Benzene Import Dependence vs. Domestic Toluene Surplus
China's benzene market remains partially reliant on imports, with import dependency hovering around 15%. Annual import volumes during 2024–2025 were estimated at approximately 4.3–5.5 million tons, mainly sourced from Asian suppliers including South Korea and Brunei. Despite China having the world's largest benzene production capacity-estimated at around 25–32 million tons-rapid downstream expansions in styrene and caprolactam have kept the market structurally tight.
Consequently, when global oil prices rise and shipping disruptions occur, import replenishment becomes more difficult, amplifying price sensitivity in the domestic benzene market.
In contrast, China's toluene market is structurally oversupplied. Import dependence has already fallen to below 1%. In 2024, imports totaled roughly 30,000 tons, while exports exceeded 550,000 tons, making China a net exporter of toluene. Export volumes continued to increase in 2025, with regional markets such as Singapore, South Korea, and Taiwan emerging as major destinations.
China's integrated refining complexes, coal-chemical production routes, and flexible disproportionation capacity provide significant supply resilience. However, benzene and toluene prices have still moved upward in tandem, driven by three key linkage mechanisms.
First, both products share a common cost base derived from naphtha feedstocks, meaning crude oil price spikes directly raise marginal production costs. Second, widespread use of toluene disproportionation in China converts toluene into benzene and mixed xylenes. When benzene commands a strong premium, refiners increase disproportionation operating rates, tightening toluene supply and pushing prices higher. Third, market sentiment plays a role: traders often treat BTX aromatics as a single sector, and geopolitical developments tend to trigger synchronized speculative buying across the complex.
Price movements in March clearly illustrate this relationship. While benzene showed greater sensitivity to supply disruptions, toluene still followed the broader cost-driven uptrend. This explains why toluene prices can rise significantly even in the presence of domestic oversupply.
Cost Pressure on the MDI and TDI Value Chains
The price surge in aromatics feedstocks has quickly translated into higher production costs for the polyurethane industry. TDI production relies directly on toluene through the nitration–TDA–phosgenation process, making it particularly sensitive to toluene price movements. MDI production, on the other hand, is based on the benzene chain (benzene → nitrobenzene → aniline → MDI).
The recent spike in feedstock prices has pushed TDI production costs sharply higher, contributing to a rapid increase in domestic TDI market prices. Leading producers such as Wanhua Chemical have already signaled cost-driven price adjustments.
Although the MDI chain also faces higher benzene costs, integrated aniline production in China offers some cost buffering. In comparison, the TDI segment is experiencing more direct cost pressure, as rising toluene prices and faster inventory drawdowns are weighing on operating margins. Overall, MDI and TDI margins are estimated to have contracted by roughly 15–25% in March compared with late February levels.
Downstream polyurethane sectors-including flexible foam, coatings, and elastomers-are now facing increasing cost pass-through pressure. If feedstock prices remain elevated, end-use industries such as home appliances, automotive manufacturing, and building insulation may temporarily slow purchasing activity while waiting for price stability.
Short-Term Outlook: Elevated Volatility Through the Second Quarter
As of March 16, 2026, there are no clear signs of a near-term ceasefire, meaning geopolitical risk premiums in oil markets are likely to persist. In the short term, benzene and toluene prices are expected to remain volatile at elevated levels.
If tanker traffic through the Strait of Hormuz gradually resumes before the end of April-assuming a disruption period of roughly three weeks-feedstock prices could decline by around 15–25%. Under this scenario, benzene prices may return to the CNY 6,500–7,000/ton range, while toluene could fall back toward CNY 6,000–6,500/ton. This would ease cost pressure on MDI and TDI producers and reopen purchasing windows for downstream buyers.
However, if the conflict extends into the second quarter and crude oil prices continue to rise, combined with domestic maintenance schedules and potential downstream restocking, further upside cannot be ruled out. In such a scenario, benzene prices may test levels above CNY 9,000/ton, while toluene could exceed CNY 8,000/ton, forcing polyurethane producers to accelerate cost pass-through strategies.
Key indicators to monitor include daily tanker traffic through the Strait of Hormuz, South Korean benzene export flows, domestic toluene disproportionation operating rates, and inventory levels of TDI and aniline.
China's aromatics industry has significantly improved its resilience through large-scale refining integration and coal-chemical expansion. However, crude oil remains the fundamental cost driver. The current U.S.–Iran conflict once again highlights the sensitivity of China's benzene market to imports and the tight linkage between benzene and toluene through disproportionation arbitrage.
For the MDI/TDI industry, the first half of 2026 is likely to be characterized by elevated feedstock costs and increasingly divergent downstream demand, making proactive risk management and feedstock hedging critical for maintaining competitiveness.