New Round of Coal-Based Benzene Capacity Expansion
The Chinese benzene supply is from the oil-based benzene and the coal-based benzene industries. Since May 2023, the coal-based benzene industry entered a capacity expansion new round. As of early December, the accumulated new capacity of coal-based benzene was around 1,910kt/a. The new capacity is mainly concentrated in Shandong, Henan and northwest China. The supply structure of benzene may be changed and the coal-based benzene will support more for the benzene supply gap.
The benzene supply mainly consists of the output of coal-based benzene and oil-based benzene and the import volume of oil-based benzene. The rapid expansion of domestic oil-based benzene output has led to a YoY decline in the proportion of coal-based benzene in the overall supply. According to SCI, the supply of coal-based benzene may account for 14.07% of the total benzene supply, declining by 0.84% YoY. Despite the recent capacity expansion in the coal-based sector, its share in the total benzene supply has not increased but decreased, mainly due to the industry’s characteristics and changes in the domestic output and import volume of the oil-based benzene.
The coal-based benzene output is lower than expected.
According to SCI, since May 2023, the accumulated new capacity of the coal-based benzene industry was around 1,910kt/a, with 100kt/a phased out. The production ability of crude benzene attached to 8,690kt. However, the actual output growth of coal-based benzene significantly lagged behind the capacity expansion. The capacity utilization rate of the coal-based benzene industry continued to decline. It’s predicted that the capacity utilization rate may continue to decline by 3.85% to 47.33%.
The mismatch in the output and capacity growth rates was mainly due to the supply of feedstock. The feedstock of coal-based benzene is crude benzene and it is one of the byproducts of the coking industry. Since the end of 2015, the China government first proposed “supply-side structural reform”. The coking industry, known for its high pollution and energy consumption, saw a significant reduction in demand from its downstream steel industry after the real estate sector entered a downturn in 2018. These factors lead to a gradual increase in the retirement of domestic coking capacity and a slow pace of new additions. As a result, the output of crude benzene in China has remained relatively low, limiting the capacity of coal-based benzene.
The oil-based benzene domestic output and import volume supply rose rapidly.
According to SCI, the compound annual growth rates of domestic output and imports of oil-based benzene reached 11.57% and 16.29%, respectively, both at high levels. Domestically, from 2020 to 2023, the launch of private refining and chemical integration projects led to a significant increase in benzene output. However, since 2024, the actual addition of new units has significantly decreased, resulting in a slowdown in output growth. On the import side, as the domestic benzene supply gap continues to widen, the tight supply has strongly supported domestic benzene prices, attracting an increasing volume of imports into the Chinese region, with South Korea remaining the primary source of this increment.
Coal-based benzene output filled the benzene supply gap in East China.
The regional distribution of new capacity for oil-based benzene and coal-based benzene over the past five years shows a complementary trend. The oil-based benzene resources are mainly concentrated in East China, while the coal-based benzene resources in North China have filled the supply gap left by oil-based benzene in North China. These new coal-based benzene enterprises are mainly concentrated in Hebei, Shandong, and Henan. In recent years, with the notable increase in the capacity of Shandong, the local benzene supply gap widened significantly and there are few large refineries commencing operation locally, relying mainly on coal-based benzene resources from Northeast China, Hebei, and Henan for supplementation. However, it is difficult for the resources in East China to provide long-term supply to the northern region.
Overall, although coal-based benzene accounts lower proportion of the total benzene supply, it has made a significant contribution to balancing the domestic benzene supply-demand pattern. In the future, as the benzene supply gap in the northern region, particularly in Shandong, is expected to continue widening, the newly added coal-based benzene capacity in Southwest Shandong, Henan and even the Northwest is likely to flow more into Shandong for supply. Meanwhile, the arbitrage opportunities between the northern region and southern region will continue to decrease. In addition, the periods when northern prices exceed those in East China are likely to increase.
All information provided by SCI is for reference only, which shall not be reproduced without permission.
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