January kicked off with a major move in the chemical market—benzene prices staged a strong rebound from their lows. Both futures and spot prices climbed in tandem, unleashing a “striking rally” that set new records for both frequency and magnitude of price adjustments in recent times.

As the industry bellwether, Sinopec's pricing moves drew the most attention. Industry statistics show that between January 12 and January 30, Sinopec raised its listed benzene prices seven times: by CNY 100/ton, CNY 100/ton, CNY 100/ton, CNY 150/ton, CNY 150/ton, CNY 100/ton, and CNY 150/ton respectively, totaling an 850 CNY/ton increase.

By January 30, Sinopec's listed benzene price had reached 6,150 RMB/ton, representing a total increase of 16.04%. At the close of January 30, the main benzene futures contract settled at 6,237 RMB/ton, maintaining a high-range level after earlier hitting a stage high of 6,434 RMB/ton.

Why did benzene prices experience an explosive surge in January?

The direct drivers of this round of increases were, first, the strong momentum from styrene in the same industrial chain, and second, the rebound in oil prices at the cost end. As styrene prices climbed, benzene, being an upstream feedstock, followed suit. Concurrently, geopolitical tensions drove international crude oil prices upward amid volatility, while naphtha prices also rose. As a byproduct of reforming and cracking processes, benzene faced rising cost pressures, further fueling bullish sentiment and pushing prices higher.

In January, a significant increase in styrene exports, coupled with multiple plant malfunctions and lower-than-expected inventory accumulation, drove styrene futures prices higher, subsequently pulling benzene prices upward. Subsequently, geopolitical tensions emerged as the primary bullish factor. Crude oil prices fluctuated upward, strengthening cost support for benzene. Coupled with month-end short covering and suppliers' reluctance to sell at lower prices, this further propelled the market higher.

Simultaneously, anticipating further price hikes, downstream factories initiated pre-Spring Festival restocking for essential needs. Particularly in the styrene sector, driven by widening benzene-styrene spreads, significant benzene purchases locked in processing margins. Traders actively followed suit, causing trading activity to surge and amplifying benzene's price rally.

The sustained benzene price surge did not benefit the entire industry chain equally, instead revealing a pronounced divergence—downstream products with differing fundamental strengths faced starkly contrasting development scenarios.

Styrene and aniline, benefiting from tight supply-demand balances, saw price increases exceeding those of benzene. Their January cash flow improved significantly, making them relatively resilient to price shocks. Styrene currently enjoys robust margins, with even rising benzene prices having limited impact.

Conversely, weaker downstream segments face mounting pressure. Products like caprolactam and phenol have passively followed price increases driven by cost pressures, but weak terminal demand has hampered price pass-through, squeezing industry profits. Similarly, styrene downstream products such as ABS, PS, and EPS face limited price pass-through as terminal demand enters the off-season, leading to comparable profit compression.

For already loss-making downstream sectors like caprolactam, sustained benzene price hikes may further suppress operating rates or even trigger reductions, exacerbating industry difficulties.

From the perspective of end-user demand, absorption capacity varies across sectors. For niche products like coatings and solvents, where benzene accounts for a high proportion of costs, price increases are more significant. With weak bargaining power among end customers, cost pass-through remains relatively smooth. However, in mainstream end-use sectors like textiles, home appliances, and automobiles, demand has yet to show significant recovery. Downstream factories are increasingly resistant to high benzene prices, shifting their procurement strategy from earlier “proactive restocking” to “on-demand purchasing.” Some factories have even reduced plant operating rates to mitigate risks from high raw material costs. Concurrently, market sentiment has diverged: upstream refiners hold firm to bullish expectations and withhold sales, midstream traders hoard inventory awaiting further gains, while downstream factories adopt a cautious wait-and-see approach. This divergence has further amplified price volatility.

Can this wave of benzene price increases persist? Interviewed analysts express caution, generally agreeing that near-term upside is limited with adjustment risks present. Long-term outlook hinges on downstream recovery and evolving supply-demand dynamics.

With the Spring Festival approaching, terminal demand enters the traditional annual off-season, creating negative feedback for the upstream supply chain and weighing on benzene prices. In fact, this round of increases is largely driven by low valuations combined with cost pressures and styrene-led gains, rather than any significant improvement in benzene's own supply-demand dynamics. Current port inventories remain elevated, limiting further price gains. A correction cannot be ruled out once market sentiment cools. Post-holiday focus should center on downstream and end-user resumption of operations and inventory replenishment. Once the chemical industry enters its maintenance season, benzene may see structural price movements.

The key variable lies in styrene demand. Whether the market trend can persist hinges on the recovery of styrene end-user demand after the holiday: If end-user demand improves, driving increased styrene demand from the ABS, PS, and EPS industries, benzene prices may continue to rise; conversely, benzene prices are likely to decline.

Current cooling weather and insufficient downstream orders continue to weigh on the market. However, pre-holiday restocking driven by essential demand, coupled with persistent expectations of severe weather in Europe and the US, may allow benzene prices to rise slightly in February. It should be noted, though, that unresolved issues of weak terminal consumption and sluggish orders continue to dampen market sentiment. Should post-holiday resumption fall short of expectations, benzene prices will likely retreat from current highs.

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