[Introduction]: Negotiations between the United States and Iran have been repeatedly stalled, leading to wide swings in international crude oil prices. Currently, feedstock costs at Shandong refineries remain elevated, but weak demand has forced them to lower prices to stimulate sales. In the domestic market, replenishment operations for export orders have had a notable impact on transaction volumes.

1. Shandong toluene prices continue to decline

During the week, international crude oil prices moved downward, exerting bearish pressure on the commodity market. However, domestic producers, having previously purchased high-cost raw materials, are currently suffering severe losses, which provides cost support for downstream petrochemical products. Meanwhile, the atmosphere for export negotiations has cooled, and toluene refineries experienced sluggish sales, leading to a slight build-up in inventories. With the resumption of export order replenishment, toluene refinery sales have gained some support.

2. Toluene/benzene price spread widens

This week, the average price spread between benzene and toluene in the Shandong region stood at 1,228 CNY/ton, with the HDA process margin at 433 CNY/ton. Last week, the average spread was 1,354 CNY/ton, and the HDA processing margin was 542 CNY/ton. Over the weekend, the gross margin for HDA plants in Shandong dropped to around 500 CNY/ton, the lowest profit level since May. During the week, HDA plants maintained stable procurement, but their aversion to high prices increased.

Shandong Ruilin Chemical's HDA unit is operating normally, and Qingdao Lidong's reformer unit has completed maintenance and plans to restart, which will increase benzene supply and put pressure on toluene prices. If export replenishment does not persist, toluene refineries may still face some sales pressure.

3. Xylene/toluene spread widens but remains negative

This week, the average price spread between xylene and toluene in Shandong was 20 CNY/ton, with toluene refineries' average production-to-sales ratio at 41%. Last week, the average spread was -57 CNY/ton, and the average production-to-sales ratio was 74%. Although the spread between xylene and downstream PX has narrowed somewhat, it remains at a high level, prompting downstream PX producers to actively procure xylene, leading to premiums in xylene auctions and a partial recovery in the spread with toluene.

On the unit side, Qicheng Petrochemical's reformer shut down for maintenance in mid-May, reducing toluene supply. Qingdao Lidong's unit has restarted, with toluene used internally. On the news front, one reformer at Yulong Petrochemical is scheduled to shut down this week.

4. Market outlook

Supportive factors: Reformer units are suffering severe losses, providing good cost support; export operations have resumed; downstream benzene-consuming plants maintain stable consumption.

Bearish factors: Gasoline consumption is very limited; demand from the fine chemical industry is weak.

Currently, the repeated ups and downs in US-Iran negotiations have caused crude oil prices to fluctuate widely, significantly impacting market sentiment. Domestic refineries face high production costs, making it difficult to pass costs down the chain. Companies are suffering heavy losses, and reduced sales at higher prices have led to a contraction in toluene supply. Moreover, the delivery volume for export orders in June remains high, alleviating the supply-demand contradiction for toluene in Shandong to some extent. It is expected that refineries will continue to sell steadily in the near term, with price movements slowing down.