Preface: Recently, the hydrogenated benzene market has been under sustained pressure. On the supply side, high profits and high operating rates in the earlier period have put some enterprises under inventory pressure. Compelled to reduce prices to stimulate sales, hydrogenated benzene prices have been declining. As of the end of May, the price of hydrogenated benzene in Shandong fell to around 7,500 yuan/ton. With prices falling, the decline in raw material crude benzene has been smaller than that of hydrogenated benzene, narrowing the crude benzene-hydrogenated benzene spread. By this week, enterprises in Shandong have generally fallen into a loss-making state, with the spread at -29 yuan/ton. Given the weakening market, some enterprises have begun to announce maintenance shutdowns, leading to a decrease in the hydrogenated benzene operating rate.

At the same time, demand from downstream pure benzene is also declining. On one hand, the absorption capacity of traditional downstream sectors has weakened; on the other hand, market sentiment has become more cautious, resulting in an overall lack of buying interest.

What other factors are influencing the domestic hydrogenated benzene market?

1. Declining Market Liquidity

Since the implementation of the national general survey and invoicing policy in April this year, trading volumes in both the spot and paper markets for pure benzene have contracted significantly. While the general survey and invoicing have, to some extent, standardized tax and transaction procedures, they have also increased transaction costs and reduced operational convenience. The participation enthusiasm of some small and medium-sized traders has decreased, and the hedging and speculative demand in the paper market has cooled, leading to weakened market liquidity and accelerating the price decline.

2. Diminishing Middle East Premium and Expected Crude Oil Decline

As the upstream raw material for pure benzene, the trend of crude oil directly impacts hydrogenated benzene prices. This is because both petroleum benzene and hydrogenated benzene fall under the category of pure benzene in China, and their prices are highly correlated. Currently, the market generally expects crude oil prices to decline. Additionally, the geopolitical factors that previously supported oil prices are weakening – there is currently little possibility of a further escalation in the Middle East situation, and the market has largely become desensitized to the risk of supply disruptions from the region. The continuous unwinding of the geopolitical premium has caused pure benzene and hydrogenated benzene to lose their external support from the crude oil side.

3. Declining Pure Benzene Demand Creates Negative Feedback

The operating rates of major downstream products for pure benzene are falling, reducing the demand for pure benzene. This naturally narrows the sales channels for hydrogenated benzene. Furthermore, end-user industries show weak purchasing willingness, and coupled with unstable crude oil prices, downstream players are mostly adopting a wait-and-see approach. Enterprises that are currently operating mainly purchase on an as-needed basis. This traditional "buy on rising, not on falling" mentality further exacerbates the inventory pressure and price decline for hydrogenated benzene.

4. Continued Depletion of Port Inventories

Although short-term bearish factors dominate the market, we believe that hydrogenated benzene prices do not have a foundation for a significant plunge in the near term. The most core factor is the continuous decline in pure benzene port inventories in East China.

Data shows that current pure benzene port inventories in East China are already at a low level, and the destocking trend is continuing. Based on the current pace of arrivals and pick-ups, port inventories are expected to drop to single-digit levels by June. Port inventory is a key indicator reflecting the supply-demand tightness in the pure benzene market. Low inventories mean relatively tight availability of circulating spot goods, which can provide strong bottom-line support for pure benzene prices.

As long as crude oil prices do not experience a major collapse, the cost side for domestic pure benzene, including hydrogenated benzene, will not "collapse." Low pure benzene inventories will limit the downside for hydrogenated benzene.

Conclusion

Based on the above analysis, we believe that the short-term hydrogenated benzene market will continue its pattern of slight declines and sluggish trading. Factors such as the need for some enterprises to digest inventory over time, enterprise losses forcing price cuts to move goods, weak pure benzene demand, expected lower crude oil prices, and insufficient trading liquidity will collectively suppress prices. However, the continuous decline in East China pure benzene port inventories in June, potentially reaching single digits, will provide substantial bottom-line support for pure benzene, thereby blocking the possibility of a deep decline for hydrogenated benzene.

Therefore, a major sell-off is not foreseeable for now, but the market also lacks momentum for a rebound. Follow-up points requiring close attention are: ① Focus on the profit recovery situation of major downstream products after prices fall; ② Whether price declines to low levels can stimulate downstream buying interest for replenishment.