1. Phenol Prices Surge as Supply Tightens

China's phenol market has experienced a significant price increase amid declining industry operating rates and tightening supply in some regions.

For approximately two months, phenol prices have remained below benzene prices, putting sustained financial pressure on phenol-acetone producers. Continued losses have prompted manufacturers to adjust production schedules, resulting in a decline in the industry's operating rate to around 72%, more than 10 percentage points lower than at the beginning of October.

Last weekend, supply tightening at Shandong-based factories triggered a new round of price increases. At the beginning of this week, phenol prices rose significantly across several regional markets, with major producers generally increasing their quotations.

However, regional price differences between northern and southern China have persisted, and market participants remain cautious. Although rising prices have encouraged some buyers to replenish their inventories, downstream consumers are becoming increasingly reluctant to purchase at elevated price levels.

Going forward, the market will depend largely on production costs, supply conditions, and the ability of downstream industries to absorb higher prices.

2. Production Cuts and Plant Shutdowns Support Market Prices

Persistent losses in the phenol-acetone industry have become a key factor behind the recent decline in operating rates and the subsequent recovery in phenol prices.

As of late October, 10 phenol-acetone plants in China had undergone shutdowns during the month. Yangzhou Shiyou and Zhejiang Petrochemical also reduced their monthly phenol contract volumes to varying degrees. Plant shutdowns and production cuts became more concentrated in the second half of October, while restart schedules for some facilities remained uncertain.

As a result, the overall operating rate of the domestic phenol-acetone industry gradually declined to approximately 72%.

The reduction in production reflects the prolonged pressure on manufacturers' profitability. With losses continuing to weigh on the industry, production adjustments have helped ease supply pressure and provided support for phenol prices.

Market participants should closely monitor the restart schedules of idled plants, as any recovery in operating rates could influence the supply-demand balance.

3. Phenol-Acetone Losses Ease, but the Price Inversion with Benzene Persists

Since late August, phenol prices have remained below benzene prices, with the price inversion exceeding RMB 2,000/MT at certain points and frequently hovering around RMB 1,000/MT.

This prolonged inversion has significantly affected the profitability of phenol-acetone producers. With no major planned maintenance initially scheduled for October, mounting losses contributed to several unplanned shutdowns and production cuts.

As of the latest market assessment, the estimated loss for phenol-acetone petrochemical producers had narrowed to approximately RMB 960/MT, while the price inversion between phenol and benzene had eased to around RMB 800–900/MT.

Although profitability has improved slightly, the industry remains under considerable financial pressure. The limited recovery in margins suggests that manufacturers may continue to adjust production if market conditions fail to improve substantially.

Therefore, the relationship between phenol and benzene prices remains an important indicator for assessing production economics and future supply trends.

4. Key Factors Shaping the Phenol Market Outlook

Cost: Benzene Price Movements Remain Important

The phenol-benzene price inversion has persisted for approximately two months, strengthening the market's sensitivity to fluctuations in benzene prices.

Changes in upstream benzene prices can influence production costs, market sentiment, and phenol pricing expectations. Market participants should therefore closely monitor benzene price movements and their impact on phenol producers' margins.

Supply: Operating Rates May Remain Below 80%

The domestic phenol-acetone industry's operating rate has declined significantly amid continued losses and plant shutdowns.

Given the current profitability challenges, the overall operating rate is expected to remain below 80% by the end of October, provided that no substantial number of facilities resume production. The actual supply outlook will depend on the restart schedules of currently idled plants and any further production adjustments.

Demand: Downstream Buyers Remain Cautious

The rapid increase in phenol prices has made downstream manufacturers more cautious about purchasing at high levels.

While some buyers may replenish inventories in response to concerns about further price increases, sustained upward momentum will require stronger acceptance of higher prices by end-users. The ability of downstream industries to pass on increased raw material costs will be crucial to determining whether the current rally can continue.

Contract Pricing: November Pricing Cycle Supports a Firm Market

The October contract pricing cycle has concluded, and the remaining contract volumes toward the end of the month are expected to be relatively limited. This may reduce shipment pressure on suppliers.

Meanwhile, phenol prices have started the November pricing cycle at elevated levels, encouraging suppliers to adopt a more cautious approach to sales and pricing. The interaction between contract pricing, spot availability, and downstream purchasing activity will remain an important factor in the coming weeks.

5. Short-Term Outlook: Phenol Prices May Continue to Rise Cautiously

Overall, China's phenol market is expected to maintain a cautiously firm upward trend in the short term, supported by lower operating rates, tight regional supply, and ongoing profitability pressure on phenol-acetone producers.

Phenol prices may test or exceed RMB 10,000/MT. However, the sustainability of further increases will depend on downstream buyers' acceptance of higher prices, actual transaction volumes, changes in benzene prices, and the pace of plant restarts.

If downstream demand fails to keep pace with rising quotations, the market could face increased resistance at elevated price levels.

Market participants are advised to monitor supply developments, cost fluctuations, and downstream purchasing behavior closely while maintaining a cautious approach to procurement and sales.