China Benzene Prices Anticipated to Slide after Rising in Q2
In the first quarter of 2023, China’s benzene prices showed an ascending trend, but most downstream products were in long-term losses, which restrained the rise in benzene prices. In the second quarter, the demand for Asian benzene and aromatics resources will taper down in Europe and the U.S., leading to a weakening of the Asian benzene market. Moreover, China’s domestic demand will rise first and then decline. Therefore, SCI predicts that benzene prices will trend lower in the second quarter of 2023.
In the first quarter of 2023, the average price of benzene in East China was RMB 7,042/mt, with an increase of 0.83% compared to the last quarter of 2022. During the cycle, benzene prices showed a broad upward trend. The main influencing factors are as follows. 1. The wide fluctuation of international crude oil prices provided directional guidance for the domestic benzene market. 2. The strong demand in Europe and the U.S. provided positive support for the Asian benzene market. 3. The production progress of new benzene units was not as expected, and there were not many unplanned unit shutdowns or load reductions despite losses in the downstream market, so the overall supply of benzene remained tight.
1. Benzene profits improved overall.
From the perspective of refineries’ profits, in the first quarter of 2023, the profit of oil-based benzene was low at first and then moved up. According to data from SCI, the average profit of oil-based benzene in the first quarter was RMB -493/mt, a decrease of 144% compared to the last quarter of 2022.
The profit of coal-based benzene improved due to slipping cost, as the decline in the crude benzene price was larger than that in coal-based benzene prices. according to SCI, taking the Shandong market as an example, the average gross profit of coal-based benzene read RMB 329/mt in the first quarter of 2023, a quarter-on-quarter increase of 39.41% and a year-on-year increase of 103.09%.
2. Supply growth had little impact on the price.
The total output of China’s oil-based benzene in the first quarter was approximately 4,466kt, an increase of 9.8% compared to the fourth quarter of 2022. In terms of imports, China imported 910.2kt of oil-based benzene in total, a decrease of 13.4% compared to the fourth quarter of 2022. In the first quarter, the total output of coal-based benzene reached 972.18kt, an increase of 13.73% compared to the previous quarter and 11.74% year-on-year. The total supply of benzene in the first quarter was 6,342.4kt, up 5.17% compared to the fourth quarter of 2022.
In the first quarter, Shenghong Refining & Chemical raised operating rates by degrees, and PetroChina Guangdong Petrochemical produced oil-based benzene, contributing to the output increment. From the perspective of imports, with the boost of the oil blending demand in Europe and the U.S., Asian benzene resources were delivered to the U.S. for arbitrage, which resulted in a decline in China’s benzene imports.
3. Demand growth favored the market.
In the first quarter of 2023, the domestic demand for benzene (including both coal-based benzene and oil-based benzene) increased by about 5% from the previous quarter. The growth of downstream consumption in the first quarter was mainly driven by phenol and CPL industries. However, the consumption in the largest downstream styrene industry was dragged down by long-term losses, with a decrease of 1.77% compared to the fourth quarter of 2022. In the second quarter, with the addition of the 500kt/a of styrene unit at Zibo Junchen New Material, China’s domestic consumption of benzene is expected to continue to maintain a growth trend.
4. Downstream profit loss hindered the rise in benzene prices.
From the comparative changes in the profits of benzene downstream products, most downstream products of benzene were still in a loss state in the first quarter. The main downstream product styrene has been on the brink of profit or loss for more than a year, while the phenol and acetone industry has experienced a shift in gross profit from positive to negative in the first quarter of this year due to industry capacity expansion. Among the many downstream industries of benzene, the aniline industry performed the most prominently.
Q2 forecast
Looking forward to the second quarter of 2023, it is expected that the benzene price may soften after a rise.
Cost: The crude oil market is projected to remain volatile under the macro pressure and support from fundamentals.
On the macro level, the banking crisis in Europe and America has exacerbated market concerns, but the Federal Reserve may raise interest rates again in May or June and then maintain high interest rates. Against the backdrop of financial systemic risks, the global outlook for economic and energy demand is facing significant challenges, and commodity markets such as crude oil remain under pressure.
On the demand side, the weak global economy has made the outlook for energy demand worrisome. However, the increase in demand in Asia, especially in China, is positive for the oil market, and the peak season for oil consumption in the U.S. also provides positive support. On the supply side, the release of 26 million barrels of strategic reserve oil from April to June in the U.S. remains bearish for the crude oil market. However, the recent remarks by the Energy Secretary on the storage plan have once again attracted market attention, and it is not ruled out that the storage plan may boost market sentiment. On the OPEC+ side, the production reduction policy of 3.66 million barrels per day continues to be positive. Although the actual production reduction needs further consideration, the OPEC+ production reduction as a hedge against demand reduction will continue to provide bottom support for the oil market below.
Overall, with macroeconomic pressure and mixed fundamentals, the volatility of the international crude oil market may continue in the second quarter, and crude oil prices may remain within the range of $70-90/bbl.
Supply & demand: Benzene supply may shrink in Q2 and downstream demand may grow steadily.
Oil-based benzene market will see intensive unit maintenance from April to May. According to the maintenance plans of existing units, it is expected that the oil-based benzene output will decline by 220kt or so in Q2. The new units at Ningbo Daxie Petrochemical and PetroChina Guangdong Petrochemical may uplift operating rates by degrees, with an addition of 50-70kt of benzene output. Therefore, the total output of oil-based benzene may drop by 150kt from Q1.
From the perspective of imports, the arbitrage window between China and Foreign countries will remain closed from April to June, so the overall import volume will stay at a low level. SCI reckons that the imports of benzene will be around 720kt in Q2, down by 190kt from Q1.
In terms of demand, the styrene output is predicted to hit the peak in May and then inch down in June. The total output of styrene is estimated at 3,938kt, an increase of 426kt compared to that in Q1. Moreover, the output of CPL may also increase by 60-80kt.
As for the new units, there will be a total of 800kt/a of styrene capacity, 300kt/a of CPL capacity, 300kt/a of Adipic acid capacity coming on line in the downstream market. At the same time, around 860kt/a of benzene capacity is anticipated to be put into operation at the end of Q2, 2023.
Overall, the supply and demand structure may remain tight in Q2, which still has some support for current prices. But with the weakening demand for oil blending in Europe and the U.S., benzene prices will decline.
All information provided by SCI is for reference only, which shall not be reproduced without permission.
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