Introduction: As the Middle East situation moves towards easing, the impact of crude oil-induced macro and cost fluctuations on benzene has diminished, with the market returning to trading based on fundamental changes affecting prices. Since late February, influenced by differences in supply changes in Shandong and East China, the price spread between the two regions has consistently favored southbound arbitrage, and benzene futures warehouse receipts have also concentrated in the more advantageous Shandong region.

I. Regional and Spot-Futures Price Spreads for Benzene

Since late February, when the Middle East situation triggered significant volatility in global energy and chemical products, benzene prices in East China and Shandong initially experienced a short-term, sentiment-driven rapid surge, during which the price spread between the two regions was almost negligible. As market participants moved past the initial emotional fluctuations and began trading based on the impact of future supply changes on prices, the East China and Shandong markets, facing different supply environments, exhibited significant divergence in price trends. From March to April, the average price spread between East China and Shandong was 216 yuan/ton, an increase of 218 yuan/ton compared to the same period in 2025. During this period, short-term arbitrage opportunities between Shandong and East China opened intermittently amid broad market fluctuations, leading to active southbound benzene arbitrage trading.

The spot-futures price spread (including discounts) in Shandong also widened compared to January-February. From March to April, the average spot-futures spread in Shandong was -122 yuan/ton, a decrease of 78 yuan/ton from the January-February average, down 177% month-on-month. Due to Shandong spot prices being significantly lower than futures prices, converting local benzene spot into warehouse receipts became more economical. As of April 21, the total benzene warehouse receipt volume was 388 lots, with 62.9% located in Shandong delivery warehouses—a 55.3% increase from March 23.

The widening East China-Shandong price spread and the shift of Shandong warehouse receipts from a marginal to a dominant position collectively reflect the region's relatively more abundant supply compared to East China during this phase.

II. Varying Benzene Production Cuts in Shandong and East China Due to Raw Material Differences

Since late February, due to concerns about reduced Middle East crude oil supply triggering a raw material crisis, petroleum benzene producers in East China and South China implemented defensive production cuts, primarily among coastal refineries reliant on Middle East crude. In addition to defensive cuts, these producers further reduced benzene output to prioritize gasoline and diesel supply, exacerbating the production decline. Since late February, weekly production in Jiangsu, Zhejiang, Shanghai, Anhui, and Jiangxi has decreased by 35,000 tons/week, a 22.1% drop. Fujian's weekly production fell by 10,000 tons/week, a 42.0% decline.

In Shandong, due to different raw material sources and the startup of new toluene-to-benzene plants, weekly production since late February has only decreased by 2,900 tons/week, a 3.5% drop.

For hydrobenzene, benefiting from sharply rising petroleum benzene prices and abundant, low-cost crude benzene inventories, benzene hydrogenation unit profitability improved significantly during this period. Since late February, the average profit for Shandong benzene hydrogenation reached 537 yuan/ton, up 408 yuan/ton from the January-February average, a 316.3% increase, and up 613 yuan/ton year-on-year from the same period in 2025, a 706.6% rise. Due to improved profitability, the average capacity utilization rate of benzene hydrogenation units since late February reached 65%, up 7 percentage points from January-February and 4 percentage points year-on-year from 2025. With higher operating rates, weekly hydrobenzene production increased by 9,100 tons/week since late February, an 11.1% rise.

Thus, Shandong's petroleum benzene production cuts were smaller than in other East China regions, while hydrobenzene output increased rather than decreased, resulting in relatively more abundant supply in northern China compared to East China.

III. Import Reductions More Evident in East China Regions Outside Shandong

Due to higher reliance on Middle East crude oil, several refineries in Japan, South Korea, and Southeast Asia declared force majeure or reduced output, leading to a corresponding decline in export volumes. These regions account for over 95% of China's benzene imports, making a significant drop in China's benzene imports inevitable. April imports are projected to decrease by 40,000 tons from earlier forecasts, a -10.0% deviation; May imports are expected to drop by 130,000 tons from earlier forecasts, a -32% deviation; and June forecasts are revised down by 60,000 tons from earlier projections, a -17% deviation.

