Market Overview

Over the weekend, escalating geopolitical tensions pushed crude oil futures higher in the grey market, boosting market sentiment across the energy and chemical sectors. The downward trend in China's domestic benzene market temporarily eased, with Shandong refineries holding benzene prices steady at RMB 10,300/ton.

Most weekly orders for hydrogenated benzene had already been concluded, and producers remained focused on fulfilling existing contracts. With competitively priced supply becoming increasingly difficult to secure, downstream buyers raised their purchasing prices by RMB 100–150/ton, bringing hydrogenated benzene prices to RMB 10,350–10,400/ton.

Several factors influenced the domestic hydrogenated benzene market over the weekend, including geopolitical developments, tight benzene supply, port inventory levels, production economics, and downstream operating rates.

1. Geopolitical Tensions Continue to Support International Oil Prices

Three major geopolitical developments contributed to market uncertainty:

• Iranian armed forces opened fire while intercepting vessels attempting to pass through the Strait of Hormuz illegally.

• Pakistan launched attacks on Afghan border posts and military camps.

• Ukraine's energy infrastructure came under a large-scale attack.

These developments strengthened crude oil futures in the grey market. The oil price rally in early and mid-October was largely driven by expectations of tighter supply. Looking ahead, the US-Iran stalemate shows few signs of resolution, shipping activity through the Strait of Hormuz remains uncertain, and Houthi attacks on Saudi energy facilities continue to pose risks to regional energy infrastructure.

As a result, expectations of constrained supply may continue to support international oil prices throughout October, keeping prices relatively high despite the possibility of short-term fluctuations. Elevated energy costs also provide a degree of downside support for China's domestic benzene market.

2. Tight Spot Supply and Low Port Inventories Support Benzene Prices

Concerns about future raw material availability have prompted some refineries to reduce operating rates as a precautionary measure. This has reinforced the market's tight-supply outlook and provided additional support for benzene prices.

Meanwhile, some September short positions have rolled into October. With East China port inventories already low and overall arrivals expected to remain limited during October, inventory pressure is likely to persist. East China benzene port inventories are expected to decline further next week, potentially reaching approximately 38,000 tons.

Hydrogenated Benzene: Strong Margins Amid Mixed Supply Conditions

In some regions, crude benzene supply remains relatively ample. However, plant shutdowns have reduced purchasing activity among traders, weakening market turnover and limiting the upside potential for crude benzene prices.

The widening price spread between crude benzene and hydrogenated benzene has significantly improved hydrogenated benzene production margins. As of October 15, hydrogenated benzene producers in Shandong were earning an estimated profit of RMB 410/ton.

Attractive margins have encouraged several previously idled units to resume operations, including Hebei Rongte, one unit at Henan Yutian, and Phase II of Henan Jinyuan. Consequently, China's hydrogenated benzene operating rate increased to 59.84% as of October 15.

However, as winter approaches, several hydrogenated benzene plants are planning maintenance. These scheduled shutdowns may limit further increases in operating rates and could potentially lead to a decline in production.

3. Downstream Operating Rates Decline, While Profitability Improves in Some Sectors

Operating rates across major downstream industries have generally declined to varying degrees. Nevertheless, profitability has improved for certain products, creating a mixed picture for hydrogenated benzene demand.

Styrene: One production line at Dagu and Shell has entered scheduled maintenance. Operating loads at styrene plants in Shandong, East China, and South China have also fluctuated slightly.

Phenol and Acetone: Huizhou Zhongxin's Phase II phenol-acetone unit restarted following a brief shutdown, while Yangzhou Shiyou and Guangxi Huayi suspended operations for various reasons.

Caprolactam: Luxi Chemical's operating rate declined to 90%, while operating rates at Baling Hengyi and Yongrong also decreased.

Aniline: Several maintenance events have affected production. Shandong Jinling's 200,000-ton unit underwent maintenance from September 28 to October 20; Shanxi Tianji scheduled maintenance from October 12 to 27; Jilin Xuyang Kangnaier's unit underwent maintenance from October 13 to 26; and Dongying Caijin carried out catalyst replacement maintenance from October 2 to 16.

Adipic Acid: Huafeng and Shenma partially suspended production. Haoyuan operated at approximately 70% capacity, while Taihua's operating rate stood at around 50%.

Overall, reduced operating rates across downstream industries have tempered demand growth. Although profitability has improved in some sectors, purchasing activity remains largely focused on immediate requirements, limiting the market's ability to absorb additional supply.

4. Market Outlook: Hydrogenated Benzene Prices Expected to Remain Firm

Looking ahead, continued geopolitical uncertainty in the Middle East and elevated tanker freight costs may help sustain international oil prices at relatively high levels. From a fundamental perspective, China's domestic benzene market continues to benefit from tight supply conditions, historically low East China port inventories, and declining weekly production of pure benzene.

Meanwhile, the increase in hydrogenated benzene production remains relatively limited, and no unexpected negative developments have emerged on the supply side. These factors are expected to provide continued support for domestic benzene prices.

However, the overall decline in downstream operating rates and the prevalence of just-in-time purchasing continue to constrain market demand. Without a significant further increase in crude oil prices or a meaningful improvement in downstream consumption, the potential for substantial price gains in both pure benzene and hydrogenated benzene is likely to remain limited.

In summary, hydrogenated benzene prices are expected to remain relatively firm in the short term, supported by elevated oil prices and tight benzene supply. Nevertheless, weak downstream demand and limited market absorption capacity may restrict further price increases.