**PX/PTA** **Core View: Bullish** Market focus remains on developments in the Middle East, with cost-side factors showing strong, volatile support. Last week, the U.S. announced sanctions against Hengli Refining and Chemical, impacting significant capacities for PX (5.2 million tons) and PTA (16.6 million tons). This has heightened market concerns over further supply constraints for PX and PTA, especially against a backdrop of reduced operating rates. Current PX and PTA fundamentals reflect weakness in both supply and demand. On the supply side, PX operating rates have declined slightly, while PTA rates have fallen sharply, with several major domestic PTA units undergoing maintenance. On the demand side, the onset of the off-season has seen downstream textile producers resist high-cost raw materials, resulting in weak restocking interest. Polyester product inventories, except for bottle chips, continue to accumulate. Polyester operating rates are expected to decline further due to weakening downstream demand and high inventory levels. Entering May, tightening supply is projected to accelerate the destocking pace for PTA, intensifying fundamental imbalances. **Strategy:** Monitor U.S.-Iran negotiations. With U.S. military deployments in place, potential exists for escalated conflict if talks fail. Cost and fundamentals provide dual upward drivers for PX and PTA spot prices; consider buying on dips, primarily through call options. As fundamental contradictions intensify, monitor contango spreads for PX and PTA. **Valuation:** Neutral PXN has retreated, while the PX-MX spread rebounded significantly. PTA processing margins strengthened, but downstream profits declined. Driven by active PTA rate reductions, midstream profits improved notably, compressing margins at both ends. **Cost: Bullish** The crude oil market's focus is on U.S.-Iran negotiation progress. A third U.S. aircraft carrier has moved closer to the Middle East, creating uncertainty and potential for escalated conflict. Transit through the Strait of Hormuz shows no substantive improvement. The release of strategic petroleum reserves remains insufficient to address the crude supply gap. Global inventories are entering a phase of accelerated drawdown, with tight fundamentals driving stronger oil prices. **Supply: Bullish** * **PX:** Domestically, one of Fujian Refining & Chemical's 800k tpa lines is under maintenance until end-July. Qingdao Lidong's restart, initially planned for early May, is postponed to end-May. Overseas, Malaysia's Aromatics 550k tpa unit plans a two-month maintenance shutdown starting in May. * **PTA:** This week, Ineos's 1.1 million tpa, Hengli's 2.2 million tpa, and Sanfangxiang's 3.2 million tpa units commenced maintenance. Yisheng Dahua's 3.75 million tpa unit reduced rates, while Baimao's 2.5 million tpa unit increased rates. **Demand: Bearish** Demand has entered the off-season, compounded by weak downstream restocking interest. Polyester plant inventories continue to accumulate, and polyester operating rates are declining further. **Supply-Demand Balance: Bullish** In response to raw material shortages, upstream refineries are reducing operating rates. PX rates continue to fall, and PTA plant maintenance has increased. Downstream negative feedback is driving polyester operating rates lower. PTA has begun destocking, with an accelerated pace expected in May.
**MEG** **Core View: Bullish** U.S.-Iran negotiations carry significant uncertainty. With U.S. military deployments in place, potential for escalation remains, providing strong cost-side support. The blockade of the Strait of Hormuz has substantially reduced MEG shipments from the Middle East, with monthly imports expected to drop by 300-400k tons. Domestically, ethylene-based MEG operating rates are declining as domestic refineries cut rates. Coal-based syngas production, entering its maintenance season, offers limited compensation for the ethylene-based shortfall. Demand is in the off-season, and downstream negative feedback on high-cost raw materials may lead to further declines in polyester operating rates. Focus later will be on MEG port arrivals, currently expected to hit historical lows, suggesting accelerated port inventory drawdowns in May. **Strategy:** Focus remains on Strait of Hormuz transit conditions and port arrivals. As volatility subsides, consider buying on dips for spot positions. With fundamental contradictions persisting, monitor contango spreads. **Valuation: Bullish** With the rebound in oil prices, oil-based production margins have declined again, while coal-based margins fluctuate at high levels. **Supply: Bullish** As of April 24, the overall operating rate for MEG in mainland China was 56.17%, up 0.18% week-on-week. The operating rate for ethylene-based capacity was 53.38%, down 0.03% WoW. The operating rate for non-ethylene-based MEG was 61%, up 0.55% WoW. **Demand: Neutral** Demand has entered the off-season, coupled with weak downstream restocking interest. Polyester plant inventories continue to accumulate, and polyester operating rates are declining. **Supply-Demand Balance: Bullish** The decline in ethylene-based operating rates, alongside reduced raw material supply and imports, is gradually impacting the market. MEG fundamentals are shifting towards destocking, with expectations for an accelerated pace.
