Toluene and MX driven up by low inventory and demand improvement

Since July, China toluene and mixed xylenes markets have been moving upward.

Firstly, the supply side of crude oil has brought positive support to oil prices, and WTI and Brent crude oil prices edge up. Secondly, on June 30, the State Administration of Taxation of the Ministry of Finance issued document No. 11, 2023, Notice on the Implementation Consumption Tax Policy on Some Oil Products, in order to promote the standardized and healthy development of the oil products industry. It is mentioned that the consumption tax on mixed aromatics and mixed C8 will be levied at the rate same as naphtha from July 1. As a result, prices of both oil products and blending components hiked in the beginning of July. In addition, port inventory of toluene and MX has been quite low with limited cargo arrivals, and supply remains tight in July.

As for the impact from the consumption tax, firstly, there is controversy in the market on whether mixed xylenes is in the scope of mixed C8, and it will be subject to official details. Secondly, if consumption tax is imposed on mixed aromatics, same as that on naphtha, the tax on one ton mixed aromatics would be about 1,800yuan/mt and thus the economics of using mixed aromatics in gasoline blending would be weakened obviously, which would be supportive to toluene and MX prices.

However, some plants in Shandong have been extracting toluene and mixed xylenes from mixed aromatics, and have begun selling that part of MX last weekend and plan to sell toluene from this week. Therefore, toluene and MX markets in Shandong could get impacted.

Cargo arrivals of toluene and MX to East China were limited in the first half of Jul, especially for MX. Meanwhile, demand for blending components improves recently from Shandong and the prices stay firm amid tight supply. Some blenders turn to East China market to purchase blending components. Pick-up of goods accelerates in East China and port inventory as reduced to record low. In late Jul, with some toluene cargoes arriving, tank inventory of toluene may increase slightly.

China benzene price hiked even faster than toluene and MX. Demand for benzene has increased obviously with several downstream styrene and CPL plants restarted. TDP profits recovered some losses, but still mired in severe negative territory.

In the near future, consumption of toluene and MX is expected to keep good amid peak demand for gasoline blending components, while supply may increase with some plants in Shandong stepping up the selling volume.