Lead: In the first half of 2026, the expectation of a continued oversupply of toluene was disrupted by the closure of the Strait of Hormuz in March, leading to a new low in domestic capacity utilization. Amid this environment, the pure benzene market restored its price spread with toluene, attracting purchasing from downstream benzene production enterprises, and the increase in consumption subsequently pushed up or stabilized toluene prices.
I. Toluene Price Trends by Region
Due to the impact of Middle Eastern geopolitical conflicts, domestic toluene prices in the first half of the year can be divided into two stages.
From January to February, domestic toluene supply tightened in some regions. Supported by a series of favorable factors—such as the widening price spread between pure benzene and toluene attracting active purchasing from the disproportionation and HDA industries, and the opening of the toluene export window—the toluene market rose steadily. Market sentiment grew bullish after the Chinese New Year, with negotiations maintaining firm prices at high levels.
In March, as the Middle East conflict intensified and the Strait of Hormuz was closed to navigation, market concerns over supply drove toluene prices to spike rapidly. The highest transaction price in Shandong reached 11,000 yuan/ton, while in Jiangsu the highest transaction reached 8,900 yuan/ton, with sporadic small lots trading at 9,000 yuan/ton. Against this backdrop, international crude oil fluctuated significantly, and the toluene market also experienced widened volatility. However, with strong international oil prices and constrained supply, domestic refineries faced cost pressures, leading to a series of changes such as reduced operating rates, halted production, and early maintenance schedules. In April, US-Iran peace talks were placed on the agenda, and repeated reversals in Middle Eastern negotiations caused substantial fluctuations in toluene market negotiations. However, due to relatively sufficient domestic toluene supply, more pronounced production cuts overseas, and the onset of the US summer driving season, toluene export volumes remained high, alleviating weak demand and providing price support.
Notably, due to reduced operating rates at domestic refineries, toluene inventories in Jiangsu fell to historical lows. The arbitrage windows between Shandong-Jiangsu and Jiangsu-Guangdong opened, increasing cross-regional flows.
II. Changes in Toluene Supply in the First Half of the Year
From January to February, the toluene industry's capacity utilization rate steadily improved but remained low compared to 2025, mainly due to the shutdown of the Quanzhou Petrochemical unit. From March to June, Middle Eastern geopolitical conflicts disrupted navigation through the Strait of Hormuz, limiting crude oil and naphtha transportation. This caused some domestic refinery operating rates to decline, leading to a sharp increase in toluene output losses. From late May to June, several major refineries brought forward maintenance shutdowns. In late May, policy windows loosened, allowing enterprises with original maintenance plans to be exempt from supply guarantee targets. In early June, an official document lowered the supply guarantee baseline to 80% of last year's monthly average. In late May, refineries began early load reductions and maintenance to offset losses, no longer forced to operate at full capacity to meet supply guarantees, exacerbating the decline in operating rates for domestic toluene producers.
III. Changes in Toluene Consumption in the First Half of the Year
In the first half of the year, profits in the downstream toluene sectors showed a pattern of strength followed by weakness. The average profit for the toluene industry in the first half was -476 yuan/ton, a year-on-year decrease of 285%. The TDI industry maintained positive profits early in the year. From March to May, driven by Middle Eastern geopolitical conflict, the entire industrial chain saw prices rise collectively, and all downstream sectors except toluene as feedstock were profitable. During this phase, downstream prices faced resistance in passing costs to end-users, prompting enterprises to halt production to preserve prices, and capacity utilization rates showed a downward oscillating trend. In June, as the Middle East situation eased and a preliminary US-Iran agreement was reached, the market's trading logic returned to supply and demand fundamentals. With downstream end-user industries entering a seasonal off-season, capacity utilization rates fluctuated to varying degrees. The benefits from toluene's own production cuts became apparent, coupled with a significant decline in naphtha prices, pushing the toluene industry's profit into positive territory in June.
In the first half of the year, toluene exports are estimated at 722,000 tons, an increase of 96% year-on-year and 3.1% quarter-on-quarter. The main export destinations were Southeast Asian countries such as South Korea and Singapore, as well as India. In the first half of 2026, average monthly toluene exports are estimated at 120,000 tons, compared with 89,000 tons per month in 2025. After the commissioning of Yulong Petrochemical, the impact on the toluene market was fully realized, leading to a significant increase in domestic toluene available for export.
IV. Toluene Supply and Demand Forecast for the Second Half of the Year
Crude oil: In the second half of the year, geopolitical situations and supply-demand dynamics will be the main factors influencing international oil prices. International oil prices may trend downward with fluctuations. Positive factors mainly include continued instability in the Israel-Lebanon region and the time needed for Gulf oil-producing countries to restore crude production. Negative factors primarily arise from the relatively smooth progress of the second phase of US-Iran negotiations, with the Strait of Hormuz's shipping volume reaching a new high since the conflict began. Iraq and other countries have stated they will accelerate production increases, leading to significant supply growth expectations. However, global economic and crude oil demand remain weak, and expectations of a Federal Reserve rate hike in September are strengthening. Under the combined effect of multiple bearish factors, the center of gravity of international oil prices in the second half of 2026 will come under downward pressure.
In the second half of the year, the market volatility triggered by Middle Eastern geopolitical conflicts will gradually subside. Given the bearish expectations for international oil prices, toluene's main price trend will be downward under cost influences. On the supply side, new plant commissioning this year is mainly concentrated in the second half, leading to steady growth in toluene supply. In some regions, the impact of new plant startups will intensify the supply-demand conflict, putting upward pressure on prices. In Northeast China, the Huajin Aramco petrochemical unit is scheduled to start up from late September to October, exacerbating the surplus of refined oil products, further dragging down the component feedstock market. On the demand side, current export negotiations are mainly focused on the disproportionation and gasoline sectors. The current price spread between pure benzene and toluene is still insufficient to attract foreign disproportionation industry demand. Although there is demand from the gasoline and solvent sectors, their consumption of toluene remains fundamentally demand-driven, creating uncertainty in the negotiation of toluene export orders.
In early July, due to a significant reduction in vessel arrivals, toluene inventory at the Jiangsu terminal fell below 10,000 tons, providing a buffer for subsequent supply increases. However, as supply recovers across regions, toluene terminal inventory is expected to remain at high levels for an extended period in the second half of the year.
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