[Introduction] After two years of prolonged losses, the phenol-ketone industry experienced a trend of "turning from loss to profit and then back to loss" during the first half of 2026. The cyclical profit-loss alternation is essentially a game between costs and supply-demand dynamics, with the ability of cost prices to be passed downstream and supply-demand variables playing decisive roles.

I. Inconsistent Cost Pass-Through Leads to Alternating Profit-Loss in Phenol-Ketone Enterprises

The main raw materials for phenol-ketone production are benzene and propylene. Cost fluctuations and phenol-ketone price changes directly impact the profits of phenol-ketone enterprises. In early March, driven by a surge in crude oil prices, phenol-ketone and its upstream/downstream products experienced an unexpectedly sharp rally. During the initial phase of the price increase, the phenol market responded fastest, with phenol-ketone price increases outpacing cost increases. On March 10, profits turned from loss to profit. By late April, phenol-ketone enterprise profits shifted back to a loss. During this period, phenol prices performed weakly. After the May Day holiday, the decline in phenol-ketone prices exceeded the decline in costs. Under the influence of supply-demand dynamics, phenol had the largest price drop in the entire industrial chain, pushing phenol-ketone enterprise losses above -1,000 RMB/ton. Towards the end of May, the raw material benzene price fell. Phenol market sentiment was weak, end-user purchasing slowed, suppliers faced sluggish sales, and room for price concessions gradually widened. The inverted spread with benzene persisted. Considering the prices of propylene and acetone over the same period, as of now, the theoretical loss for phenol-ketone enterprises is 850 RMB/ton.

(Data source: chempricehub Information)

From early March to late April, phenol-ketone enterprises generally maintained positive profit margins. On April 21, the price of phenol in East China fell below that of benzene. In the latter part of April, the correlation between the two prices dropped to 0.62. In May, the correlation remained low at 0.67. On May 8, phenol and acetone prices in East China were roughly equal. On May 13, the price spread was repaired, and recently the spread has fluctuated around 300 RMB/ton. Comparing the prices of phenol with its raw material benzene and by-product acetone reveals that phenol, as the main product, lacks a price advantage. Although the by-product acetone performed relatively strongly for a time, its contribution to profit recovery was insufficient to fill the loss gap.

II. Phenol Price Decline Attributed to Supply-Demand Contradiction Accelerates Phenol-Ketone Profit Slide into Loss Cycle

1. Around New Capacity Release Expectations, Phenol's Sharp Decline Drags Phenol-Ketone Profits into Loss

In late April, the phenol market paid increased attention to the operational status of Shandong Ruilin's new phenol-ketone unit. Pre-holiday stocking demand before the May Day holiday did not meet expectations, highlighting supply-demand contradictions. Sluggish supplier sales led to a decline in the phenol market. As the main product, the price spread between phenol and the by-product acetone narrowed from approximately 2,000 RMB/ton to near parity, significantly squeezing phenol-ketone enterprise profit margins into negative territory. Before mid-May, the decline in the phenol market changed, showing a steady upward trend. However, price movements remained squeezed by costs and supply-demand factors, making the rally slow. Profit recovery requires more time. By the end of May, while raw material prices fell sharply, the decline in phenol prices was relatively moderate. However, when the decline in raw material prices slowed, the drop in phenol prices accelerated instead. This cyclical pattern makes it difficult for phenol-ketone enterprise profit recovery to be sustainable, and they remain mired in losses for now.

2. Reduced Downstream Demand in May Became One of the Triggers for Phenol Price Decline

In May, the primary downstream sector for phenol, bisphenol A (BPA), was affected by planned maintenance shutdowns at some units. Key incidents included: Pingmei Shenma (April 14), a one-line short shutdown at Hengli Petrochemical (5 days, now back to normal), Cangzhou Dahua (maintenance shutdown on May 7), and one line at Zhejiang Petrochemical (planned one-month shutdown around mid-May). Operating rates in the BPA industry sequentially dropped to around 60%. Other downstream enterprises were cautious in procurement, exhibiting a clear "buy when prices rise, not when they fall" sentiment. Under the declining price trend, market participants became more hesitant, slowing purchasing activity. After the market turned positive, buying was mostly driven by immediate needs. Thus, reduced demand was one of the main reasons for the decline in phenol prices.

In summary, relatively weak supply-demand conditions caused phenol prices to break through the 8,000 RMB/ton and 7,500 RMB/ton thresholds in succession. Phenol had the largest price drop in the entire industrial chain, exerting a significant impact on the process of phenol-ketone enterprise profits turning negative.

III. The Path to Breaking the Phenol-Ketone Profit Deadlock

1. Declining Phenol-Ketone Industry Operating Rates Ease Supply-Demand Contradictions

During the week of May 11-17, the load of some phenol-ketone units decreased slightly. Gaohua Materials' phenol-ketone unit underwent planned maintenance shutdown on May 12, bringing the overall industry operating rate below 80%. Yangzhou Shiyou's phenol-ketone unit planned a maintenance shutdown from May 19-27, lowering the overall operating rate of phenol-ketone enterprises to around 76%. As operating rates declined, domestic supply pressure eased somewhat. Coupled with consideration of the relatively high monthly average price, suppliers' willingness to offer concessions weakened. The market center of gravity showed signs of recovery. End-user inquiries were mainly for immediate needs, with occasional short-term volume increases. The profit margin for the phenol-ketone industry saw a slight recovery. By the end of the month, the cost concession was slightly larger than the decline in phenol-ketone prices, limiting profit recovery for the industry. Losses remained the dominant theme.

2. Spread Between Phenol and Benzene Repairs, Correlation Between the Two Improves

Previously, phenol's decline was larger than that of the raw material benzene, weakening the price correlation between the two. On May 9, the inverted spread between phenol and benzene in East China was at its widest, at -710 RMB/ton. On May 26, the spread between phenol and benzene in East China had narrowed to -135 RMB/ton. Because phenol had fallen sharply earlier, although the decline in benzene affected phenol market sentiment to some extent, the drop was relatively moderate, thus alleviating the inverted spread phenomenon between phenol and benzene. However, the situation changed abruptly on May 27, with phenol's decline accelerating and the spread with benzene widening again to -255 RMB/ton. In the short term, the complete correction of the inverted spread between phenol and benzene seems unlikely. Periods of repair or widening are both possible. Considering the widest spread from early May, the probability of it exceeding 500 RMB/ton is relatively low.

3. Benchmarking Against Price Trends of Related Product Acetone for a Comprehensive Assessment

When monitoring phenol-ketone enterprise profits, it is necessary not only to track costs and phenol but also to pay attention to the price trend of the by-product acetone. Currently, the acetone market price is also relatively weak. Considering that both prices are unlikely to experience a prolonged period of simultaneous sharp declines, their price movements require mutual attention and comprehensive assessment. Therefore, it is expected that the loss-making situation for phenol-ketone enterprise profits will not change significantly in the short term.