China imposes consumption tax on mixed aromatics; toluene and MX imports seen to rise
The Ministry of Finance of China and the General Administration of Customers announced on May 12 that consumption tax will be imposed on mixed aromatics and cracked gasoil (LCO) from Jun 12. Along with the announcement, the market for toluene and xylene temporarily strengthened.
The components for mixed aromatics are mainly toluene, C8 and C9. These are used as base materials for improving the octane value of gasoline. Imports of mixed aromatics amounted to 6.16mil mt in the January-March period of 2019 and 1.72mil mt in the January-March period of 2021. Due to the implementation of consumption tax, the cost of mixed aromatics is expected to rise. Thus, a switch in demand to toluene and xylene increased and their prices were pushed up.
However, as the prices of toluene and xylene have risen and the gap with gasoline has narrowed, sources perceived that it might be difficult for the market move up further.
On the other hand, imposing consumption tax is expected to reduce the import volume of mixed aromatics. As a result, domestic consumption of toluene and xylene for use in gasoline blending is expected to increase. Further, the structure of aromatic products imports may change in the long run. Import consumption tax is imposed on aromatic hydrocarbons distilled at 200 degrees Celsius and below. Thus, overseas producers are seen to process it into toluene, xylene, benzene, etc. and export these products to China. In this case, the domestic prices of toluene and xylene might be affected. In preparation for this, domestic producers may use toluene and xylene for gasoline blending and reduce sales to other companies. As a result, the amount of toluene and xylene in the domestic market may decrease and producers are expected to increase imports.