Introduction: The repeated negotiations between the U.S. and Iran have led to wide fluctuations in international oil prices. While crude oil costs for domestic refineries are gradually increasing, weak demand has caused market prices to decline sharply.

1. Domestic pure benzene prices have fallen sharply.

During this period, the supply side of pure benzene exhibited a tight stance, with port inventories continuing to decrease, minimal vessel arrivals for imports, and declining domestic supply. However, this did not provide effective support for pure benzene prices. This was mainly due to optimistic expectations arising from the reopening of the Strait and related negotiation progress, coupled with a sharp drop in international crude oil prices, which fostered a strong bearish sentiment in the pure benzene market. Holders were forced to sell at low prices, while downstream end-users, hampered by insufficient profit margins, adopted a markedly wait-and-see approach regarding procurement. Overall, market trading sentiment was subdued, and prices continued to face downward pressure.

2. Toluene-pure benzene processing margins are favorable.

Demand for toluene in the octane value sector, its primary application, was generally average. However, robust overseas demand led to good toluene export performance and rising prices. The price spread with pure benzene narrowed, and the profit margin for the disproportionation process, while down from its previous peak, remained in the profitable range. Supported by favorable recent profitability, a Hebei disproportionation plant began feeding raw materials in mid-month, a Shandong disproportionation plant restarted its unit in late-month, and a new HDA unit in Shandong commenced feed at month-end. The concentrated restart and new startup of toluene-to-benzene units in the Hebei-Shandong region partially compensated for the supply loss caused by production cuts at Shandong refineries.

3. Capacity utilization has hit a near-term bottom, but the rebound potential is limited.

This month, the capacity utilization rate reached its lowest point since the pandemic. However, influenced by the startup of new plants and the restart of units at some companies after maintenance concludes, the capacity utilization rate is expected to bottom out in June. Nevertheless, the Strait issue remains fundamentally unresolved, and domestic refineries continue to face the dilemma of raw material shortages. The maintenance period for some refineries is expected to be further extended. Entering June, as refineries exhaust their inventory of lower-priced crude oil purchased earlier, they face the predicament of high crude oil costs and low finished product sales prices. It raises the question of whether the current operating rate can be sustained through macroeconomic regulation. Therefore, while the domestic pure benzene capacity utilization rate has theoretically touched a temporary bottom, there remains significant uncertainty regarding whether a subsequent rebound will occur and to what extent it can recover.

4. Downstream demand performance is sluggish.

The negative feedback from planned maintenance and losses downstream has become concentrated. The weighted average downstream profit turned negative in late April, ending 20 consecutive weeks of positive territory that began in December 2025. Subsequently, the weighted downstream capacity utilization rate fell below the 70% threshold in May, closing at 65.6% at the end of May, marking the lowest level since January 2024. Under the expectation that the supply side may recover due to the potential reopening of the Strait, the weakening of demand in the market outweighed the sustained production cuts on the supply side, driving prices down significantly.

5. Port inventories continue to decline.

At the end of May, total commercial pure benzene inventory in East China ports stood at 128,000 metric tons, a decrease of 82,000 metric tons (-39.05%) compared to the end of April and a year-on-year decrease of 15,000 metric tons (-10.49%). Entering May, with a significant decline in import volumes and the closure of the Shandong-East China arbitrage window, port inventories in East China showed an accelerated destocking trend, with weekly destocking of approximately 20,000 metric tons. Based on the current rate of destocking, port inventories are expected to reach alarmingly low levels by July.

Currently, the repeated back-and-forth in U.S.-Iran negotiations has caused international oil prices to swing widely, significantly impacting market sentiment. The market is caught in the dual anxiety of collapsing demand and further supply contraction. On one hand, there is concern that weak end-user demand will suppress prices; on the other hand, there is worry that a stalemate in negotiations could widen the raw material gap. This sense of unease has not been completely eliminated. Nevertheless, most institutions still believe the overall outlook for U.S.-Iran negotiations leans towards optimism. Based on this assumption, there remains a turning point in the geopolitical situation, weakening support for oil prices. Therefore, under the optimistic expectation that the Strait could resume passage in a short period, short-term domestic pure benzene market prices are expected to continue correcting the risk premium brought by geopolitical conflicts, potentially fluctuating around the 7,500-8,000 RMB/mt range.