Toluene and mixed xylenes markets review for H1 2025

In the first half of 2025, the prices of toluene and mixed xylenes generally presented a V-shaped trend. The year began with a strong start, as prices surged due to strong demand ahead of the Spring Festival and tight supply caused by low operating rates at teapot refineries.

However, from February to late April, toluene and MX prices continued to decline due to falling crude oil prices and weak demand from gasoline blending and PX.

From May to June, crude oil prices surged, driven by geopolitical conflict, while China domestic toluene and MX supply tightened due to several plant maintenance and shutdowns. Additionally, the strong performance of PX prices turned the profitability of short-process PX units based on MX from losses to gains, prompting some PX producers to purchase feedstock MX, which further supported the sustained rise in toluene and MX prices.

Let's have a review on the key events that impacted the toluene and MX markets in the first half of the year.

1. Tax reform on fuel oil and naphtha in Shandong teapot refineries

The surge in toluene and MX prices at the start of the year was partly driven by rumors of changes in the consumption tax deduction policy for fuel oil and naphtha in Shandong.

Fuel oil, as a supplementary feedstock for teapot refineries besides crude oil, is imported by nearly all refineries, with some relying heavily on it. Under the new policy, the consumption tax on imported fuel oil can no longer be fully deducted as in previous years. Instead, refineries can only deduct a portion corresponding to the taxable products they produce. This increases tax costs by approximately 400~600yuan/mt.

From January to February, Shandong refineries gradually reduced the operating rates of their crude distillation unit (CDU), leading to lower toluene and MX production. Over the past year, CDU utilization rates in Shandong refineries had already been low, and after the tax reform rumors, operating rates dropped to near-historic lows. This resulted in reduced gasoline and aromatics output, with regional supply remaining tight in the short term.

2. Weak blending demand from the US shifting trade flows of Asian toluene and MX

South Korea's toluene exports in Jan-May totaled 234,100 tons, down 36.6% year-on-year compared to 369,000 tons in the same period in 2024. Meanwhile, exports to India increased to 123,200 tons in Jan-May, compared to 89,900 tons in the same period last year. Demand for blending components in the US Gulf remained subdued this year, leading South Korean toluene to flow primarily to the Indian market.

For MX, South Korea's exports in Jan-May reached 528,900 tons, up 7.7% year-on-year compared to 490,800 tons in the same period in 2024. Exports to the US were 164,000 tons in Jan-May, slightly lower than the 171,000 tons in the same period last year.

However, due to fewer new MX capacity startups in China and seasonal maintenance shutdowns from March to May, China domestic supply tightened. As a result, South Korean MX flows to China increased significantly-totaling 308,200 tons in Jan-May, compared to 194,600 tons in the same period last year.

3. PX-MX margin improving in May-Jun and reaching record highs

From April to May, due to poor profitability, unplanned production cuts at PX plants increased both in and outside China. In the end of the first quarter and beginning of second quarter, multiple refineries reduced their reformer and PX unit operating rates. Meanwhile, downstream polyester operating rates exceeded expectations, and PTA processing margins recovered, leading to sustained improvements in PX fundamentals. The strong rise in PX prices turned the margins of PX based on MX profitable, to 500–600 yuan/mt by mid-May.

Some Chinese PX producers such as Shenghong, Hengli, Fuhaichuang, Zhongjin, and GS Qingdao Lidong procured MX externally, providing strong support for MX prices.

PX-MX margin = CFR China PX * USD/CNY exchange rate * 1.13 *1.02–yuan isomer-MX–600yuan/mt

In a conclusion, in the first half of the year, China toluene and xylene capacity expansions were limited, gasoline blending demand was slack while demand from PX was strong. In the second half, especially in the third quarter, new units from CNOOC Daixie, Yulong Petrochemical, and Sinopec Changling are expected to come online, with increasing domestic supply.