Introduction: This week, the market received signals suggesting a potential easing of tensions in the Middle East, leading to a sharp decline in crude oil prices, which subsequently pulled down prices across the benzene chain. However, production cuts continue to take effect, driving benzene capacity utilization down to its lowest level since March 2020. This has resulted in a sustained and widening supply-demand deficit. The divergence between strong market fundamentals and bearish macro signals has introduced greater uncertainty into benzene price movements.

I. Benzene Chain Prices Experience a Pullback

This period saw the East China benzene spot market initially rally before retreating. Price movements closely tracked the volatility of international crude oil. Compared to the previous week, market fluctuations narrowed significantly, with the weekly average price declining. Prices traded within a range of RMB 8,200-9,040/ton. Low levels of domestic import arrivals continued, and East China port inventories maintained a destocking trend, providing some support to market prices. However, increased uncertainty in the crude oil market and frequent price swings led to more cautious sentiment among holders. Bullish sentiment cooled. The price of the northern substitute, hydrobenzene, fell, putting pressure on petroleum benzene to follow suit downward, and arbitrage opportunities for shipping to the East China market opened up intermittently. The East China market faced pressure from lower-priced northern cargoes, weakening stockpiling intentions and leading to softer prices.

In line with the benzene price decline, prices of key downstream products—styrene, caprolactam, and phenol—also fell during the period, with magnitudes close to that of benzene. Recent price fluctuations for benzene and its downstream products have been smaller than those of crude oil. This is due to two factors: first, the market has become somewhat desensitized to contradictory statements from a key figure (Trump), making price movements less reactive; second, the impact of supply-side reductions continues to deepen. Coastal downstream users are genuinely facing procurement difficulties due to reductions in domestic and international contract volumes, providing stronger fundamental price support during downturns.

II. Benzene Capacity Utilization Hits Six-Year Low Due to Feedstock Shortages; Downstream Utilization Remains High on Profit Support

Since late February, the Middle East situation has led to reduced crude oil imports into Asia. Benzene producers south of Jiangsu first implemented varying degrees of defensive production cuts, causing capacity utilization to decline continuously. Compared to the same period in 2025, benzene capacity utilization in 2026 has been 4-6 percentage points lower since late February. As of this period (April 3-9, 2026), benzene capacity utilization fell to 68.08%, marking a six-year low since March 2020.

On the downstream side, thanks to the sustained recovery of overall downstream profits since late February, profitability has supported relatively high industry capacity utilization. From March to April, the weighted capacity utilization rate for benzene downstream remained at 73-74%, higher than the 69%-75% range seen in the same period of 2025. Therefore, it appears that sustained price increases have not yet triggered negative downstream feedback. Instead, benzene capacity utilization continues to decline due to tight feedstock supply. Furthermore, reduced by-product benzene production from cracker cuts in Japan and South Korea is expected to decrease China's potential benzene imports by 100,000-150,000 tons per month from April to June. This suggests a continued destocking pattern in the domestic supply-demand balance from April to June.

III. Benzene Supply-Demand Deficit Remains Negative for Six Consecutive Weeks, Likely to Persist Until June

During this period, due to benzene production cuts, declining imports, and stable downstream output, the weekly benzene supply-demand deficit remained negative for the sixth consecutive week, with the absolute value gradually expanding. Influenced by this accumulating negative deficit, the monthly balance from April to June is also projected to show a significant destocking pattern. Based on the correlation between the supply-demand deficit and price, as well as historical patterns, a sustained negative deficit typically provides upward price support. This is one of the key factors underpinning strong market confidence in forward-month prices.

IV. Middle East Situation Remains the Primary Influencing Factor, While Strong Fundamentals Cannot Be Ignored

With domestic supply reductions becoming more certain and a lack of low-priced import cargoes for replenishment, fundamentals theoretically support continued destocking from April to June. The monthly supply-demand deficit is expected to fluctuate around -200,000 tons. From a fundamental perspective, prices are more likely to trend upward. However, as the Middle East situation enters a critical phase, market participants are growing increasingly cautious, concerned about the potential for a unilateral US withdrawal. The market is expected to maintain a strong but volatile tone in April-May, with prices potentially fluctuating between RMB 8,200-9,500/ton. Close attention should be paid to price transmission from downstream to end-users and developments in the Middle East situation.