Introduction: This week, the market has frequently traded on the general decline in downstream capacity utilization for pure benzene. Although most downstream shutdowns are due to planned maintenance or equipment malfunctions, with very few units reducing output due to actual losses, market players still hold a bearish view on prices due to weakening near-term demand and the potential for supply recovery.

I. Weakening Downstream Capacity Utilization

This week, most downstream sectors of pure benzene recorded losses. Among them, styrene and phenol have reported negative cash flow margins for seven consecutive weeks, while the losses for adipic acid have widened rapidly over the past four weeks. Only aniline remains profitable among downstream sectors, with caprolactam at breakeven. Some downstream plants have implemented output cuts due to negative cash flow margins. The weighted average profit for downstream sectors has been negative for the fourth consecutive week, although it has improved slightly compared to the previous week. Weighted capacity utilization fell by 4 percentage points from the prior period, mainly due to three styrene units experiencing malfunctions, one unit undergoing planned maintenance, and some phenol and caprolactam units being shut down or reducing operating rates. Currently, the weighted average profit for downstream sectors is slightly lower than the same period in 2025, while weighted capacity utilization is roughly on par with that period. The poor performance of downstream sectors this week has become a key factor driving the decline in market prices.

II. Pure Benzene Capacity Utilization Reaches a Trough and Rebounds

This week, pure benzene capacity utilization dropped to 66.04%, hitting a new low since the pandemic. However, capacity utilization and production are expected to rebound from this trough.

Due to the ongoing slump in the refined oil market and the rapid widening of the toluene-benzene spread, multiple toluene-based benzene units in Hebei and Shandong have become potentially profitable. After a 125,000-ton disproportionation unit in Hebei began feeding last week, more than 400,000 tons of demethylation and disproportionation unit capacity in Shandong and Hebei are expected to come online by late May to early June. Additionally, some companies are reported to have postponed their maintenance plans due to interventions. Based on current data, pure benzene capacity utilization in 2026 is expected to bottom out in late May and rebound in June, though it will remain lower than the same period in 2025.

III. Supply Higher Than Expected, Demand Lower Than Expected

Affected by the aforementioned rebound in pure benzene capacity utilization, the supply volume for June 2026 is 130,000 tons higher than the April forecast but 120,000 tons lower than the February forecast. The upward revision in the May forecast mainly comes from the recovery in domestic petroleum benzene production. As the Asian-U.S. arbitrage window remains open, the forecast for imported petroleum benzene remains unchanged, while the forecast for hydrogenated benzene is also unchanged due to raw material coking benzene inventory constraints.

On the demand side, affected by the aforementioned downstream malfunctions and output cuts, the current May demand forecast has decreased by 60,000 tons compared to the April forecast, and by 180,000 tons compared to the February forecast. The current June demand forecast is 20,000 tons lower than the April forecast and 100,000 tons lower than the February forecast.

IV. Supply-Demand Gap Narrows Compared to Expectations, but Continuous Destocking Continues

As a result, the domestic pure benzene supply-demand gap in May-June 2026 is smaller than the April forecast. Specifically, destocking in May is 50,000 tons less than the previous forecast, and in June it is 150,000 tons less. As pure benzene is a byproduct of refining, its production and imports are relatively predictable. However, downstream production is more influenced by profit margins and end-user demand, and there remains a possibility of further declines. Thus, while the pace of destocking in May and June remains, the market believes current inventories can provide short-term support. Based on recent offtake volumes and storage levels at East China ports, pure benzene inventories are expected to be sufficient until late June. The market is pinning hopes on the start of the downstream off-season in July, along with the persistent belief that the Strait may reopen and supply could recover, leading to a bearish view on near-term pure benzene valuations.

Although domestic pure benzene does not face the risk of inventory depletion or supply interruption before July, and the market continues to hold the belief that the Strait supply may resume and refineries will pivot to chemicals amid the refined oil slump, current data suggests that if the crude oil supply channel from the Middle East to Asia is not fundamentally resolved, the supply-demand gap for pure benzene from July to September will remain negative for an extended period. Social inventories will be further compressed, leaving market prices with the potential for further upward momentum.