The weakening guidance from crude oil has loosened toluene's earlier firmness.

Lead: In August, the toluene market performed stronger than expected, with prices sustaining the positive momentum seen in July. However, with some units returning from maintenance in mid-to-late August, along with incremental output of related products and downstream plant turnarounds, the risk of toluene price declines is rising.

1. Toluene Price Trend Remains Strong

During the review period, international crude oil prices fluctuated at elevated levels. Against a backdrop of repeated swings in the external landscape, toluene export negotiations faced considerable uncertainty, with September-loading cargoes still available for export discussions. At present, inter-regional arbitrage windows are closed, and few spot toluene transactions have been heard in Jiangsu, with truck-load deals mainly coming from surrounding refineries. In addition, due to typhoon weather, warehouse pickup and unloading operations have been affected.

Meanwhile, aromatics complex turnarounds have concluded with a concentrated resumption of operations. Companies such as Zhejiang Petrochemical, Zhongjin Petrochemical, Weilian Chemical, and Shenghong Refining & Chemical have recently restarted their units, while Sinopec Yangzi Petrochemical's unit is scheduled to resume in late September. Under expectations of increased supply of related products, sentiment in the toluene market has come under pressure.

Table 1 Domestic Market Toluene Price Comparison (yuan/mt)

2. Fine Chemical Industry Cost Pressure Persists

In the TDI sector, a Shandong-based unit has cut operating rates and entered its maintenance period, while a Fujian-based unit has raised its operating load. Among the downstream toluene-consuming sectors, TDI product margins remain the highest. Both the benzoic acid and benzyl chloride industries are experiencing oversupply, with producers adopting a long-standing sales approach of reducing output to prop up prices. However, weak end-user demand has kept these sectors running at low operating rates.

The spread between pure benzene and toluene in Shandong continued to narrow, averaging 829 yuan/mt, with HDA process processing margins at 90 yuan/mt. Last week, the average spread between pure benzene and toluene in Shandong stood at 1,004 yuan/mt, with HDA processing margins at 280 yuan/mt. Currently, HDA processors' margins are at their lowest level since late June.

3. Market Outlook

In the short term, the supply-demand structure of the toluene industry is weakening. The positive impact of international crude oil price fluctuations on toluene prices is diminishing, while the negative impact is rising. As domestic spot toluene supply cannot increase rapidly and export orders are still being delivered, the toluene market is expected to consolidate steadily, with market attention shifting to supply-demand fundamentals.

In the medium-to-long term, after Shandong's refined oil vessel order volumes hit a record high in July, gasoline vessel order volumes remained at a relatively high level in August, providing positive support to market sentiment. However, pure benzene is performing weakly with softening prices, putting pressure on toluene-to-benzene demand, and some new unit startups may be further delayed. In terms of sentiment, the US-Iran geopolitical tussle remains volatile, international crude oil prices continue to trend firm, and cost-side support remains intact. On balance, negative factors are gaining influence, and toluene's previously strong pattern is gradually weakening.