Shandong Benzene Market to Face Increasing Supply Gap
In 2022, the market price and supply and demand structure of benzene in Shandong Province have changed significantly compared with the previous years. After entering the second half of 2022, the price in Shandong was higher than that in East China for a long time, and the local supply and demand gap also expanded.
The price spread between East China and Shandong was reversed.
For the domestic benzene market, East China is the main production and marketing area and the main distribution center for imported benzene. Therefore, the price changes in East China market plays a leading role in the prices of all regions in China. And before August 2022, the prices in the East China market were basically at the highest prices in the country. Since all sources of goods flow into East China, the price difference between Shandong and East China is generally around RMB 200/mt as the basic north-south arbitrage line. However, we can see from the figure below that since August 2022, the price in Shandong has exceeded the mainstream price in the East China market for a long time, or is roughly flat. According to the data monitoring of SCI, in 2021, the price of benzene in East China was RMB 135/mt higher than that in Shandong. Fromm January to end-July 2022, the price spread reached RMB 227/mt, while from August to now, the average price spread between Shandong and East China reached RMB – 90/mt.
In 2022, benzene and downstream industries had capacity expansion to different degrees, and the market showed new characteristics. The demand expansion in the north was obvious, but the capacity growth of the feedstock benzene was insufficient, and the market supply gap continued to increase.
2022 Shandong Benzene and Downstream Newly Added Capacity
2023 Shandong Downstream Newly Added Capacity
According to the downstream industry planning, in 2023, there are still many sets of large styrene and CPL units planned to be put into operation in Shandong Province. After all of them are put into operation, it is estimated that the annual consumption of benzene will increase by 2.08 million mt. From the perspective of supply, only 300kt/a of benzene capacity was put into operation in the fourth quarter of 2022, while in 2023-2024, there are no new benzene units planned to be released in Shandong Province. As a result, the market supply gap will continue to expand, which will form a sustained support for the benzene price in the north.
The proportion of downstream demand for benzene has changed significantly in recent years.
East China is the major benzene consumption area in China. In 2019, the proportion of benzene consumption volume in East China inched down, as the commissioning date of some styrene units was delayed. In 2020, the proportion in East China rose to 44.03% again, in the wake of successive start-ups of some downstream units. From 2021 to 2022, the continuous production of benzene downstream units in North China, especially in Shandong province, has squeezed the consumption proportion of East China. In 2022, the proportion in East China hovered at around 37.09%. In recent two years, there were also newly added units in South China. In the future, downstream units will continue to be put into production in these major consumption areas. By virtue of large market size, East China will remain as the major benzene-consuming area in China.
Supply and demand of benzene in 2022
According to the monitoring data of SCI, from January to November 2022, the monthly average supply gap of benzene in Shandong was about 110kt, and the monthly consumption was about 350kt, with a self-sufficiency rate of about 68.6%. Nearly 30% of the demand was replenished from Northeast, Northwest, Henan, Hebei and other places. In part of the first half of 2022, due to the shortage of goods in the East China Reservoir Area and the high price, some of Shandong's goods flowed into East China for supplement. The local supply gap in Shandong is expected to continue to expand next year. In addition to the original supply of fixed areas, more and more benzene in East China will gradually flow into Shandong.
In 2022, the supply and demand and price of Shandong benzene market will enter a significant transition stage. In the face of continuous expansion of downstream capacity in the later stage, Shandong may become the second "East China" and another mainstream market that dominates the trend of the domestic benzene market. As the supply gap continues to increase, it will also attract more benzene from other regions to flow into Shandong for supplement.
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