APPEC: Evolving trade dynamics in Asian benzene markets, analyst says

Benzene to naphtha spread is expected to return to a healthy range in the long term, as long-term trend irons out short-term disruptions, said Kate Lee, associate director of aromatics, at S&P Global Energy, during APPEC 2025.

"As long as the US inventory is low, the arbitrage will open back up again," Lee said, as she added that new capacities in Southeast Asia might be a major benzene exporter after planned capacities addition, challenging Northeast Asia export volumes, speaking at APPEC 2025 in Singapore on Sept. 9.

Lee also addressed the drastic price decline early in the year, noting that benzene has been a standout product in the chemical chain since 2022, as the annual average benzene to naphtha spread exceeded $300/metric ton. However, this spread has now fallen to around $150/mt. "This significant decline raises important questions about the future of the benzene market," Lee said.

The benzene to naphtha spread reached dramatically wider levels, exceeding $500/mt at a point in time. Lee cited strong demand for gasoline as a key driver for the phenomenon. "Gasoline margins in the US hit historic highs, influencing benzene demand," she said, highlighting that benzene derivatives such as ethyl benzene and cumene were used as gasoline blend stock in 2022 and 2023. This spread was about $400/mt in the first quarter of 2025, but dipped sharply to about $150/mt in the second quarter due to low exports to the US.

Looking ahead, the forecast for the benzene-naphtha spread is between $160-$250/mt until the end of 2026. "This is deemed a reasonable range, but it indicates ongoing volatility," Lee said, as she expects the arbitrage between South Korea and the US to remain largely shut for the rest of the year.

"The gasoline crunch that pushed the benzene spread so high in recent years would likely not be the new structure in the future, as benzene and its derivatives will return to being driven by chemicals demand," Lee added.

Shifting trade dynamics

Northeast Asia has traditionally been the world's largest benzene exporter. However, in recent developments, the market has witnessed capacity rationalization among producers, with more cracker closures anticipated, especially in South Korea and Japan.

Lee indicated that "China has been and will be driving most of the capacity growth until 2030," amid a projected annual demand increase of nearly 3% over the next decade, while capacity growth is expected to be only 1.8%. "This discrepancy will support the benzene-naphtha spread somewhat."

The current tariff on benzene imports from Europe and South Korea is set at a minimum of 15%. "This has created hurdles for South Korean benzene entering the US market," Lee said.

The analyst pointed out that South Korean benzene exports are projected to be around the same level as in previous years amid closed US-Asia arbitrage, as China absorbed additional volume spared from US imports.

According to US export data, the inflow of "off-specification" HS code 27-grade benzene has significantly increased, with 93,000 mt imported in the first half of 2025. This volume was projected to be significantly higher in the full year compared to the average import volume of 100,000 mt annually, typically accounting for around 6% of total US benzene imports.

"While it is possible the US imports such feedstock to process into benzene to help with low imports, it will still need to import a large amount of HS code 29-grade benzene to meet its demand, as the US usually imports 1.2 million mt annually," Lee said, adding that it is likely not possible for HS code 27-grade benzene to sufficiently replace US need for HS code 29-grade benzene.

Looking at South Asia, particularly India, Lee said, "Despite impressive demand growth forecasts of 11%, India will remain a net exporter of benzene."

The analyst concluded that the benzene market is experiencing significant changes. While the naphtha spread has narrowed, the long-term outlook remains cautiously optimistic. The interplay between capacity growth, trade dynamics, and tariff impacts will shape the future of benzene and its derivatives.

"As we move forward, monitoring these trends will be crucial for stakeholders in the benzene market," Lee said.