Lead-in: With US-Iran peace talks underway and a memorandum of understanding in the final stages, expectations of Strait navigation have led the market to begin pricing in a resolution to the crisis. Futures prices for crude oil and chemical products have come under pressure, intensifying a wait-and-see sentiment. Consequently, the domestic ortho-xylene market has also weakened under pressure.

Demand-side pressure weighs on ortho-xylene market, which remains under pressure at high levels

In the current period, domestic ortho-xylene market prices have declined, with demand-side factors becoming the primary influence on the market. During the week, under the influence of US-Iran peace talks and expectations of Strait reopening, futures markets for crude oil and chemical products fell, further fueling the wait-and-see atmosphere. Meanwhile, the major downstream phthalic anhydride industry has been persistently loss-making and faces the impact of cheaper naphthalene-based phthalic anhydride supply, putting pressure on the o-xylene-based phthalic anhydride sector. However, the ortho-xylene industry is operating at a low capacity utilization rate due to concentrated plant maintenance, resulting in tight spot market supply and a strong controlled market position. But with weak demand, major domestic petrochemical plants have offered concessions on prices, leading to a slight pullback in ortho-xylene market prices.

Concentrated plant maintenance keeps ortho-xylene capacity utilization low

This month, ortho-xylene output and capacity utilization declined. The domestic ortho-xylene capacity utilization rate stood at 68%, down 5 percentage points from the previous period and down 29 percentage points year-on-year. During the month, two refineries (Jinling Petrochemical and Yangzi Petrochemical) halted ortho-xylene production, involving a total annual capacity of 360,000 tons. Plant turnarounds at Jinling Petrochemical and Yangzi Petrochemical, along with production cuts at Fujian Haichuang and Huizhou Refinery, were the main factors behind the industry's output reduction. As ortho-xylene plants enter a concentrated maintenance period, domestic industry capacity utilization is likely to decline further. Yangzi Petrochemical's plant remains shut, while Hainan Refinery and Fujian Haichuang also have maintenance plans, and Yulong Petrochemical has plans to reduce output. As a result, domestic ortho-xylene capacity utilization is expected to fall below 50% in June, marking a multi-year low and exacerbating the tight supply situation for ortho-xylene feedstock.

Overall outlook:

Overall, the main contradiction in the domestic ortho-xylene market in June will likely center on a significant reduction in supply, coupled with weak downstream demand and insufficient cost-side support, putting pressure on the market. Market prices for ortho-xylene are expected to decline in the next period, but the notable supply reduction due to maintenance may limit the downside. Weaker cost support will likely exert some downward pressure. On the supply side, overall operating rates in the ortho-xylene industry are expected to decline next period, widening the supply gap. With further plant maintenance plans in place, distant supply remains tight. On the demand side, the major downstream o-xylene-based phthalic anhydride industry is expected to see lower operating rates due to a shortage of ortho-xylene, along with an anticipated reduction in export demand, leading to a contraction in demand.