Hydrogenated Benzene Profitability Turns Negative; Expectations of Supply Contraction Intensify

Lead-in: Tensions in the Middle East have recently escalated. An airstrike hit Riyadh, the capital of Saudi Arabia, causing a fire at a Saudi Aramco fuel storage tank near the airport. Foreign media reported that Saudi Arabia made a rare request for support from Israel. Meanwhile, Iranian sources indicated that the U.S. has expressed readiness to negotiate with Iran, and the Iranian Foreign Minister held a phone call with his Pakistani counterpart to discuss regional developments. The Commander of U.S. Central Command stated that over the past two months, the U.S. has assisted in transporting more than 1 billion barrels of crude oil through the Strait of Hormuz and cleared mines from the strait’s main shipping lanes.

The core impact of these events lies in the navigational safety of the Strait of Hormuz. This strait carries over 20% of global oil and petroleum product flows; instability in its navigation directly influences crude oil price trends.

For hydrogenated benzene, the transmission path from crude oil is clear: rising crude oil prices → rising naphtha prices → increased costs for petrochemical benzene → upward pressure on pure benzene prices → passive price increases for hydrogenated benzene. However, the issue is that the raw material for hydrogenated benzene is crude benzene, whose prices have also surged significantly driven by geopolitical sentiment. In September, mainstream transaction prices for crude benzene in East China rose to 8,300–8,440 RMB/ton, breaking through the upper limit of the five-year historical range.

1. Profitability of Hydrogenated Benzene Turns Negative, Expectations of Supply Contraction Rise

Under dual cost pressures, the profitability of the hydrogenated benzene industry deteriorated rapidly. In the first half of the year, the industry experienced a temporary window of profitability, with average profits for enterprises in Shandong reaching 231 RMB/ton and operating rates rising to 67.81%. However, the situation reversed sharply after entering September. Latest data shows that profits for hydrogenated benzene in Shandong have dropped to -83 RMB/ton, pushing the industry back into losses.

A direct consequence of losses is the decline in operating rates. Although the domestic benzene hydrogenation unit operating rate slightly increased by 1.82% month-on-month to 59.42% on September 17, this recovery was primarily due to the restart of units undergoing prior maintenance rather than an improvement in industry fundamentals. More notably, amid expanding losses, some hydrogenated benzene plants are planning to reduce loads or shut down, leading to simultaneous expectations of supply contraction.

At the same time, raw material inventory pressure at domestic refineries is becoming prominent. Due to disruptions in navigation through the Strait of Hormuz, the arrival schedules of crude oil and naphtha for some refineries have been disrupted. Starting this week, refineries began reducing loads. Data from September 17 showed that the capacity utilization rate of atmospheric and vacuum distillation units at major state-owned refineries stood at 73.22%, down 0.68% month-on-month and 8.3% year-on-year. Maintenance work at North China Petrochemical and Anqing Petrochemical continued to drive load reductions. Market expectations for reduced pure benzene supply in October are rising. This implies that the substitution value of hydrogenated benzene may once again attract market attention.

2. Low Port Inventories, Monitor Latest Developments in the Middle East

Inventory levels are currently one of the core supporting factors for the market. Pure benzene port inventories in East China have fallen to an extremely low level of 38,000 tons, marking the lowest point for the same period in the past five years. The process of inventory accumulation is clearly slower than expected, attributed to insufficient growth in petrochemical benzene output, low operating rates for hydrogenated benzene, and Korean refinery feedstock shortages constraining exports to China. Estimates for September pure benzene imports have been revised downward to approximately 370,000 tons.

Low inventories indicate tight spot liquidity, with pure benzene basis prices continuing to rise, providing floor support for hydrogenated benzene prices. Overall, the short-term hydrogenated benzene market will remain dominated by geopolitical situations, with crude oil prices as the core variable. If signs of easing emerge in the Middle East, domestic hydrogenated benzene prices may see a slight pullback from highs in the short term. However, considering that significant divergences remain among Middle Eastern parties regarding their core demands, allowing only for limited concessions and making a comprehensive agreement difficult, there is no exclusion of negotiation breakdowns leading to renewed conflict escalation. A potential re-blockade of the Strait of Hormuz, coupled with Houthi threats to impose a maritime ban on Saudi Arabia, exacerbates market concerns about oil supply disruptions. At this stage, it is recommended to monitor upstream and downstream raw material inventory levels closely, while tracking navigation conditions in the Strait of Hormuz and changes in domestic refinery loads.