Toluene (CAS: 108-88-3) is a core basic product in the aromatic hydrocarbon chain. Industrial-grade toluene is widely used as coating diluent, ink solvent and gasoline blending component. Toluene for disproportionation is the key feedstock for benzene production via HDA process, and many traders also handle export-grade barreled toluene for overseas orders. For refineries, HDA producers and coating chemical purchasers, fluctuations in domestic toluene spot prices directly affect production planning and procurement costs.
1. Weekly Market Overview
Recently, the toluene market experienced a pattern of rising first and then declining. In the first half, US-Iran relations remained deadlocked, with supply concerns continuing to fester. Brent crude held steadily above $90/bbl, providing strong cost support to the entire chemical complex. Shandong toluene prices followed with firm movement, and market sentiment was relatively positive.
However, conditions changed in the second half. As the US and Iran returned to negotiations with reports that an agreement might be reached, international oil prices began to retreat. At the same time, related aromatics futures products entered a downward channel, with some varieties even hitting their daily limits. The external market atmosphere turned bearish, and toluene prices corrected lower accordingly.
Overall, crude oil prices remain in a high-level volatile range. Although toluene prices have outperformed crude oil in percentage gains this month, they have already corrected somewhat from the beginning of the month. Cost-side support persists but is weaker than in the earlier period. Notably, recent gasoline market demand has been decent, providing fundamental support to the toluene market.
2. Spread Update
This week, the average benzene-toluene spread in the Shandong region was RMB 739/ton. Based on the HDA process calculation, processing profit was approximately -RMB 42/ton — in other words, already in loss territory. For comparison, last week the spread averaged RMB 1,006/ton, with processing profit at RMB 221/ton.
Looking at a longer timeline, the average HDA profit in July was RMB 431/ton, up 498% month-on-month. However, in August, the average profit dropped sharply to RMB 164/ton, a month-on-month decline of 62%. Entering this week, as the spread narrowed further, profits turned negative, indicating rapidly deteriorating economics for downstream HDA units.
3. Toluene-Xylene Spread Widened, Gasoline Demand Became Key Support
Turning to the toluene-xylene relationship, the average xylene-toluene spread in the Shandong region was RMB 154/ton this week, with toluene refiners' average sales-to-production ratio at only 45%. Last week, the spread averaged RMB 98/ton, with refiners' ratio at 84%.
The data reveals a notable decline in toluene sales ratios. The logic behind this: the xylene-PX spread is narrowing, and short-fraction profit monitoring is negative. Poor economics meant no PX companies issued purchase inquiries this week. In this context, the toluene-xylene spread remains, and gasoline industry profits are still decent, making gasoline demand the primary source of support for the toluene market. However, it is worth noting that gasoline consumption currently lags behind toluene supply.
4. Market Outlook
On Wednesday, aromatics futures prices fell sharply, the external commodity market atmosphere turned quickly, and wait-and-see sentiment in the toluene market rose significantly. At the same time, multiple plants in the downstream fine chemical industry have shut down. Both the benzene-toluene spread and the PX-xylene spread are below breakeven levels, further weighing on market sentiment.
Currently, although gasoline consumption remains stable and provides some price support, its volume is still insufficient relative to toluene supply, leading to expectations of inventory builds at refineries. Considering all factors, the risk of short-term downside is increasing. Attention should be paid to crude oil trends, sentiment in futures markets, and downstream plant operation updates.
