The support to toluene and mixed xylenes weakening

China domestic yuan toluene price advanced from 6,870yuan/mt on May 12 to 7,230yuan/mt on May 19, and isomer-MX price gained from 7,370yuan/mt to 7,620yuan/mt over the same period. Though the prices pared rise on May 22 and 23, the gains were large compared to other products such as benzene and styrene which declined over the same period.

Buying in toluene and MX as gasoline blending components was sluggish, and gasoline production to sales ratio was not high at around 85% on May 19. Toluene disproportionation economics were dragged down by decline in benzene prices. Toluene to benzene price spread was around 500yuan/mt on May 22, indicating losses of 600yuan/mt for TDP units. In addition, support from PX to MX weakened with PX profit based on merchant MX in negative territory.

Demand for toluene and MX was lackluster, then where did the advancing momentum come from?

Firstly, several refineries involving toluene and MX capacity are under maintenance recently. CNOOC Taizhou shut its refinery on May 14 for maintenance till late Jun, Qingdao Refinery shut its plant on May 13 for 45-day maintenance, Shandong Yatong Petrochemical plans to shut its plant on May 25 for maintenance lasting 30~45 days, Sinopec Luoyang shut its plant on May 15 till Jul 5 for maintenance, and Shanghai SECCO shut its cracker on May 15 for maintenance till Jul 16. The volume of toluene and MX for sale was reduced due to the plant turnarounds. In addition, Japan's Taiyo Oil has maintenance plan in Jun-Jul with MX capacity of 700kt/yr, and Fuji Oil Company's refinery at Sodegaura is poised to shut in end-May for maintenance with MX capacity of 333kt/yr. Therefore, supply reduced and cargo arrivals to East China ports were limited.

Secondly, there's rumor in the market that China would impose consumption tax on iso-octane and industrial white oil, and then toluene and MX markets got bolstered, as iso-octane can be used as gasoline blending components to replace toluene, MX, MTBE or mixed aromatics to boost the octane rating. If the consumption tax is levied on iso-octane, the cost to use iso-octane would increase by 2100yuan/mt or more, given the tax rate at 1.52 yuan per liter, same as that on naphtha. Then, blenders would inevitably turn to alternative blending components. However, the policy has not been officially confirmed and then the support to toluene and MX reduces.

Thirdly, there have been three refineries in the US caught by fire accident since the beginning of May. Soon after the accidents, the market believed that US could increase the procurement of toluene and MX from Asia, but according to the feedback from market players, discussions in Asian market on FOB basis remained quiet as of May 22. The arbitrage window for MX from Asia to the US remained shut, and though that for toluene was open, no deal was heard. Therefore, the support from the accident at US refineries could be short-lived.

In the near term, the impact from consumption tax on iso-octane and US refinery fire accident has almost diminished, while toluene and MX prices stay largely steady on tight supply. US is expected to begin peak travelling season on May 29, and then the demand for refined oil may increase slightly. However, the market this year would not be as strong as the situation in 2022. Toluene and MX are expected to trim gains, turning steady to weak.