Petrochemical Giants’ Overhaul To Impact Benzene Market Conditions
Sweeping reforms in Asia’s two petrochemical powerhouses, South Korea and China, are set to reshape the global benzene market. After years of overcapacity and weak margins, both countries are cutting outdated facilities and pivoting to higher-value operations — moves that are expected to tighten benzene supply and influence global pricing, sources say.
South Korea, the world’s second-largest importer of naphtha and a major benzene exporter, has committed to an aggressive restructuring of its petrochemical industry. At the same time, China is preparing to retire old refining and petrochemical units while ramping up downstream consumption through capacity expansions in high-performance sectors such as electronics, semiconductors and renewable energy.
Together, these shifts mark a profound turning point for the benzene market. While short-term demand remains sluggish, analysts increasingly anticipate a structural tightening of supply over the coming years, with a rebound in prices likely once downstream buyers can no longer delay purchases.
South Korea’s Forced Reckoning
On Wednesday, South Korea’s Ministry of Trade, Industry and Energy announced that 10 major petrochemical firms — including LG Chem, Lotte Chemical, Hanwha TotalEnergies Petrochemical and GS Caltex — have signed an agreement to cut their naphtha-cracking capacity by 2.7 million metric tons to 3.7 million mt annually. The move is expected to remove close to 3 million mt of ethylene output, significantly reducing associated benzene production.
The deal, backed by the Ministry of Economy and Finance, represents the largest coordinated capacity reduction in South Korea’s petrochemical sector since the 1997-98 Asian Financial Crisis.
“The key to overcoming the current crisis is clear: reduce capacity, restructure and restore competitiveness,” said Finance Minister Koo Yoon-cheol. “This is not optional — this is about survival.”
Firms have been asked to submit detailed restructuring plans by the end of the year, but Koo urged quicker action, encouraging companies to make submissions as early as next month. “Delay is not an option,” he said, warning that the government will not tolerate “free riders” seeking state support without making real changes.
The Ministry of Trade also confirmed plans to restructure the country’s three major petrochemical complexes in Yeosu, Daesan and Ulsan simultaneously. Comprehensive financial, tax and regulatory support will be made available for companies undertaking genuine reforms.
Financial Strains and the End of Naphtha Dominance
The overhaul comes amid severe financial pressure. According to a Boston Consulting Group report commissioned by the Korea Chemical Industry Association, nearly half of South Korea’s petrochemical companies could fail within three years if current market conditions persist. Among the most vulnerable is Yeochun NCC, a joint venture between DL Chemical and Hanwha Solutions, which recently shuttered its No. 3 plant due to mounting debt and weak demand.
Korean firms, long dependent on imported naphtha as a primary feedstock, are facing significant cost disadvantages against Chinese producers, which benefit from cheaper raw materials sourced from Iran and Russia. Several Korean executives and analysts have indicated that the long-term survival of the sector may depend on shifting away from naphtha altogether.
“There’s growing interest in retrofitting existing crackers to use ethane, particularly from the U.S., which offers more competitive feedstock,” said a South Korea-based trader. “But that’s a multi-year investment. It won’t happen overnight.”
If realized, the transition will not only reshape South Korea’s cost structure but could also shift trade flows of U.S. ethane and condensate to Asia, with ripple effects throughout the global petrochemical chain.
China: Shutdowns, Overhauls and Surge in Downstream Demand
South Korea’s restructuring comes just as China prepares its own sweeping reforms. According to sources close to the matter, Beijing is set to phase out petrochemical and refining facilities older than 20 years, representing up to 40% of current capacity, as part of a broader policy to tackle chronic overcapacity and environmental degradation.
The country’s Ministry of Industry and Information Technology is expected to announce a new policy framework within the next month, encouraging the retirement or retrofitting of inefficient units while prioritizing investment in downstream, high-tech chemical production. Favored areas include chemicals used in semiconductors, robotics, electric vehicles, biomedical devices and renewable energy technologies.
At the same time, however, China is expanding its ethylene capacity by 40 million metric tons between 2025 and 2028, pushing total capacity close to 100 million tons. This somewhat paradoxical situation — reducing obsolete facilities while adding massive new capacity — reflects Beijing’s attempt to shift the industry from volume to value, and from commodity to specialty.
“Most of the new plants will be integrated with its downstream facilities,” said a China-based trader. “As a result, more benzene will be used within China, especially for styrene monomer, which is seeing significant expansion.”
Despite the growth, China’s benzene imports may remain elevated if domestic production lags behind downstream needs. Downstream sectors, especially SM, phenol and caprolactam, are expanding faster than upstream benzene capacity. This could keep the flow of Korean benzene supply into China — provided it survives the ongoing rationalization.
Tighter Market, But Demand Still Dormant
While the long-term picture for benzene is becoming clearer, short-term demand remains weak. Global styrenics and engineering plastics consumption has underperformed expectations for four consecutive years, and downstream buyers continue to resist spot purchases amid economic uncertainty in Europe and muted recovery in the U.S.
“Right now, everyone’s holding back, waiting for prices to drop further,” said a Singapore-based benzene trader. “But that can’t go on forever. Once inventories are low enough, they’ll have to re-enter the market and that’s when we’ll see premiums jump.”
Indeed, market participants say FOB Korea benzene prices are likely to spike when this buying pressure returns, particularly if supply from domestic crackers continues to shrink while China’s downstream consumption tightens regional availability.
One major unknown remains the role of the U.S., which has seen imports of benzene from Korea drop to zero since February. Whether the U.S. re-emerges as a consistent buyer will depend on domestic cracker economics and the health of North American styrene and caprolactam demand.
Consolidation and M&A on the Horizon
Beyond capacity closures, analysts expect a wave of mergers and asset consolidations across Asia. In South Korea, potential tie-ups are already being explored. Lotte Chemical and HD Hyundai Chemical are in talks to merge their Daesan crackers, while GS Caltex, LG Chem and Lotte Chemical are discussing integration options in Yeosu.
“Shutting down a single plant won’t move the needle much in terms of supply-demand fundamentals,” said a South Korea-based trader. “But collectively, these cuts are about survival, which is a necessary reset to help producers make it through the bottom of the cycle.”
Such tie-ups could strengthen Korea’s ability to weather ongoing Chinese competition, but they will also further shrink independent supply of benzene, contributing to a more consolidated and potentially more volatile market.
Looking Ahead: 2026 and Beyond
Industry insiders say 2025 may mark the low point in global petrochemical margins. With restructuring underway, planned production cutbacks for 2026, and no significant new benzene supply projects outside China, the stage is being set for a market rebound led by tightening supply.
However, the recovery in demand will likely lag until downstream users are forced to restock — a dynamic that could result in sharp, sporadic price spikes rather than a smooth upward trend.
“Next year may look better,” said a China-based trader. “Not because demand is suddenly strong, but because supply is going to be structurally tighter. That alone could be enough to support benzene prices.”
Until then, the benzene market remains on edge — watching as Asia’s two chemical giants tear down and rebuild the foundations of a sector that, for too long, prioritized growth at any cost.
–Reporting by Hazel Kumari, hkumari@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com