According to customs statistics, 19% of China's benzene imports are destined for Shandong, while other East China regions, including Jiangsu, Zhejiang, Shanghai, Anhui, Jiangxi, and Fujian, account for nearly 70% of imports. Therefore, the unplanned reduction in imports also disproportionately affects East China regions outside Shandong. Although substantial Shandong benzene volumes moved south to partially fill East China's supply gap, limited unloading capacity at some East China downstream plants and the lack of port loading conditions in Shandong mean the actual impact of import reductions on raw material supply for some East China enterprises exceeds statistical figures.

IV. Shandong Benzene Replenishes East China Inventory, Slowing Commercial Stock Drawdown

As seen in the previous three sections, from March to April 2026, Shandong benzene held a price advantage due to relatively more abundant spot supply compared to East China, and local warehouse receipts were significantly more economical. Consequently, Shandong benzene trading volume showed an upward trend during this period, while East China warehouse withdrawals declined. Downstream demand has not yet shown significant negative feedback, so against a backdrop of relatively stable demand, Shandong benzene's price advantages in both spot and futures markets are expected to persist. This will likely keep the southbound benzene arbitrage window open, with Shandong benzene continuously entering East China warehouses as forward spot delivery material, slowing the drawdown rate of East China inventory.

In addition to high benzene inventory levels, downstream styrene and its derivatives—ABS, EPS, and PS—also have elevated stock positions. Currently, the combined inventory of benzene, styrene, and its three derivatives is higher than in the same periods from 2022 to 2025. High inventory levels across the entire industrial chain mean that signals of benzene production cuts are absorbed by substantial buffer stocks at intermediate stages, delaying the inflection point for benzene prices and supply-demand dynamics. The slowed drawdown of East China benzene inventory due to Shandong supply inflows will undoubtedly further postpone this inflection point. Based on the current drawdown rate, East China benzene inventory can maintain relatively healthy levels until late June.

V. Strong Fundamentals Already Priced In; External Factors Enter Critical Phase for Benzene Impact

In April, the toluene-benzene price spread widened rapidly, with theoretical profits for disproportionation and demethylation turning positive from negative. Due to weak performance in oil products, toluene demand was very limited in April, with only active procurement from the chemical industry providing strong support for toluene prices. Toluene producers faced increased sales pressure, leading refineries to actively lower listed prices to reduce inventory. Toluene's weekly average price fell by nearly 1,300 yuan in April. Some toluene-to-benzene units in Shandong and Jiangsu achieved substantial profits, increased operating rates, and raised benzene output. Some yet-to-commission toluene-to-benzene units in Shandong and Hebei also gained feasibility for startup in May.

Based on current production, import, and consumption assessments, the monthly supply-demand balance from April to June is expected to show a drawdown of 200,000–300,000 tons per month for three consecutive months, undoubtedly providing positive support for prices. However, given that this positive factor has already been repeatedly priced in, and increased toluene-to-benzene production will weaken this support, resistance to further benzene price increases is gradually strengthening.

Currently, although domestic production cuts from April to June are irreversible, if conflicts gradually ease and strait navigation resumes, current benzene port inventory can support the market until late June, and hydrobenzene producers' crude benzene inventory can last until late May. After expectations of supply recovery emerge, the market may still have upward potential in May due to the certainty of reduced volumes. However, as holders accelerate selling, inventory drawdown in June could be completely offset by falling crude oil prices, leading to price declines. The market is expected to show a pattern of rising first and then falling in the second quarter, with prices dropping below 8,000 yuan/ton in June.

If the state of war persists in May-June and international crude oil prices break new highs, this will further consolidate production cuts in domestic and international supply, giving downstream and end-users more confidence to pass on costs. Downstream products like styrene will accelerate exports to meet demand from other countries facing supply tightness due to their own production cuts. Consequently, the transmission from benzene to downstream and end-users domestically is expected to be smoother. Benzene social inventory is projected to decline more rapidly, entering a tight state in June, with benzene market prices likely to show a stepwise upward trend, breaking through the 10,000 yuan threshold.

Overall, positive domestic benzene fundamentals have already been fully priced in. Future price trends will primarily depend on the raw material procurement capabilities of domestic coastal refineries, i.e., the future development of the Middle East situation. From a regional market perspective, Shandong benzene supply is expected to remain relatively more abundant than East China in May-June, with local prices maintaining competitiveness in both spot and futures markets.