[Introduction]: During this cycle, crude oil experienced a rebound, and the market leveraged this to hype the supply-side positive news from the expected future production cuts at Shandong benzene plants. However, due to a continuous decline in downstream offtake, weak demand regained dominance after crude oil prices fell, leading to a brief price rebound followed by a decline.

1. Limited Decline in Capacity Utilization at Shandong Refineries

From March to May, production cuts were concentrated among coastal petrochemical cracking units using Middle Eastern crude oil. The actions of state-owned enterprises to prioritize refined oil supply by reducing chemical production further intensified benzene output reductions. During March to May, weekly production in the Jiangsu-Zhejiang-Shanghai-Anhui-Jiangxi region fell by 35,000 tons per week, a decline of 23%. Weekly production in Fujian enterprises dropped by 10,000 tons per week, a decline of 40%. In Shandong, due to differences in feedstock sources and processes, the average weekly output of enterprises only decreased by 2,000 tons per week, a decline of 2%. Overall operating rates in Shandong performed better than in other regions of East China.

Within this period, the market speculated on potential production cuts by Shandong independent refineries and surrounding large refineries in June. Coinciding with a temporary rise in crude oil prices, this provided brief price support. Data shows that as the capacity utilization rate of some enterprises declined, the overall capacity utilization rate for benzene in Shandong did exhibit a downward trend. However, output actually increased rather than decreased due to the start-up of new units. A tangible decline in Shandong benzene supply still requires time to materialize.

2. Downstream Profits Worsened Across the Board, Operating Rates Drop

Downstream benzene profits began to weaken in March. Due to the overall weakening of industry profits, the weighted average profit of downstream benzene sectors fell for eight consecutive weeks starting March 19, slipping back into negative territory in late April, ending a 20-week positive streak.

The weighted average operating rate fluctuated between 72.5% and 74.2% in March-April, with an average of 73.0%. This was slightly higher than the February average of 72.8% and higher than the 71.8% recorded in the same period of 2025.

In May, the weighted average operating rate fell to the 69% level seen in the same period of 2025, and in June it dropped to 65%, which is 5 percentage points lower than the same period in 2025, reflecting a decline in downstream consumption capacity.

3. Fluctuating Decline in Shandong Market Offtake Volumes

In March-April 2026, Shandong benzene offered a price advantage compared to East China due to more ample spot supply. Local warehouse receipts also offered significant economic benefits. Consequently, benzene transaction volumes in Shandong showed an upward trend during this period.

In May, the price spread between Shandong and East China narrowed, causing consumption to revert to local demand, and warehouse receipt offtake also decreased. Regarding local consumption, the successful start-up of toluene-to-benzene units shifted some previously external procurement needs to internal supply. In May, non-contract benzene transaction volumes in Shandong exhibited a continuous downward trend.

4. Supply-Demand Gap Remains Negative but Absolute Value Shrinks

The decline in benzene supply and demand occurred in stages. Supply reductions were prominent from March to April, while demand reductions began to catch up in May, resulting in the current situation of decreases in both supply and demand. Although the loss in supply volume still exceeds that of demand, the benzene supply-demand gap has been negative for 14 consecutive weeks. However, as the demand reduction takes effect, the absolute value of the gap is rapidly narrowing, weakening the support for prices. Therefore, overall, while the pace of supply decline is slowing, and the expectation of continuous benzene destocking from June to August remains unchanged, coupled with the fact that the Strait has not yet truly opened, the market is more inclined to believe that the Strait will eventually open. It is more focused on the verifiable decline in demand. Thus, although benzene fundamentals remain tight, short-term prices remain under pressure. The strength of market price declines following crude oil drops exceeds the strength of its rebounds following crude oil gains.