Introduction: Since late May, the phenol market has been generally weak, with a dominant downtrend. In early June, the by-product acetone saw daily declines exceeding 200 yuan/ton for two consecutive working days. Meanwhile, phenol, as the main product, showed some resilience against the decline given the significant losses faced by phenol-ketone enterprises. On June 2, supported by stable costs, news of upstream unit maintenance plans, and inquiries from market participants, the price rebounded from its lows. The next day (June 3), a leading phenol factory in Shandong raised prices, spurring end-user inquiries. As the price increase accelerated, the inversion with pure benzene eased, with the East China phenol-pure benzene price differential narrowing to -55 yuan/ton. In the short term, the market requires a comprehensive analysis of costs and supply-demand variables. It is expected that prices will remain firm or test slight increases, but caution is advised against insufficient buying support, recommending prudent operations.

Cost-side support provides "downside resilience"; losses drive price increases

On April 21, the East China phenol price fell below the pure benzene price by 35 yuan/ton, marking an inversion that has lasted for 30 working days. During this period, the maximum inversion reached 710 yuan/ton. As of June 3, the price differential had narrowed to -55 yuan/ton. When the market price of phenol is lower than its feedstock pure benzene, an extreme situation arises where "flour is more expensive than bread." This implicitly forms a bottom support signal at a certain stage, strengthening the market consensus on resilience against declines.

Since April 21, phenol-ketone enterprises have been operating at a loss. Prolonged losses have placed significant operational pressure on producers. To avoid further losses and improve profitability, some units have been shut down or had their operating rates reduced during this period. However, the situation where phenol prices are lower than pure benzene has not improved. In early June, the decline in acetone widened, exacerbating the loss positions of phenol-ketone enterprises. Phenol, as the main product and having already experienced a substantial decline earlier, showed some resilience during this period, quickly reacting to favorable market changes by raising prices.

Demand and sentiment fluctuations determine the height and pace of price increases

Demand is a double-edged sword. Genuine price increases require demand support. The market psychology of "buying on rising prices, not on falling prices" complements price volatility. During downtrends, buying tends to be limited to essential needs. During uptrends, end-users and traders are often stimulated to inquire, driving prices higher. If phenol prices rise too quickly or too much, attention must be paid to downstream products' ability to accept and pass on higher costs, to adjust the pace of price fluctuations and promote healthy market development.

On June 2-3, the phenol market, aided by upstream news and the lead of Shandong factories in raising prices, showed a rebound from its lows. This also stimulated end-user inquiries, though restocking at higher prices remained cautious. The sustainability of the uptrend requires close monitoring.

Analyzing phenol trends through costs and demand

1. From a cost perspective, the inversion between phenol and pure benzene prices has narrowed but not yet substantially improved for factories. The price gap between phenol and acetone has widened to 950 yuan/ton, enhancing phenol's status as the main product. In the short term, prices are likely to maintain some downside resilience, while the potential for increases will depend on buying interest.

2. From a demand perspective, the restart of Cangzhou Dahua's bisphenol A unit in late May to early June has somewhat alleviated supply pressure in Shandong. However, with new bisphenol A capacity coming online, the market trend is downward, requiring attention to overall industry operating rates. The phenolic resin sector is entering the off-season of high temperatures, leading to cautious buying.

In summary, considering both costs and demand, it is expected that domestic phenol market prices will remain firm in the short term. Attention should be paid to end-user buying sentiment to avoid price concessions due to poor sales. Given industry gross margins, the scope for price fluctuations may be limited and relatively controllable. Prudent operations are recommended.