Benzene supply-demand structure gradually improves

East China benzene price receded since early July to around 7,400-7,550yuan/mt, down around 1,300yuan/mt from its previous high of around 8,700-8,800yuan/mt. Output from new plant was less than expected. Meanwhile, ethylene-naphtha spread decreased apparently in Northeast Asia, some producers may lower operating rate. The overall supply-demand condition is gradually improving.

A refiner in East China shut one CDU due to crude oil shortage and lower refined oil export quota. Operating rate of two running CDUs is around 90% and of three reformers around 60-70%. Some refiners in China may also face the similar situation like this one. Meanwhile, further increase in coal-based benzene units might be limited this year.

In addition, some plants in Northeast Asia have lowered operating rate due to narrowing ethylene-naphtha spread or planned to lower output. Overall operating rate of aromatics plants in Japan and South Korea was heard have dropped by around 5-15%.

China and USGC markets are the two major consumers of Korean benzene. Currently, FOB USGC-Korea spread widened, raising the possibility for the arbitrage between the two regions. Therefore, South Korea's benzene exports to China might decrease a bit with more arbitrage to USGC market.

With the price fall of benzene, cash flows of downstream derivatives improved gradually. The COVID-19 situation has not been fully contained, but the impact will gradually weaken on high-standard control measures.

Market sentiment gradually improved on better fundamentals and cash flows in downstream. Some market participants showed intentions to buy at low level. However, in short term, the market will be still affected by the COVID19 situation and oil prices.