Introduction: In the first half of 2026, the overall domestic xylene market was in a state of ample supply. At the end of February, driven by intensified geopolitical conflicts and the blockade of the Strait of Hormuz, China's xylene imports dropped significantly. Under the influence of a sharp rise in crude oil, xylene prices peaked for the first half of the year. However, downstream gasoline consumers were unable to accept the high-priced materials and shifted their procurement to competing products. Demand from the chemical sector became the sole support for xylene consumption in the first half. The primary factor influencing xylene market volatility shifted from the supply side to the demand side, leading to two consecutive months of price declines.
I. Spot Xylene Price Trends
January-February: The domestic xylene market fluctuated within a narrow range. Although the Spring Festival holiday occurred in February, the overall market at the beginning of the year was still dominated by demand for essential purchases. The ample profits from short-process production provided support for xylene prices, while gasoline demand contributed relatively little to supporting xylene prices.
Late February: Triggered by concerns over supply disruptions due to the Strait incident, xylene experienced a short-term, sentiment-driven rapid price increase. During this round of trading, xylene prices rose to the year's high of approximately 8,750 CNY/ton under the influence of supply disruption concerns. However, as market participants moved past the initial emotional fluctuations and began trading based on the impact of future supply changes on prices, the domestic xylene market saw a significant correction, with cumulative declines of up to 2,000 CNY/ton within 2-3 trading days.
March to June: The arbitrage window between the Shandong and East China markets was open for most of this period. Although imported resources dropped significantly, the replenishment of domestic barge cargoes pushed East China xylene inventories to their highest level in the first half, exceeding 70,000 tons. Subsequently, with continuous geopolitical news and support for xylene consumption relying solely on chemical sector demand, the decline in downstream PX futures and spot prices consistently suppressed xylene prices.
Mid-to-late June: As a geopolitical agreement was reached, crude oil futures fell sharply. Combined with maintenance shutdowns at multiple PX plants, xylene demand dropped significantly, and prices continued to dip to pre-conflict levels.
II. Changes in Xylene Supply in the First Half
January-February: Xylene production followed planned schedules. Although the capacity utilization rate was slightly lower year-on-year, output exceeded the same period in 2025. Starting in March, due to concerns about potential feedstock shortages arising from reduced Middle Eastern crude oil supply, xylene producers implemented defensive production cuts. These cuts were concentrated among coastal refineries using Middle Eastern crude oil. In addition to defensive cuts, some companies moved their second-half maintenance schedules forward to the first half, further exacerbating the reduction in xylene output. From late May to June, some major refinery units brought forward their maintenance plans. Furthermore, the policy window loosened in late May, allowing companies with existing maintenance plans to be exempted from supply guarantee targets. An official document in early June lowered the supply guarantee baseline to 80% of the average monthly output of the previous year. This prompted refineries in late May to begin reducing output and scheduling maintenance earlier to offset losses, rather than being forced to maintain full production for supply guarantees. This intensified the reduction in operating rates among domestic xylene refineries.
III. Changes in Xylene Consumption in the First Half
First Half Overview: Overall xylene profitability was strong initially but weakened later. The average profit for xylene in the first half was -408.81 CNY/ton. From March to May, following the onset of geopolitical conflicts in the Middle East, prices across the entire industrial chain rose collectively. All downstream sectors, excluding xylene feedstock, were profitable. During this phase, the ability to pass on downstream prices to end-users was hindered. Enterprises halted production to stabilize prices, and capacity utilization rates generally showed a fluctuating downward trend. In June, tensions in the Middle East eased as a preliminary agreement between the U.S. and Iran was reached. The market's trading logic reverted to supply and demand fundamentals. Affected by production halts at end-user enterprises, overall market demand had not yet recovered significantly. However, profits across the entire industrial chain became concentrated on the raw material side. Coupled with a sharp drop in naphtha prices, this led to a recovery in overall industrial chain profitability, and xylene margins turned from loss to profit.
IV. Supply-Demand Balance and Price Forecast for the Second Half
Crude Oil Outlook: In the second half, geopolitical situations and supply-demand dynamics will be the main factors influencing international oil prices. International oil prices are likely to show a volatile, downward trend. Positive factors include ongoing instability in the Israel-Lebanon region and the time required for Persian Gulf oil producers to resume crude output. Negative factors come from the relatively smooth progress of the second phase of U.S.-Iran negotiations, with transit volume through the Strait of Hormuz reaching a new high since the conflict began. Furthermore, countries like Iraq have stated they will accelerate production increases, leading to significant expectations of supply growth. However, the global economy and oil demand remain weak, and expectations for a Federal Reserve interest rate hike in September are strengthening. Under the confluence of multiple negative factors, international oil prices are expected to face downward pressure in the second half of 2026.
Supply Outlook: The commissioning of new domestic units this year is mainly concentrated in the second half. Xylene supply will grow steadily. In some regions, the startup of new units will intensify the supply-demand contradiction, putting pressure on price increases. In the Northeast region, the Huajin Aramco refining and petrochemical facility is scheduled to start production between late September and October. This will exacerbate the oversupply of refined oil products, further dragging down the blending component market.
Demand Outlook: With the decline in crude oil prices and the restoration of passage through the Strait, although multiple xylene units are under maintenance, the number of downstream PX plants shutting down is relatively high. The overall xylene market will remain in a state of oversupply. From August to December, previously idled xylene units are expected to resume operations, leading to ample supply. However, as downstream PX plants gradually restart in August, overall market demand will increase simultaneously. However, the potential for overall market price increases is limited. Prices are expected to fall back to the range of 5,700 - 6,000 CNY/ton.
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