Impact of "dual controls" on benzene market

Recently, the National Development and Reform Commission, China's top economic planning body, rarely and directly pointed out that the energy consumption intensity of 9 provinces and autonomous regions increased instead of decreasing in the first half of the year compared with the same period last year. In addition, the reduction rate of energy consumption intensity of 10 provinces did not meet the progress requirements. It meant that more than half of the provinces failed to achieve the goal of controlling energy consumption and intensity in the first half of the year. The actions in various localities against the goal of controlling energy consumption and intensity, so-called "dual controls", has begun to arouse general concern in society.

Currently, SP Chemicals has closed styrene unit due to the policy; Donghao may close its styrene unit due to poor margins but the plan has not finally decided. Coupled with other benzene downstream affected by the policy, the capacities totals around 1.44 million mt/year, accounting for around 5% of total benzene demand. Other units have not been affected by the policy.

5% of the demand is just a small proportion but which has great impact on market sentiment. For supply side, coking plants were affected. So coal-based benzene supply might tighten given rising costs.

Since early July, the operating rate of coal-based benzene fell below 60% on tight benzole supply and firmer prices. Monthly output loss reached around 50kt based on 7.7 million mt/year capacity, which accounted for around 4% of China's benzene supply, slightly lower than the loss in demand. However, in the fourth quarter, there would be around 2 million mt/year capacities of downstream derivatives to come into the market with demand for benzene around 120-130kt per month. Meanwhile, benzene output loss would be around 80kt amid maintenance of two refiners in Northeast China. The supply-demand gap would expand in northern China. The tightness is also a booster for the price increase this week.