On the supply side, benzene supply has remained stable recently, with operating rates showing little change, hovering around 77%-78%. This may see an increase going forward. In the short term, more maintenance units are expected to resume operations in February. Two units at Zhejiang Petrochemical are projected to complete maintenance early in the month, while Sinochem Quanzhou's unit is expected to finish maintenance in late January. Therefore, overall supply in February is anticipated to increase. Regarding new capacity additions, SteelHome data indicates two units started production in January: BASF's 180,000-ton cracking capacity in Zhanjiang and Hunan Petrochemical's 60,000-ton reforming capacity. Overall supply is projected to decrease in the second quarter. Refineries including Jinling Petrochemical, Zhejiang Petrochemical, Shenghong Refining & Chemical, and Qingdao Liding have maintenance schedules. However, partial new capacity additions—such as Dimu Chemical and Xintai Petrochemical—may offset some maintenance impacts. Overall, supply is still projected to decline.

Benzene will face significant oversupply in 2025, primarily due to elevated import volumes. Reports indicate South Korea plans to phase out 2.7-3.7 million tons of naphtha cracking capacity, potentially releasing over 500,000 tons of corresponding benzene capacity. Additionally, beyond South Korea, Europe and the US continue to reduce benzene capacity, resulting in an overall decline in overseas production. China's benzene imports are projected to decrease in 2026 compared to 2025, with domestically produced pure benzene partially replacing imports, thereby alleviating domestic surplus pressure.

Downstream demand shows a pronounced divergence.

For styrene, two plants—Sinochem Quanzhou and Tianjin Bohua—are nearing the end of their maintenance periods. However, Tangshan Xuyang's facility experienced a malfunction. Considering plant issues, the demand from restarted plants will exceed the lost output, keeping overall styrene production on an upward trajectory. The current BZ-SM spread in East China stands at CNY 1,780/ton, notably elevated. Under such high processing margins, maintenance shutdowns may conclude early or on schedule. If high profitability persists, long-idle units could restart, potentially driving significant capacity utilization increases post-holiday. Among styrene downstream sectors, some major manufacturers face material balancing needs, potentially driving notable ABS production growth in February and thereby supporting styrene output.

Regarding caprolactam, increased operating rates at some plants may temporarily boost benzene demand, though subsequent profit margins will likely guide demand downward. PA6 operating rates currently stand at only 70%, a notable decline from earlier levels. As caprolactam operating rates rise to 77.3%, caprolactam margins have again fallen significantly, causing the spot market to ease once more and inventories to begin accumulating. With margins declining, caprolactam operating rates are expected to follow suit.

Regarding phenol, the recent restart of Zhejiang Petrochemical's phenol facility may boost demand. Recent phenol price increases have strengthened traders' willingness to hold inventory, but downstream buyers remain cautious, focusing primarily on essential purchases. However, current phenol margins are low, and future production rates may be affected by profit pressures. For adipic acid, prices recently rose to 7,200 RMB/ton, yet near-term margins continue to decline. This reflects insufficient downstream demand for adipic acid and low willingness to take delivery. With the Spring Festival approaching, some restocking demand may emerge. For aniline, downstream restocking has tightened spot supply-demand conditions, boosting aniline margins. This, combined with rising raw material costs, is supporting aniline price increases.

Overall, benzene downstream supply-demand has shown some recovery, but downstream profit margins remain divergent. Only styrene and aniline exhibit favorable margins, while others have declined to varying degrees. Given styrene's high proportion in downstream applications (approximately 44%), benzene demand may receive sustained support in the medium-to-long term due to styrene's strong profitability.

The primary challenge for benzene currently is elevated inventory levels. As of January 19, port inventories stood at 297,000 metric tons, down 27,000 metric tons from the previous period. This high inventory is primarily driven by substantial imports, with December imports reaching approximately 530,000 metric tons—significantly exceeding market expectations. Looking ahead, the pressure from high benzene inventories may ease in the second quarter as maintenance activities commence. To achieve inventory drawdown, another critical factor is that benzene must pass on price concessions to downstream users. Consequently, the BZ-SM spread is expected to remain relatively strong in the second quarter.

Recently, benzene's downstream styrene market has been subject to numerous market-moving developments. Since December last year, persistent export rumors have circulated, while recent disruptions have primarily stemmed from plant malfunctions and other operational issues. Overall, styrene has shown heightened sensitivity to news recently. A combination of positive news and inventory-driven reductions ultimately pushed styrene prices higher, thereby lifting benzene prices. However, it is worth noting that current terminal demand for styrene remains weak. High styrene prices could trigger negative feedback, potentially squeezing out some of the sentiment-driven premium in benzene prices.

In the short term, downstream styrene is significantly impacted by market sentiment. Should certain news reports prove unfounded, styrene prices may decline to eliminate emotional premiums, subsequently driving down benzene prices. Additionally, current elevated styrene prices are squeezing downstream profits, potentially triggering negative feedback.

Benzene faces pressure from high import volumes and weak downstream demand, leading to persistent inventory buildup. In the near term, both supply and demand may increase simultaneously. Looking ahead, benzene inventories could decline during maintenance periods, but imports remain a critical variable. With high inventories and oversupply, the market may need to offer concessions to downstream buyers. Therefore, the BZ-SM spread is likely to remain elevated until inventories show significant reduction.

As an integrated internet platform providing benchmark prices, on January 23, the benchmark price of benzene according to SunSirs was 5800.00 RMB/ton, an increase of 10.08% compared to the beginning of the month (5268.67 RMB/ton).

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