Anti-Involution – Further Exacerbation of Benzene Supply-Demand Imbalance
Introduction: The 6th Meeting of the Central Financial and Economic Affairs Commission emphasized the need to “govern enterprise price competition and disorderly practices in accordance with laws and regulations” and to “promote the orderly exit of outdated production capacity,” setting the tone for supply-side reforms in the industry. This has boosted market expectations for the elimination of obsolete capacity, leading to a rise in commodity prices, with benzene prices also trending upward.
However, overall industry structure remains challenged by insufficient end-user demand, with no significant short-term improvement.
Anti-Involution - the benzene industry possesses a greater number of older units compared to downstream industries
For benzene, the capacity of old units with an operational lifespan of 20 years or more (including units commissioned in 2006) accounts for 18% of the total industry capacity, totaling 4,530kt/a. Despite the long operational period, these units are generally maintained and inspected regularly, allowing for stable production to date. However, due to the current lack of clear policy guidance and the difficulty in immediate implementation once clarified, there has been no substantial impact on the supply side of the benzene industry. In the short term, market sentiment remains optimistic, with bullish momentum driven by positive feedback effects in the commodities market.
From a downstream perspective, regarding styrene, there are currently 2,925kt/a of capacity from plants established over 20 years ago (including those commissioned in 2006), accounting for 13% of the industry's total capacity.
For caprolactam, the recent years have seen rapid commissioning of new units, with no units commissioned before 20 years ago, thus currently having no impact on the caprolactam industry.
As of the first half of 2025, domestic phenol and acetone capacity reached 10,480kt/a. The capacity of phenol and acetone units that have been in operation for over 20 years amounts to 790kt/a, representing 7.54% of total capacity, and all are small-scale units with annual capacities below 300kt/a.
Comparing the sectors, upstream sectors are more significantly impacted by anti-involution regulations compared to downstream sectors.
New opportunities and challenges in the aromatic hydrocarbon industry chain amidst anti-involution measures
Benzene, as the central hub of the aromatic hydrocarbon industry chain, is undergoing a dual transformation characterized by capacity expansion and demand iteration. During the period of concentrated capacity release in the chemical industry from 2023 to 2025, upstream supply of benzene continues to expand driven by integrated refining and chemical projects. Meanwhile, the downstream sectors such as styrene, caprolactam, and phenol are experiencing more pronounced “explosive” growth in capacity.
Over the next five years, downstream production capacity growth rate will continue to outpace upstream benzene, with key derivatives such as caprolactam and adipic acid leading the expansion. The compound annual growth rates for caprolactam and adipic acid are projected at 11.59% and 12.62%, respectively, significantly surpassing the 4.44% growth rate of benzene. Coupled with the anti-involution measures, the supply-demand imbalance for benzene is expected to intensify further, potentially forcing downstream profit margins into renewed downward pressure.
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