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After two consecutive weeks of sharp declines in benzene prices, downstream profitability has recovered and capacity utilization has held steady. However, market concerns over supply recovery and weakening consumption still outweigh worries about low inventories, leaving expectations for further downside intact.
Market Review
In the first week of August, benzene prices trended downward overall. The monthly average price in East China stood at 7,480 yuan/ton, down 2.52% from July's average. Earlier, weak downstream demand and expectations of supply recovery beginning in August had outweighed the fact that benzene inventories continued to draw down in July, leading to a bearish price outlook for July and concentrated short positions. However, due to repeated twists and turns in the Middle East situation, the August supply-recovery expectation risked being derailed. Combined with the reality that benzene port inventories had fallen to a critically low level in July, the market rushed to cover shorts, driving prices up for most of July. Entering August, geopolitical tensions showed signs of easing, vessel arrivals at East China ports increased, and inventories rebounded modestly. In addition, with the return of units from maintenance and expectations of major downstream plant shutdowns, the market projected a shift toward inventory accumulation in August. This dampened the appetite for chasing benzene prices higher, and prices turned downward.
Downstream Sector
Affected by consecutive declines in benzene prices and major producers' listed prices, downstream profitability recovered in the first week of August. The downstream weighted profit rebounded to -3 yuan/ton in the first week of August, the highest level since late April. Capacity utilization at downstream phenol and caprolactam plants recovered to some extent. However, as capacity utilization in styrene and aniline declined, the weighted capacity utilization improved only marginally. The downstream weighted capacity utilization edged up to 63.2% in the first week of August, up 0.5 percentage points from the second-half July average, but still below the July average of 63.5%, the June average of 66.0%, and the May average of 68.7%. On a comparable basis, the weighted capacity utilization in the first week of August 2025 was 73.9%. Although downstream weighted capacity utilization has rebounded from its July trough, it remains at a relatively low level.
Supply Outlook
Benzene capacity utilization hit a five-year low of 56.9% in the third week of July, followed by three consecutive weeks of recovery to 61.79% in the first week of August. With units at Willian Chemical and Zhejiang Petrochemical expected to restart, domestic capacity utilization is projected to rise for eight consecutive weeks, surpassing both the year-earlier level and the pre-war level of February this year by end-September. The recovery in domestic benzene output is the core component of the continuous supply increase from August to October. Amid persistently weak demand and steadily recovering supply, benzene is expected to end its five-month streak of negative supply-demand gaps from March to July and enter a phase of sustained inventory accumulation from August to October.
Inventory Trends
Port inventories signaled a turning point even earlier than production recovery. As of August 3, benzene port inventory in Jiangsu stood at 55,800 tons, rising for two consecutive weeks. Although the absolute inventory level remains low, and vessel arrival delays during the typhoon-prone summer could cause temporary drawdowns, over the long run a sustained positive supply-demand gap will keep pressuring prices. With supply shifting from tight to loose, benzene prices clearly lack sufficient upside drivers.
Geopolitical Risks
The Middle East situation admittedly remains the primary factor determining the direction of forward supply. If the US-Iran conflict escalates repeatedly or transit through the Strait of Hormuz is blocked for an extended period, it could temporarily reverse expectations of benzene supply moving toward looser conditions and push prices to rebound from low levels.
However, judging from market experience in May–July, concerns over weak demand have already outweighed concerns over supply shortages. Short-term conflict in the strait is unlikely to change the trend toward looser supply-demand fundamentals. Meanwhile, the market has become somewhat desensitized to the frequent fluctuations in US-Iran tensions. The core factor driving current market trading remains the shift toward looser supply from August to October.
Outlook
On balance, the benzene market from August to October faces the following core contradictions: on the supply side, concentrated plant restarts make month-on-month output growth highly certain; on the demand side, multiple downstream units are scheduled for maintenance, pointing to a month-on-month decline in demand. With the supply-demand gap turning from negative to positive and the inventory inflection point confirmed, medium-to-long-term prices lack trend-driven upward momentum and are expected to fluctuate lower.
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