Introduction: After the short squeeze ended in July, the market shifted its focus to the current weak demand reality and expectations of supply recovery beginning in August, with bearish sentiment dominating. As a result, although crude oil saw another broad rally at the end of the cycle, its upward push on benzene prices was relatively limited.
1. Trading on August Supply-Demand Accumulation and Inventory Rebound, Prices Turned Downward at Month-End
Previously, the market had suppressed the fact that benzene inventories continued to decline in July due to downstream demand weakness and expectations of supply recovery starting in August, leading to a weak price outlook for July and a concentration of short positions. However, due to repeated tensions in the Middle East, the expectation of supply recovery in August faced risks of disruption. Combined with the reality that benzene port inventories fell to alarmingly low levels in July, the market rushed to cover shorts, driving prices higher for most of July. In late July, geopolitical conflicts showed signs of easing, the number of vessel arrivals at East China ports increased, and inventories rebounded slightly. Additionally, due to the return of previously idled units and expectations of shutdowns at large downstream plants, the market anticipated a shift to inventory accumulation in August, weakening the willingness to chase higher benzene prices and pushing prices downward.
2. Downstream Capacity Utilization Hit a Two-Year Low
Since February, benzene prices have remained elevated due to reduced supply both domestically and internationally, but only aniline among downstream products enjoyed healthy profits. Entering May, three major downstream sectors—styrene, caprolactam, and phenol—sustained prolonged losses, causing capacity utilization to decline continuously. By the end of July, capacity utilization for styrene, caprolactam, and phenol had all touched two-year lows since July 2024. Capacity utilization for aniline and adipic acid was also significantly lower than pre-Middle East conflict levels in February 2026. Starting in May, concerns over weak downstream demand overtook concerns about declining benzene supply, becoming the main price driver. However, from May to July, due to concentrated maintenance at domestic benzene plants, supply consistently fell short of demand, providing a floor for prices. Entering August, with the restart of previously idled units and further softening of downstream demand, the supply-demand balance turned positive.
3. Return of Idled Units Boosts Domestic Supply Levels
After benzene weekly capacity utilization hit a historic low of 57% in early July, it began to recover in late July as previously idled units gradually restarted. With more refinery feedstock arrivals and the end of maintenance periods, domestic benzene capacity utilization is expected to rebound quickly in August-September, potentially returning to pre-conflict levels of around 78%—comparable to the same period in 2025—by late September. The expectation of supply recovery brings higher output. Production from August to October is expected to exit the low range of 1.55–1.67 million tons per month seen in June-July and return to pre-conflict levels of around 1.80–2.0 million tons per month, potentially reaching new highs in Q4 with the commissioning of new units.
4. Supply-Demand Gap Turns Consistently Positive, Bearish for Prices
Based on current calculations of benzene and downstream unit production plans, benzene is expected to end six consecutive months of negative supply-demand gaps in August and enter a period of continuous inventory accumulation from August to October.
In August, domestic benzene supply, imports, and hydrobenzene production are all expected to increase slightly. Demand for benzene from downstream styrene, caprolactam, and aniline is set to decline; among downstream products, only aniline remains profitable. Planned maintenance at aniline plants will reduce its demand for benzene. Other major downstream sectors lack sufficient margins, keeping operating rates low. Overall, downstream inventory building this month will dampen procurement enthusiasm in August. Overseas benzene supply to domestic contract volumes has not been fulfilled as planned, and benzene imports for the second half of the year may increase. In August, both the theoretical benzene balance sheet and East China port inventories are expected to shift to accumulation. Therefore, despite the potential for international crude oil prices to rise in August—with Brent possibly trading in the $83–95/bbl range—providing a positive macro signal for benzene, the weakening supply-demand data outlook suggests that benzene prices will likely see more declines than gains, gradually entering a downward channel.
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