains open, with some toluene continuing to flow out. Consequently, the supply and demand balance for toluene in Shandong remains stable.

2. Toluene-Benzene Spread Widens

This week, the average price spread between benzene and toluene in Shandong was 612 yuan/ton, with the Hydrodealkylation (HAD) process showing a processing loss of -140 yuan/ton. Last week, the average spread was 581 yuan/ton with an HDA processing loss of -211 yuan/ton. At the close on March 25th, the monitored HDA process loss reached -737 yuan/ton, recording the largest single-day loss in nearly half a month.

Currently, with crude oil trading at high levels, aromatics production costs provide good support. However, downstream product prices are slow to follow. Furthermore, due to the instability of crude oil supply for production refineries, enterprises are prioritizing maintaining oil production. Additionally, losses from toluene-to-benzene production have become normalized. A Shandong-based HDA unit recently restarted, increasing toluene consumption.

3. Toluene-MX Spread Reverses

During the week, the average price spread between mixed xylene (MX) and toluene in Shandong was -165 yuan/ton (indicating toluene was priced higher than MX on average), with the average toluene refinery production-to-sales ratio at 111%. Last week, the average spread was 50 yuan/ton (MX higher than toluene), with the average toluene refinery production-to-sales ratio at 84%. Although PX prices fluctuated significantly during the week, the PX-MX spread still covered the break-even point. However, due to significant losses in the reforming chain and shutdowns for maintenance at some PX plants, MX consumption decreased. Concurrently, declining gasoline prices led to reduced MX procurement. Poor MX sales and falling prices subsequently dragged down toluene prices.

4. Market Outlook

Positive Factors: Severe losses in reforming units provide good cost-side support; units that have reduced operating rates have no short-term plans to increase them; maintenance plans are in place for enterprises such as Panjin Haoye, Liaohe Petrochemical, Panjin Baolai, and Shenghong Refining.

Negative Factors: Gasoline consumption remains very limited.

Due to the bearish external sentiment, toluene market prices have been affected, leading refineries to lower their listed prices to promote sales. However, rigid demand consumption persists, and the arbitrage window from Shandong to surrounding provinces remains open. Supported by demand, the downside for toluene prices is limited. Currently, market news is mixed and uncertain, including possibilities such as some refinery units undergoing maintenance shutdowns ahead of schedule or Sinopec potentially utilizing reserve crude to increase operating rates. For now, the losses from high-cost aromatics units at production refineries are unlikely to ease in the short term, providing solid market support from the cost side. Consequently, volatility in the toluene market is expected to slow down.