Asia’s Benzene Margins Narrow as Trade Routes Shift, Demand Falters
Asian benzene producers are grappling with shrinking margins as the benzene-to-naphtha spread sank to $130 per metric ton on June 20, well below the breakeven threshold of $150/mt, according to OPIS data. The last time the spread was this low was in early May, and producers have struggled to remain profitable amid persistent global oversupply and weak downstream demand.
The spread first dipped below breakeven in late April, flipping production economics into negative territory. Although there was a brief recovery in mid-May, it proved short-lived. By the end of May, margins were once again underwater, forcing producers to trim output and reevaluate production strategies.
Tariffs and Temporary Rallies
Escalating U.S.–China trade tensions in April added a bearish twist, when Washington’s announcement of new tariffs on Chinese goods — including petrochemicals — triggered a market rout. Asia’s benzene prices tumbled nearly 20% over the month, dragging FOB Korea benchmarks from $834/mt on April 1 to $674/mt by April 30. The benzene-naphtha spread fell to $113/mt in late April — the lowest since December 2022, according to OPIS data.
The market rebounded briefly after Beijing and Washington announced a 90-day tariff truce on May 12. Coupled with heavy maintenance in the refinery and aromatics sectors, the spread surged to $173/mt by mid-May. Chinese traders, sensing a bottom, rushed to restock, lifting spot prices by over 10%.
“May was a classic V-shape recovery,” said a Singapore-based trader. “But without structural demand, it didn’t last.”
Although trade tensions between China and the U.S. have eased, benzene traders remain cautious. They are wary of potential sudden changes, especially given Trump’s unpredictable approach to policy. Previously, tariffs were implemented without warning, leaving little time for planning or response.
Geopolitical developments briefly offered a bullish catalyst in mid-June, as tensions in the Middle East — particularly involving Iran — lifted oil prices. This lent some support to aromatics, prompting short-covering and speculative buying in China’s domestic benzene market.
East China spot prices firmed slightly, and sentiment turned cautiously optimistic. However, ample inventory and steady production quickly capped gains, and the uplift proved short-lived. Crude prices settled back, and so did benzene.
In first-half June, naphtha prices rose more sharply than benzene, narrowing the spread to an average of $144–148/mt. It briefly broke even at $155/mt on June 11 before slipping back into negative territory.
“The conflict in the Middle East was more psychological than structural,” added the Singapore-based trader. “Without real supply disruption or demand strength, any rally was bound to fade just as quickly.”
On-Purpose Production Pullback
While much of Asia’s benzene output is a byproduct of naphtha cracking and refinery reforming, making large-scale shutdowns impractical, some discretionary production has been dialed back. In South Korea, several on-purpose benzene units such as toluene disproportionation or TDP and selective TDP plants have been kept idle or operating at reduced rates as spreads for benzene and mixed xylenes turned negative.
“Some Japanese and Korean refiners have cut reformer throughput or delayed restarts of aromatics units, resulting in lowered supply, but not enough to boost benzene prices,” said a South Korea-based trader.
Refiners have also adjusted their feedstock slates in favor of toluene production for gasoline blending over benzene, especially as blending economics improved in recent weeks. This mirrors a pattern seen in the U.S., where previously mothballed STDP units were reactivated due to lucrative gasoline blending margins in late 2024 as gasoline demand softened. These U.S. units helped push benzene supply higher before being curtailed again in early 2025 amid renewed price weakness.
Market participants note that while integrated refinery-aromatics complexes cannot fully halt benzene output, many have cut reformer throughput or delayed restarts to limit supply and cost pressure. But despite these efforts, the regional market remains heavy with cargoes.
“Margins have been underwater for weeks,” said a Singapore-based trader. “Even with supply discipline, it hasn’t been enough to lift prices meaningfully.”
U.S. Demand Shrinks
One of the key structural blows to Asia’s benzene market has been the prolonged closure of the U.S. arbitrage window. The U.S., traditionally a major importer of South Korean benzene, has significantly scaled back its imports since February, with domestic production climbing and consumption stagnating.
The restart of STDP units and a sluggish downstream sector — particularly in styrene monomer or SM — has added to oversupply. In a rare move, U.S. refiners were even blending benzene into gasoline earlier this year via intermediates such as cumene and ethylbenzene, as OPIS previously reported, underscoring just how weak demand from traditional outlets had become.
With U.S. benzene pricing consistently below Asian levels for most of the first and second quarters, coupled with import tariffs on Northeast Asian cargoes, exporters have been forced to redirect cargoes to other regional destinations.
“The loss of the U.S. as a core export outlet has upended regional trade flows,” said a South Korea trader. “Surplus volumes are backing up in Asia, with sellers vying to sell into China.”
Europe Exports to Asia
Adding to the pressure is the emergence of Europe as a significant benzene exporter. Western European prices have trailed global benchmarks amid a wave of planned and unplanned SM plant outages, as well as broader derivative downtime. This has freed up benzene for export, with traders seizing the opportunity to ship volumes to the U.S. Gulf Coast earlier in 2025.
By April, however, even Europe-to-U.S. flows had become less attractive due to new U.S. tariffs on European Union chemicals, prompting traders to reroute barrels to Asia. At least 60,000 mt of European benzene was booked for shipment to China in late April, marking a rare long-haul arbitrage.
“When the European cargo was offered in April, it seemed unworkable due to price gaps,” noted a trader in China. “But a price spike in Asia flipped the math.”
The confluence of factors — U.S. arbitrage shut, Europe exporting and Asia absorbing — has led to a reshuffling of global benzene flows, with the net effect of amplifying surplus in the Asian market.
Downstream Weakness Caps Gains
The rally quickly lost steam as downstream demand remained tepid. Dozens of SM units in China and Northeast Asia were offline in Q2 for maintenance, while large facilities at Hengli Petrochemical, BASF-YPC, PetroChina Jinxi and others either extended their outages or delayed restarts, leaving benzene demand capped.
With some of these units restarting in late May and early June, operating rates and consumption picked up but spot prices were unable to improve amid a flood of additional benzene cargoes — including those from Europe — arriving in Asia. By June 6, FOB Korea benzene had retreated to $701/mt, hitting a three-week low, with the benzene-naphtha spread below breakeven at $140/mt.
Benzene Market at Crossroads
As Q3 approaches, Asia’s benzene market remains caught in a boom-bust cycle. Margins are squeezed, demand remains inconsistent and supply continues to flow — even from unlikely sources like Europe, according to market participants.
Some relief may come if SM and other benzene derivative plants ramp up in July, especially with expectations of stronger seasonal demand from the construction and packaging sectors. But without a material recovery in demand or more aggressive production curtailments, the benzene-naphtha spread is likely to stay under pressure.
“Unless something gives — be it a demand rebound or supply reduction — producers are looking at another quarter of trading below cost,” said the Singapore-based trader.
–Reporting by Hazel Kumari, hkumari@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com