Lead: The impact of widespread production cuts at refineries in Europe and Asia, driven by geopolitical conflicts, continues to persist. Over time, this supply tightening is becoming directly evident in the market. The news that South Korea will completely ban naphtha exports starting from 00:00 on March 27th has further intensified domestic supply tightness.

1. Significant Increase in Shandong Toluene Prices

| Figure 1: Comparison of Shandong Toluene and International Crude Oil Price Trends (USD/barrel, CNY/ton) |
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| Data Source: chempricehub Information |

Recently, international crude oil futures prices have been oscillating at high levels, with Brent crude stabilizing above USD 100 per barrel. Meanwhile, toluene prices in the Shandong region range between CNY 7,600 and 8,200 per ton. Although some downstream sectors have halted operations due to cost pressures, toluene producers are facing significant cost pressures themselves. Domestically, only the Shandong region has a relatively ample toluene supply. Some market participants anticipate that the arbitrage window from Jiangsu to Shandong will remain stably open in the near term.

2. Widening Spread Between Toluene and Benzene

| Figure 2: Trend of the Toluene-Benzene Spread in Shandong Region (CNY/ton) |
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| Data Source: chempricehub Information |

This week, the average spread between benzene and toluene in Shandong was CNY 275 per ton, with the HAD process recording a processing profit of -CNY 482 per ton. Last week, the average benzene-toluene spread in Shandong was CNY 640 per ton, with the HDA process profit at -CNY 174 per ton. At the close on March 25th, monitoring data showed the HDA process profit at -CNY 737 per ton, marking the largest single-day loss in nearly half a month.

Currently, with crude oil prices running high, aromatics production costs are well-supported. However, downstream product prices are slow to follow suit. Furthermore, due to instability in crude oil supply for production refineries, companies are prioritizing securing oil for production. Coupled with the normalization of losses in toluene-to-benzene production, one HDA enterprise in Shandong has shut down, leading to a decline in toluene consumption.

3. Toluene-Xylene Spread Maintained

| Figure 3: Trend of the Toluene-Xylene Spread in Shandong Region (CNY/ton) |
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| Data Source: chempricehub Information |

During the week, the average spread between xylene and toluene in Shandong was CNY 44 per ton, with the average production-to-sales ratio for toluene refineries at 52%. Last week, the average xylene-toluene spread in Shandong was CNY 207 per ton, with the average toluene refinery production-to-sales ratio at 103%. Although PX prices fluctuated widely during the week, the PX-MX spread still covered the break-even point. PX enterprises in Shandong reduced procurement but maintained some purchasing activity. Simultaneously, the narrowing spread between xylene and toluene has put pressure on toluene's application in oil products.

The toluene-xylene spread fluctuates due to changes in xylene supply and demand dynamics. However, the PX-MX spread remains at a relatively high level and is unlikely to narrow significantly in the short term. Therefore, the toluene-xylene spread is expected to be maintained.

4. Market Outlook

Positive Factors: Geopolitical conflicts are pushing oil prices higher. Concurrently, reduced arrivals of domestic crude oil and naphtha are leading to tightened supply in the toluene industry, causing widespread production cuts among manufacturers.

Negative Factors: Weak terminal demand with slow follow-through.

Currently, major refineries still anticipate significant production cuts in their April schedules, suggesting the tight supply situation for toluene cargoes will continue. Moreover, due to recent high oil prices and the impact of upstream raw material costs, refineries have very limited willingness to proactively reduce prices. Therefore, toluene is expected to undergo a磨合阶段 (磨合阶段:磨合阶段 - running-in/adaptation phase) in April, caught between upstream costs and downstream demand follow-through. Overall, however, cost-side influences are slightly more dominant. Squeezed by both costs and demand, toluene price fluctuations are expected to be relatively moderate, with an anticipated trading range of CNY 7,700-8,300 per ton.