Toluene and xylene markets to weaken as oil blending demand declines in 2024

Influenced by the Russia-Ukraine war, Chinese exports of high-octane products have seen continuous increases since 2022. Among them, toluene & xylene prices for FOB South Korea have risen to a recent high of $1,300/tonne and $1,570/t respectively, supporting their high prices in China in the past three years. However, with the increasingly oversupply, Chinese toluene and xylene markets may be hard to sustain previous high prices in 2024.

Source: OilChem

China Toluene & Xylene Unit Operation (Unit: tonnes/year)

Source: OilChem

Aromatic product prices have risen widely since 2022, and the long-term stable Asia-U.S. arbitrage window has promoted a large amount of oversupplied toluene resources from South Korea to the United States. This number further increased in 2024, with a total amount of 155,000 tonnes over January-April, jumped by around 15% year-on-year.

Affected by the changing price difference between Asia and U.S., South Korea's xylene export volume to the United States has been significantly growing since 2022. The export volume reached 107,300 tonnes from January to April in 2024, mounted by 124% on year. In view of the sudden stockout in 2022, the months with concentrated exports have been advanced to March and April, so the export volume is expected to shrink in Q2 2024.

Source: OilChem

Toluene & xylene prices kept at mid-to-highs in China in H1 2024, mainly supported by concentrated unit maintenance and high prices overseas.

In terms of PX field, the widening spread boosted buying intention for feedstock xylene, but its support for xylene prices was limited. However, the price difference between PX and xylene shrank to Yuan 685.24/t as of now, leading to lower purchasing enthusiasm. Moreover, PX unit maintenance has also resulted in shrinking procurement quantity.

As for gasoline market, gasoline prices showed a downtrend recently, xylene market declined relatively slow, and gasoline blending profit was at the verge of losses, leading to subdued buying enthusiasm. Thus, it is projected that xylene prices may still face a downward space.

Consumption of toluene resources in the disproportionation industry mainly refers to PX-benzene, while its large-scale aromatic combined units accounts for more than 90% of the total capacity in China. However, the amount of toluene resources flowing into disproportionation units was limited. In the oil product industry, in addition to the self-use of refineries, the social gasoline blending was mainly concentrated in Shandong. But there was an oversupply of gasoline blending materials due to the diversification of feedstock and suppliers' sensitivity to prices. Thus, it was difficult to provide substantial data support for toluene in gasoline blending field.

Source: OilChem

In addition, long-term stable opening of the arbitrage window between Asia and the United States began after 2022, with an average price difference between FOB South Korea and FOB United States Gulf in 2024 at $216/t. Gasoline feedstock demand was tepid in the United States recently, owing to a number of TDP/STDP unit shutdown and the upcoming summer peak travel season as well as hurricane season. Meanwhile, xylene price difference between Asia and U.S. fluctuated at about $193.43/t in 2024, leading to a staged opening of arbitrage window.

In conclusion, Asian and U.S. toluene and xylene circulation increased significantly from January to April in 2024, and their foreign prices began to wane since end April, giving insufficient support to prices in China. The newly-operated units increased the amount of toluene and xylene resources by about 4%, and were mainly concentrated in the northern area. From June to July, with the resumption of overhauled units, operation of new units, and the temporary shutdown of some PX units, xylene resources may be sold, with an expected supply of 70,000-80,000 tonnes. Some downstream PX enterprises shut units for maintenance, resulting in reduced demand in this field. For gasoline field, without support from travel demand in Q2 in China, the short-term market demand will be insufficient. Overall, the increasing unbalanced supply-demand fundamentals made it difficult to return to early high prices in the short run.

Written by Cynthia Xin, xinyue@oilchem.net

Edited by Navy Liu, liuchuanjun@mysteel.com