Preface: Since July, the domestic hydrogenated benzene market has experienced a strong rally. The operating range for hydrogenated benzene in the Shandong region has jumped to 7,800 yuan/ton, with the price center significantly shifting upward compared to the previous period. As of July 19, the price of pure benzene from Shandong refineries continued to rise, with active market inquiry sentiment. Refinery quotes reached 8,050 yuan/ton, while the procurement price from end-users based on genuine demand also rose in tandem to 8,200 yuan/ton.
This round of price increase for hydrogenated benzene is the result of multiple bullish factors converging – a strong rebound in international crude oil, continuous destocking of pure benzene at ports to historical lows, and active upward adjustments to the ex-factory price by Sinopec, collectively providing dual support from both the cost side and the supply-demand side.
1. Strong Rebound in International Crude Oil with Significant Conduction Effects
The ongoing tension in the Middle East geopolitical situation is the primary driver of this round of market movement. Recently, the US-Iran conflict has escalated again. The US has continued to strike Iran, Iran has ceased implementing the US-Iran Memorandum of Understanding, and the Strait of Hormuz has been closed again. Impacted by this, international oil prices rose rapidly. As of July 17, the Brent crude oil futures price closed at $88.10/barrel, and the WTI crude oil futures price closed at $82.49/barrel.
As the source of the energy-chemical industry chain, crude oil price fluctuations directly transmit to the downstream aromatics market. The increased cost of international crude oil has provided significant bullish support to the domestic pure benzene and hydrogenated benzene markets. Driven by the strong crude oil market, prices of aromatic products such as pure benzene and styrene strengthened concurrently.
2. Continuous Destocking at Pure Benzene Ports with Strong Supply-side Support
Continuous decline in pure benzene port inventory is another core support for this round of market movement. As of July 13, the total commercial inventory of pure benzene at Jiangsu port samples dropped to 56,800 tons. The inventory of pure benzene at Jiangsu ports has been declining for twenty consecutive weeks, with a cumulative destocking magnitude exceeding 70%, and the absolute inventory level has once again hit a historical low.
The main reason for destocking is abnormal contraction on the supply side. Last week, arrivals shrunk extremely to about 0.1 million tons, while off-take volume reached 0.4 million tons. This gap between inflow and outflow directly accelerated inventory to break through historical lows. Additionally, multiple domestic pure benzene refineries are undergoing concentrated maintenance, causing the pure benzene operating rate to fall to near-historic lows. The operating rate for petroleum-based benzene once dropped to 56.91%, reaching a relatively low level. Although the hydrogenated benzene unit operating rate has increased somewhat, it is still difficult to compensate for the production loss from the reduced operating rate of petroleum-based benzene units in terms of total volume. The short-term supply pattern for pure benzene is expected to remain tight.
3. Sinopec Actively Raises Ex-factory Prices, Boosting Market Confidence
The price adjustment actions of major refineries have a significant guiding effect on the market. Since July, Sinopec's ex-factory price for pure benzene in East China has undergone multiple rounds of increases: raised to 6,900 yuan/ton on July 3; raised to 7,300 yuan/ton on July 9; further raised to 7,800 yuan/ton on July 14; and raised again to 8,000 yuan/ton on July 17. Within just two weeks, Sinopec's ex-factory price has accumulated an increase of over 1,000 yuan/ton.
As a pricing benchmark in the domestic pure benzene market, Sinopec's consecutive upward adjustments to its ex-factory price not only directly raised the spot price center for pure benzene but also significantly boosted the bullish sentiment in the hydrogenated benzene market. As a substitute product for pure benzene, hydrogenated benzene followed the upward trend under the price linkage mechanism.
4. Analysis of Hydrogenated Benzene Operating Rate and Profit Margins
The supply-demand dynamics within the hydrogenated benzene industry are also changing. During the week of July 3 to 9, the domestic operating rate for benzene hydrogenation units was 64.07%, an increase of 1.9% compared to the previous week. However, after mid-July, some units reduced or halted production, causing the operating rate to drop by 1.48 percentage points to 62.59%. Some hydrogenated benzene units that were previously shut down for maintenance are planned to restart around mid-July, which will increase spot supply in the market, potentially raising supply-side pressure.
In terms of profitability, with the significant increase in hydrogenated benzene prices, the profit level of benzene hydrogenation enterprises improved in early July, with Shandong hydrogenated benzene profit reaching as high as 405 yuan/ton. However, recently, the price increase of raw material crude benzene has outpaced that of hydrogenated benzene. As of the week ending July 16, Shandong hydrogenated benzene profit had narrowed to 45.5 yuan/ton. Hydrogenated benzene enterprises remain in a thin profit state overall, and cost pressure cannot be ignored.
5. Market Outlook
In the short term, the hydrogenated benzene market still has some upward momentum. Geopolitical factors exhibit volatility – negotiations between the US and Iran concerning passage rights through the Strait, sanctions on Iran, and the Iranian nuclear issue are unlikely to reach an agreement in the short term. Intermittent military conflicts and partial blockades of the Strait will continue to amplify oil price volatility risks. Pure benzene port inventory is at a historical low, and with fewer scheduled vessel arrivals towards the end of the month, market circulation supply remains tight. Domestic supply of both petroleum-based benzene and hydrogenated benzene is not abundant, which may provide sustained upward support to short-term prices.
However, in the medium to long term, the market also faces certain pressures. On one hand, the overall operating rate of the downstream industry chain is declining month-on-month. Major downstream products such as styrene, phenol, and caprolactam are mostly in a loss-making state. Negative feedback from the industry chain continues to transmit, and downstream enterprises show weak willingness to purchase at high prices. As prices rise, the loss pressure on downstream sectors of hydrogenated benzene continues to increase, leading to more unplanned shutdowns or rate reductions. On the other hand, hydrogenated benzene units that were previously shut down for maintenance are restarting sequentially, which may gradually increase supply-side pressure.
Overall, in the short term, the three bullish factors of low inventory, low operating rates, and geopolitical risks support a firm but fluctuating trend for the hydrogenated benzene market. However, persistent downstream losses and weak demand will limit the upside. It is expected that hydrogenated benzene prices may continue to rise in the short term, but in the medium to long term, drag from the demand side combined with supply recovery suggests a risk of prices peaking and then falling. Close monitoring is recommended for changes in the geopolitical situation, adjustments to Sinopec's ex-factory price, and actual changes in downstream demand.
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