Lead: Since the outbreak of the US-Iran conflict on April 28, global crude oil and bulk commodity markets have experienced significant volatility. Driven by cost increases and the concentrated release of supply-side risk premiums and market sentiment, benzene prices have risen. However, the broad price increase across the benzene industry chain, fueled by high benzene prices, did not last long. Currently, the upstream and downstream sectors of benzene have diverged: except for aniline, most downstream products have fallen into losses due to their inability to fully pass on cost pressures. Similarly, benzene producers using the petroleum route are facing profit erosion from high crude oil costs. Against this backdrop, hydrogenated benzene, a coal chemical product serving as an alternative route, has encountered a rare opportunity to benefit.

1. Rising Profitability and Operating Rates for Hydrogenated Benzene

Hydrogenated benzene is produced by hydrotreating crude benzene. It has similar physical properties to petroleum benzene and can substitute for it in most downstream applications.

In the two-plus months since the US-Iran conflict, as petroleum benzene prices soared due to rising crude oil, downstream companies actively sought more cost-effective alternative feedstocks considering their own cost pressures. Leveraging its low-cost advantage, combined with weekly pricing and sales volume models, hydrogenated benzene captured market share in northern China. Following the geopolitical conflict, hydrogenated benzene producers not only increased output but also saw significant profit growth, leading to higher operating rates.

Domestic benzene supply consists of approximately 80% petroleum benzene and 20% hydrogenated benzene. Hydrogenated benzene, originally in a subordinate position in the petroleum benzene-dominated market, has become a periodic beneficiary. It has enjoyed both the price uplift from overall benzene price increases and, as a coal chemical product with relatively lower costs, achieved high profits for a period. According to chempricehub data, from January to April, hydrogenated benzene producer profitability continued to rise, reaching a first-half peak of 679 yuan/ton in April. The operating rate of hydrogenated benzene plants also climbed steadily, reaching a high of 72.28% in April, with monthly production of 397,000 tons, an increase of 67,000 tons compared with the average monthly output in 2025.

2. Changing Pace of Profit and Operating Rate Growth in May-June

This favorable situation did not last long. Entering May, profits for hydrogenated benzene began to narrow, and operating rates started to decline. The main reason is that market logic is changing. First, due to sharp fluctuations in crude oil, the high price of benzene cannot be smoothly passed down the chain. Poor end-user sales and high inventory levels have created negative feedback for benzene's downstream sectors, causing many downstream profit margins to slip into losses. Second, amid this downstream negative feedback, the easing of tensions in the Middle East led to a sharp drop in crude oil prices, which quickly pulled down domestic benzene prices. Facing an uncertain market outlook, hydrogenated benzene producers postponed scheduled maintenance plans. Third, the social inventory of crude benzene, the raw material for hydrogenated benzene, has declined significantly. As a byproduct of coking, crude benzene supply is relatively inelastic and mainly constrained by coke oven operating rates. When hydrogenated benzene producers increased operating rates due to higher profits, demand for crude benzene rose, raw material consumption accelerated, and social inventories were rapidly depleted. Meanwhile, hydrogenated benzene producers' own raw material inventories also fell to low levels. This has weakened hydrogenated benzene's bargaining power for crude benzene.

In May, under the influence of falling domestic benzene prices and shrinking hydrogenated benzene profits, several hydrogenated benzene units in China were taken offline for maintenance or scheduled for shutdowns. The operating rate began to decline, expected to fall to around 68%. With reduced demand for crude benzene, hydrogenated benzene producer profits are likely to remain around 300 yuan/ton.

Looking ahead to June, four to five hydrogenated benzene units that were shut down for maintenance in May are planned to restart, along with three long-idled units. This will push the operating rate back up to a year-to-date high, potentially reaching 75%. However, this recovery is not driven by demand growth or improved profitability, but rather by the timing of maintenance schedules. The problem is that there is limited room for significant increase in crude benzene supply. When more hydrogenated benzene units come online simultaneously, demand for crude benzene will be concentrated, but supply growth will be limited. This will provide stronger support for crude benzene prices, resulting in continued narrowing of hydrogenated benzene profit margins, which may even slip below the breakeven point.