【Introduction】 Benzene supply in Shandong has declined this cycle, but due to similarly weak demand, the market remains focused on the progress of U.S.-Iran negotiations, with sentiment cautious and prices notably influenced by crude oil.
1. Profitability of toluene-to-benzene drops
As crude oil and naphtha prices fluctuate downward, the profit margin for benzene via reforming remains healthy. In terms of toluene, robust export inquiries recently have made Shandong prices more resilient compared to benzene. The benzene-toluene spread continued to narrow this cycle, with gross profit for toluene-to-benzene plants in Shandong falling below 100 yuan/ton, hitting the lowest level since April 12. Some HDA plants have reduced operating rates under cost pressure, which to some extent lowered regional benzene production.
2. Shandong benzene output and operating rates decline
During this cycle, in addition to some HDA plants cutting output due to declining profitability, several reforming units in Shandong experienced shutdowns or output reductions due to poor refining margins and production issues. This further dragged down Shandong's benzene output and operating rate. The operating rate in Shandong fell to 65% this cycle, leveling with the mid-May level and expected to decline further next week. However, sufficient hydrogenated benzene supply remains available in the region, limiting the price support from benzene output cuts.
3. Weak profitability leads to low downstream operating rates
After hitting a trough last week in the weighted average downstream operating rate, it recovered to some extent this week as some downstream plants restarted after maintenance. Yet downstream weighted average profitability remains poor, staying in negative territory for eight consecutive weeks. Among downstream sectors, only aniline has strong margins; styrene is near breakeven, while phenol, caprolactam, and adipic acid continue to suffer losses. Based on production plans, the downstream operating rate is expected to recover in the short to medium term, but persistent losses in some sectors keep concerns alive that operating rates may decline further.
Overall, although both operating rates and output in Shandong have fallen, downstream performance remains mediocre. With sufficient hydrogenated benzene supply in the region, the market is paying more attention to weak consumption, and the drop in benzene output has not provided significant price support.
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