Lead: Negotiations between the US and Iran have reached a stalemate, causing restricted navigation through the Strait of Hormuz while international crude oil prices remain above $100 per barrel. In the domestic market, export negotiations have cooled, and the upward momentum of toluene prices in the Shandong region has been stifled, leading to expectations of a correction.

1. Toluene Prices in Shandong Continue to Decline

During the week, international crude oil prices remained elevated, providing strong cost-side support for downstream petrochemical products. Toluene refineries in Shandong saw bidding and sales continue with slight premiums, but downstream buyers were cautious about chasing gains, and replenishment volumes from export orders contracted significantly. Only a portion of rigid demand purchases sustained consumption. After the Labor Day holiday, toluene refineries reported smooth sales overall, with some companies still operating on a pre-sale basis. Inventory levels supported price stability.

2. Toluene-Benzene Spread Widens

This week, the average spread between benzene and toluene in Shandong was 1,337 yuan/mt, with HDA process processing profit at 549 yuan/mt. Last week, the average spread was 1,473 yuan/mt, with HDA processing profit at 714 yuan/mt. At the end of last week, the gross profit of HDA enterprises in Shandong fell to around 500 yuan/mt, marking the lowest profit level since May. During the week, HDA plants maintained steady procurement, but their resistance to high prices increased.

Shandong Ruilin Chemical postponed the feed-in schedule for its HDA unit, and Qingdao Lidong's reformer, after completing maintenance, is planned to return to operation, boosting benzene supply and putting pressure on toluene prices. If export gap-filling demand does not persist, toluene refineries may continue to face certain sales pressure.

3. Xylene-Toluene Spread Widens but Remains Negative

During the week, the average spread between xylene and toluene in Shandong was -100 yuan/mt, with toluene refineries' average production-to-sales ratio at 78%. Last week, the average spread was 33 yuan/mt, with the production-to-sales ratio at 100%. Earlier support from export order replenishment led Shandong toluene refineries to continuously offer premiums on their listings, pushing up market prices and making toluene more expensive than xylene again. Currently, gasoline enterprises in Shandong have high inventory levels, showing very limited interest in toluene as a feedstock. The toluene market's consumption direction remains mainly toward exports and the chemical industry.

Qicheng Petrochemical's reformer was shut down for maintenance in mid-May, reducing toluene supply. During the week, the volume of toluene truck-load supply in the Shandong market was 5,400 mt, down 17% from the same period last month.

4. Outlook

Positive factors: Severe losses at reforming units, strong cost-side support; export window remains open; planned startup of downstream benzene-producing plants.
Negative factors: Very limited gasoline consumption; declining procurement sentiment in the fine chemical industry.

Currently, procurement actions driven by export orders lack sustainability, while the downstream chemical industry is showing resistance to current price levels. Although low inventory levels in the Shandong toluene market provide solid supply-side support, market participants' bearish expectations are increasing. It is expected that the Shandong toluene market will operate on a weaker note in the near term, with some refineries likely to lower their listing prices.