Weakening Cost Support Drives Significant Decline in Xylene Prices

Lead-in: Recently, influenced by the U.S. midterm elections and easing tensions in the Middle East, crude oil futures fell sharply for three consecutive trading days, with a cumulative decline of nearly 20%. Consequently, prices for gasoline and paraxylene (PX) retreated, weakening the cost support for xylene and leading to a significant drop in its price.

I. International Crude Oil Price Comparison

Table 1: Comparison of USD Prices for International Crude Oil and Related Products (USD/barrel)

Data Source: Chempricehub

Table 2: Comparison of Xylene Prices at Shandong Refineries (CNY/ton)

Data Source: Chempricehub

The U.S. Democratic Party won the midterm elections and regained control of Congress. Market expectations suggest that the U.S.-Iran conflict may de-escalate, reducing concerns over supply risks. As a result, international crude oil futures experienced a sharp decline, with a cumulative drop of approximately 20%.

During this period, futures prices for gasoline and PX fell significantly in tandem. The PX decline exceeded $190 per ton, while the gasoline market dropped by around 200 CNY per ton. Under the impact of the sharp fall in crude oil prices, cost support for xylene weakened. Coupled with the retreat in downstream product prices, buying interest in xylene remained sluggish, leading to a decline of more than 500 CNY per ton over three consecutive days.

II. Analysis of Recent Xylene Production-Sales Ratio in Shandong Region

Recently, the transaction pace for xylene at Shandong refineries was initially weak but subsequently strengthened. In the early phase, as xylene prices rose to high levels, the production-sales ratio in the Shandong region dropped to below 40%. Following three consecutive days of sharp declines in crude oil prices, the production-sales ratio for xylene at Shandong refineries fell to below 10%, indicating overall sluggish shipments.

III. Forecast

It is expected that international oil prices will have room to decline next week. WTI may range between $81–91 per barrel, and Brent between $87–97 per barrel. The core logic behind this forecast is that the Democratic Party's victory in the midterm elections reduces the risk of large-scale U.S.-Iran conflict, thereby weakening geopolitical support for oil prices and creating downward pressure. Key focus areas include:

1. Supply Side: Iranian parliamentary officials have indicated exemptions from Hormuz Strait transit restrictions for vessels from China, India, Iraq, and Qatar, alleviating some market concerns about supply risks. However, tanker traffic through the Bab el-Mandeb Strait remains weak, indicating continued instability on the supply side.
2. Demand Side: The fourth quarter marks the traditional off-season for refined oil product demand, with limited growth in heating oil consumption. Weak European manufacturing suppresses diesel consumption, lacking upward pull on end-user demand.
3. Geopolitical Situation: Markets expect that with the Democrats controlling both chambers, President Trump’s scope for launching large-scale military strikes against Iran is constrained, cooling expectations of a full-scale U.S.-Iran conflict. However, the election results have not yet officially taken effect, and there is still time before the inauguration next January. Fundamental contradictions between the U.S. and Iran remain unresolved, and the current administration retains autonomy for military action, so the risk of renewed strikes against Iran must still be watched. Additionally, Houthi attacks disrupting Red Sea shipping mean the possibility of sudden geopolitical disturbances remains.
4. Financial Attributes: The Federal Reserve is likely to maintain interest rates unchanged, though expectations for a rate hike in December persist. The U.S. dollar index has a limited phased impact on oil prices.

The PX market is expected to trend sideways with a bearish bias next week due to insufficient cost support and sluggish terminal demand. PX prices are projected to trade near $1,250 per ton CFR China.

• Cost Side: International oil prices are expected to decline further, with WTI potentially ranging $81–91/barrel and Brent $87–97/barrel.
• Supply Side: Next week, units at Hainan Refining & Chemical (600 kt), Yangzi Petrochemical (340 kt), and Fujia (700 kt) will remain shut down. Weekly PX output is estimated at 694,800 tons, with an average weekly capacity utilization rate of 83.8%.
• Demand Side: There are no new maintenance plans scheduled for next week. Although restarts and maintenance coexisted this week, domestic supply saw a slight contraction. Weekly output is estimated to remain near 1,358,300 tons.

Gasoline prices are expected to decline slightly. With anticipated drops in international oil prices and expectations for lower wholesale-retail price caps, negative news sentiment persists. The weak market conditions for refined oil products in Shandong are difficult to change. Refineries are forced to cut prices to ensure shipments, intermediate traders show little interest in locking in orders, and downstream users purchase only on-demand after clearing inventory. Bearish sentiment dominates the market. Gasoline and diesel prices at independent Shandong refineries are expected to fluctuate downwards next week, with declines of 100–200 CNY per ton.

Overall, the market is expected to operate weakly next week, with bearish expectations for crude oil, PX, and gasoline. Key focus points include:

1. Supply Side: Domestic unit loads remain stable, with no new restarts planned for next week.
2. Demand Side: The MX-PX spread is narrowing, and downstream customers are purchasing on-demand. Bearish views on gasoline and PX provide weak support for intra-market prices.
3. Cost Side: The Democratic victory in midterm elections reduces the risk of large-scale U.S.-Iran conflict, weakening geopolitical support for oil prices and creating downward pressure.

In summary, recent domestic gasoline vessel transactions have slowed, and combined with high xylene prices, support from the gasoline sector has weakened. Affected by the sharp drop in crude oil, PX futures declined significantly, slowing raw material procurement enthusiasm. Although spot resources for xylene are tight, transaction momentum remains weak. Xylene is expected to trade weakly next week, with East China prices ranging between 8,200–8,400 CNY per ton.