By Liu Huanjiang, Sinopec Tianjin Petrochemical

Supply

1. Capacity

The compound growth rate of crude benzene production capacity in China from 2018 to 2022 was 0.52%. With the proposal of the "dual carbon" policy, China's energy structure has undergone significant changes, with high energy consumption and high pollution devices gradually withdrawing. Some enterprises with incomplete procedures have been suspended. In 2021, the increase in crude benzene production capacity was relatively small, with an industry capacity growth rate of 4.91%. However, due to the impact of external economic environment and the narrowing of industry profits, some devices have been delayed in production, and the expected fulfillment of new production capacity has been poor. However, the overall industry growth rate has improved to some extent within the year.

As of the end of 2022, the total capacity of China’s crude benzene rose 4.32% to 5.8 million tons. And Figure 1 shows China’s crude benzene capacity and variations.

Figure 1 China’s crude benzene capacity and variations

2. Output

The correlation coefficient of both domestic crude benzene output and operation changes (See Figure 2) was 0.48, middle level. The operation between 2018 and 2019 stayed at a medium-high level, driving crude benzene output to climb by years, with capacity utilization exceeding 75%. And the elimination of outdated capacity increased the capacity utilization to 82.9% in 2020, thus making output month-on-month data comparison rise again. In spite of the new capacity put into production in 2021, the overall capacity impacted by high energy-consumption and pollution policies declined. In 2022, the launched new capacity drove up overall capacity, but industry prosperity and the economy at home and abroad have dramatically reduced the kick-off workload, with a slowdown in annual output growth.

Figure 2 The comparison of China’s crude benzene output and capacity utilization    between 2018 and 2022

The output of China’s crude benzene in 2022 was 4 705 400 tons, increasing 2.79% month-on-month to about 392 100 tons. From output changes, the output peak in the first half of the year emerged in May, which was mainly because of acceptable profits in coke enterprises (RMB120/ton), positive kick-off work, some increasing capacity, and the overcapacity reduction of carbonization. All of the above contributed to the big boost in the output. While the monthly output reduced in the second half of the year, especially in July, which was due to high coke cost, and weak profits in downstream steel mills, the operation of coke enterprises was at a low and middle level, leading to the slump in overall output.

3. Capacity distribution

Domestic crude benzene capacity was widely distributed in 2022, with North China occupying the most of 2 063 900 t/a accounting for 35.58% totally, followed by Northwestern area with the capacity of 1 146 100 t/a, and East China 906 400 t/a holding 15.63% totally. And the fourth one was Central and Southern area, which had a capacity of 692 900 t/a and accounts for 11.95% overall, while the Northeastern area had 450 000 t/a, accounting for 7.76%. And the last one was Southwest area having the capacity of 400 300 t/a, occupying 6.90%.

Consumption

The supply and demand of domestic crude benzene has been out of balance over the past five years, with tight supply emerging. The increasing carbonization capacity improved profits, stimulating the operation to go up with high demand growth. As some money-losing and outdated capacity was put into production again, plus capacity expansion, benzene hydrogenation demand rose. Seen from the data between 2018 and 2022 (See Table 1), the annual compound growth of domestic crude benzene and consumption were 4.14% and 5.54% respectively.

As for import, the supply of domestic crude benzene is still tight, in need of imports. Port discharge and imports were restricted in some regions due to COVID-19 in 2022. But crude benzene imports are expected to surge as enterprises favorably respond to the Belt and Road Initiative, implement “dual circulation” development paradigm, and make great contributions to the country's 14th Five-Year Plan.

The output of domestic crude benzene grew 2.79% year-on-year to 4 705 400 tons in 2022. And domestic consumption was 5 131 600 tons, growing 7.96% than the last year. Within the year, the suspended capacity of 1 000 000 tons was put into production. In spite of shrinking benzene hydrogenation profits, and output reduction affected by policies, overall crude benzene capacity went up, making the demand higher than the last year.

Regarding domestic crude benzene consumption domestically, East China occupied the most, holding 37.23% of total consumption, followed by North China with 30.74%, Central China with 13.96%, and Northwest region with 9.8%. The outsourcing in Shandong and Hebei provinces occupied a large proportion in downstream, accounting for 24% and 22.78% respectively in domestic consumption. But domestic crude benzene consumption is around main production areas.

Downstream demand forecast in next 3 to 5 years

The refining-chemical integration will promote downstream benzene hydrogenation enterprises to expand capacity during the next five years. In this period, the new equipment of 2 750 000 t/a and 400 000 t/a benzene hydrogenation will be put into production and invested to reuse respectively. Furthermore, the growing demand will likely result in a supply-demand imbalance, postponing the launch time. Based on current planning, China’s benzene hydrogenation capacity will be 9 630 000 t/a in 2027, with a compound growth of 3.52% over the following 5 years. 

Main downstream development forecast

Crude benzene consumption will be up from 2023 to 2027. The only but vital downstream market of crude benzene is benzene hydrogenation whose new equipment belonging to each area and enterprise will change regionality in the future. And China’s North, Northeast and South areas will experience more outstanding output growth. With the output increasing gradually, the consumption will surge, and crude benzene sources will also undergo regional changes. From 2025 to 2027, benzene hydrogenation, whose rapid capacity growth will lead to an imbalance between supply and demand, is anticipated to undergo capacity utilization growth with difficulty.

Domestic crude benzene market forecast between 2023 and 2027

In the next five years, international crude oil prices will go down to a relatively low range. In 2022, the crude oil price hit a record high, which was difficult to be within RMB1 000 for a long time since the geopolitical support gradually weakened or even disappeared, and it will gradually fall back below $90 in the future. In the context of high inflation and interest, many institutions estimate that global or partial recession will probably happen, and the demand will be sluggish. At the same time, the unremarkable supply shortfall caused by the Russia-Ukraine conflict, plus the sanction release of Iran in case, there will be new supply pouring into the market. Oil prices will be projected to gradually reduce under bearish pressure from 2023 to 2027, and Brent futures may vary in the mainstream range of US$70~90 / barrel.

Over the next five years, the projected increase of pure benzene supply will be more than that of demand in 2023. From 2024 to 2027, the downstream equipment will gradually be put into production, and the increase of consumption will be higher than that of supply theoretically. However, in the context of the current health incident, weak domestic demand for benzene market products, and gloomy export outlook, the main downstream styrene and caprolactam were in the internal integration, so the downstream demand of pure benzene will decrease. And pure benzene equipment belongs to refining-chemical integration products, whose launch and output are relatively stable than downstream market. Against the background of falling crude oil prices and easing supply-demand relation, the pure benzene price will be projected to drop between 2023 and 2027. And benzene hydrogenation will cause the price of crude benzene to drop, with average price lower than that in 2022, see Figure 3. 

Figure 3 Forecast of crude benzene spot price in China in the next five years