By Liu Li, Sublime China Information

From profit to loss, the crude benzene hydrogenation is waiting for a boom

In 2020, the crude benzene hydrogenation industry has experienced problems like historical low prices, oversupply, and losses. Supported by national internal economic cycle policy, the profitability of the industry gradually recovered in the fourth quarter, turning losses into profits. Chart 1 shows the gross profit of crude benzene hydrogenation in Shandong from 2017 to 2020. Petroleum based benzene refineries raised prices 12 times by RMB1 300/t totally in the fourth quarter. Both the crude benzene and hydrogenated benzene markets showed a volatile upward trend. Table 1 shows the profit analysis of crude benzene hydrogenation industry from 2017 to 2020.

Chart 1 Gross profit of crude benzene hydrogenation in Shandong, 2017 - 2020

Compared with 2019, the profitability of crude benzene hydrogenation industry in 2020 was relatively poor; downstream caprolactam continued sluggish in demand and operation; the average annual profit of styrene dropped by 96.22% year-on-year. As for upstream coking plants, due to factors such as the elimination of outdated capacities and environmental protection, the overall supply was tight and the market was going upward, with optimistic profits. The phenol industry had huge profits due to the co-production of phenol and acetone. For the whole year, the profitability of non-integrated projects remained weak. Table 2 is the profits of the crude benzene hydrogenation industry chain in 2020.

Crude benzene hydrogenation seeks new development momentum

Chart 2 shows the operating rates of the crude benzene and hydrogenated benzene industries from 2019 to 2020. In 2020, the outputs of crude benzene and hydrogenated benzene both decreased. The policy of overcapacity reduction continued to advance. The annual coke capacity declined significantly. Coking companies had better profitability throughout the year, with stable operations and restricted production. The output of hydrogenated benzene’s raw material crude benzene, as by-product of coking plants, was basically flat with 2019, totaling 4.7116 million tons in 2020.

In the first half of 2020, due to the Covid-19 epidemic, the utilization of the hydrogenated benzene industry dropped rapidly, down to 36% in early February, a historical low. The output of hydrogenated benzene significantly shrank in the first half of the year, leading to a sharp drop in the consumption of crude benzene. With the profit support, the coking plant did not experience decrease in operating rates in the first half of the year, so the crude benzene supply turned from tight to excess. In the second half of 2020, some units in Hebei, the main production area, resumed production, and the operating rates of the hydrogenated benzene industry gradually returned to a relatively high level. The supply of crude benzene showed a slight surplus. In 2020, the national output of hydrogenated benzene was 3.31 million tons, a year-on-year decrease of 3.55%.

The supply of hydrogenated benzene declined in 2020, but the petroleum benzene production was stable. In 2020, the petroleum benzene output increased by nearly 15% year-on-year to 12.72 million tons, and imports also rose by more than 8% compared with 2019. In terms of downstream consumption, due to the improved profitability of phenol, aniline and maleic anhydride in the second half of the year, the consumption of benzene reached 17.52 million tons, a year-on-year increase of nearly 8%.

Crude benzene/hydrogenated benzene prices hit record lows, and the market is expected to recover

At the beginning of 2020, supported by the booming crude oil, China’s benzene market, including petroleum benzene and hydrogenated benzene, reached a new high, and Shandong hydrogenated benzene market once roared to RMB5 650 /t. Chart 3 shows the prices of crude benzene and hydrogenated benzene in Shandong from 2019 to 2020. Then, under the impact of the epidemic, the crude oil plummeted, and the domestic and import benzene markets declined. The main refineries reduced benzene prices for 11 consecutive times from February to early April, down by RMB3 650 /t to RMB2 300 /t, a decrease of 61.34%. The market prices of crude benzene and hydrogenated benzene also hit historical lows. In Shandong, crude benzene prices fell to less than RMB1 900 /t in early April 2020, and hydrogenated benzene fell to RMB2 300 /t.

With the subsequent production curtailment and easy monetary policies, as well as the control of the epidemic, the domestic hydrogenated benzene market began to rebound in early April 2020. However, under the pressure of continued oversupply of benzene, the market rebound was limited. From mid-April to mid-October 2020, the price of crude benzene in Shandong remained at RMB2 150-3 100 /t, and the price of hydrogenated benzene at RMB2 800-3 700 /t.

Chart 2 Operating rates of crude benzene and hydrogenated benzene, 2019-2020

In the fourth quarter, in the context of better downstream profitability, the benzene market started to go upward, and the price of hydrogenated benzene has gradually increased. By mid-to-early December, Shandong hydrogenated benzene once increased to RMB4 400 /t. The crude benzene market did not have enough room to push up. The fourth quarter high appeared in mid-to-early December, with Shandong crude benzene rising to RMB3 280 /t.

New downstream capacities bring a promising future to crude benzene hydrogenation industry

From the perspective of supply, with the continuous improvement of industry access standards, as well as the advancement of supply-side reforms and normalization of environmental protection, the overcapacity situation in the coking industry will be gradually alleviated. In 2021, the output of crude benzene, as a by-product of the coking plant is expected to increase. The production growths of crude benzene and hydrogenated benzene are expected to be 5%. On the back of the expectation concentrated starting up of new styrene and caprolactam capacities, as well as the improvement of the profitability of the benzene hydrogenation industry, the production stability of the domestic benzene hydrogenation industry will enhance in 2021.

In terms of prices, the domestic crude benzene and hydrogenated benzene markets are expected to increase in 2021. However, in the absence of a fundamental improvement in the macroeconomic situation, it would be hard to reach a high level.  

Chart 3 The prices of crude benzene and hydrogenated benzene in Shandong, 2019-2020