Since the beginning of September, the domestic phenol market has experienced frequent fluctuations. Overall, price increases have struggled to gain follow-through, rallies have been short-lived, and downward pressure has gradually emerged. Strong cost-side support, however, has limited the extent of the decline.

At the beginning of the month, sharp increases in the prices of phenol's two key feedstocks provided strong support for phenol prices. However, weak downstream demand prevented these higher costs from being fully passed through to the market. As a result, phenol traded below pure benzene, while acetone, its major co-product, briefly moved above phenol.

At present, downstream plants have slowed their purchasing activity, with limited interest even in essential replenishment. This has weakened market confidence and encouraged a wait-and-see approach among industry participants. As prices decline, downstream buyers have become even more cautious, creating a negative feedback loop and keeping the overall market outlook weak.

I. Weak Downstream Demand Keeps Phenol Below Pure Benzene

Since August 21, phenol prices in East China have consistently remained below pure benzene prices. This price inversion has persisted for nearly half a month, with the spread fluctuating between RMB 25 and RMB 765/tonne.

High feedstock costs have made it increasingly difficult for phenol producers to pass through further increases once prices move above RMB 9,000/tonne. At the same time, downstream companies remain reluctant to accept higher prices, limiting the market's ability to absorb rising production costs.

Geopolitical tensions have pushed crude oil prices higher and disrupted expectations for a steady recovery in domestic supply. Against this backdrop, pure benzene prices surged above their Q2 highs, supported by restocking demand amid relatively low inventories.

Although stronger pure benzene prices have provided intermittent support to the phenol market, the effect has been limited. Downstream buyers have remained cautious about purchasing at elevated price levels, creating resistance to further price increases. As a result, phenol prices have weakened ahead of pure benzene, making a return of the price spread to positive territory unlikely in the near term.

II. Acetone Briefly Surpasses Phenol Amid Diverging Supply-Demand Dynamics

At phenol-acetone co-production plants, phenol, as the main product, typically trades around RMB 1,000–2,000/tonne above acetone. Although acetone has occasionally traded above phenol, such situations are generally short-lived.

In September 2026, acetone briefly moved above phenol, providing some relief to producers facing weaker phenol margins. However, the price relationship between the two products is expected to gradually return toward more typical levels, although differences in supply-demand conditions mean that the adjustment may take some time.

Acetone prices rose sharply in early September, moving from the RMB 7,000/tonne range to RMB 8,000 and then quickly toward RMB 9,000 within just four working days.

From September 11 to 14, acetone prices were slightly higher than phenol prices, temporarily helping offset losses for phenol-acetone producers. This unusual price relationship was mainly driven by differences in downstream market structures.

Phenol has a relatively concentrated downstream market, making it more difficult for producers to pass higher costs on to buyers. As a result, phenol prices weakened earlier than pure benzene and acetone. Acetone, meanwhile, has a more diversified downstream market, allowing high-price risks to be distributed across a broader range of users.

However, once acetone prices moved above RMB 9,000/tonne, downstream purchasing interest also weakened significantly. By September 15, the decline accelerated, with mainstream acetone prices falling to around RMB 200/tonne below phenol.

III. Short-Term Phenol Outlook: Cost, Profitability and Demand Remain Key

As of September 15, East China phenol prices were RMB 735/tonne below pure benzene, maintaining the unusual inverted price relationship.

Although this situation is atypical, the phenol market continues to face difficulties in passing high production costs through to downstream buyers. Therefore, it may take time for the price spread between phenol and pure benzene to return to normal.

In the short term, the market will continue to focus on feedstock costs, producer profitability, supply-demand conditions, and the price movements of related products.

If pure benzene prices remain firm and the price gap between pure benzene and phenol continues to widen, downward pressure on phenol could be partially eased. Any potential price increase, however, will largely depend on downstream purchasing sentiment and the willingness of buyers to accept higher prices.

Meanwhile, acetone prices are retreating from recent highs, while weak end-user demand continues to weigh on phenol. This could further pressure the profitability of phenol-acetone producers. However, as producer losses increase, the room for further price declines may become more limited.

Once phenol prices fall below RMB 9,000/tonne, the monthly average price could provide a degree of support. Overall, a cautious trading approach is expected to remain appropriate in the short term.