**Price Review** Market attention remains on U.S.-Iran talks. A third U.S. carrier's proximity to the Middle East adds uncertainty, with potential for conflict escalation. No substantive improvement is seen in Strait of Hormuz transit. Strategic reserve releases are inadequate for the crude supply gap. Global inventories are depleting faster, driving firm oil prices on tight fundamentals. Naphtha prices followed costs lower. Japan CFR naphtha was $1,027.5/ton, up $77.25/ton WoW (+8.13%). PX CFR Taiwan was $1,230/ton, down $2/ton WoW (-0.16%). PXN fell significantly to $202.5/ton, down $79.25/ton WoW. The PX-MX spread rebounded sharply, with short-process PX production margins at $156.67/ton, up $39.34/ton WoW. Recent weaker MX is due to lower blending demand. Gasoline crack spreads strengthened further, with Asian octane values holding high. Asian naphtha cracking margins recovered. While Middle East supply remains constrained due to the Strait of Hormuz blockade, increased South Korean procurement, falling LPG prices, ample Asian gasoline supply, and weaker cracks limited naphtha's gains relative to crude. Naphtha-based reforming margins weakened relative to aromatics-based reforming. The economics for chemical use of xylene and toluene improved significantly versus blending. PTA basis strengthened, and calendar spreads oscillated at high levels. Spot processing margins improved. This week saw numerous unit changes: Ineos, Hengli, and Sanfangxiang units began maintenance; Yisheng Dahua cut rates; Baimao raised rates, leading to short-term PTA destocking. Basis fluctuated, strengthening slightly later in the week. Weekly average PTA processing margin was 218 yuan/ton. On April 27, the primary PTA futures contract closed at 6,596 yuan/ton, up 446 yuan/ton WoW (+7.3%). MEG basis weakened, and the Sep-Jan spread retreated from highs. Early week port drawdowns were weaker than expected, pressuring sentiment and spot basis. Prices fell, attracting buyers covering short positions. Later, the market consolidated, with far-month futures basis firming and the calendar spread widening. Downstream production cuts were implemented, lowering polyester operating rates and keeping sentiment weak, with prices fluctuating narrowly at low levels. On April 27, the primary MEG futures contract closed at 4,941 yuan/ton, up 291 yuan/ton WoW (+6.3%). Polyester product profit margins widened oscillating.
**Supply, Demand, and Inventory** PX capacity additions in 2026 are concentrated in H2. Domestic planned capacity is 3.8 million tons (+8.7% growth), including Fujia Dahua expansion (300k tpa, likely end-2025/early-2026), Huajin (2 million tpa, Q3 2026), and Jiujiang Petrochemical (1.5 million tpa, possibly delayed to Q4). Thus, supply pressure is mainly in Q4. Shandong Yulong Petrochemical's 3 million tpa unit can only produce MX, awaiting PX approval, likely delayed to 2027. Overseas, only Indian Oil Corp's 800k tpa unit (H2 2026) adds significant capacity, feeding its PTA unit. Chinese and Asian PX operating rates are expected to decline. Domestic rate is 83.25% (-1.39% WoW). Asian rate is 73.16% (-0.76% WoW). Domestic PX production in March was 3.293 million tons, up 8.9% MoM and 22.87% YoY. PX imports in March were 1.04 million tons, up 8.9% MoM and 22.9% YoY. Jan-Mar cumulative imports were 2.8435 million tons, up 26.9% YoY. No new PTA capacity is planned for 2026. Capacity base adjusted to 92.09 million tons as of Jan 1, 2026, after excluding 2.625 million tons of idled capacity offline for over two years. Pressure from new capacity is eased. PTA production in March was 6.776 million tons, up 17.45% MoM and 13.31% YoY. Jan-Mar production was 19.053 million tons, up 7.59% YoY. PTA exports in March were 311.3k tons, up 51.4% MoM and 7.4% YoY. Jan-Mar exports were 916k tons, down 3.1% YoY. Domestic PTA operating rate fell significantly WoW to 65.31% (-3.03% WoW), influenced by maintenance at Ineos, Hengli, Sanfangxiang, rate cuts at Yisheng Dahua, and rate increases at Baimao. PTA warehouse receipt quantities declined. Total social inventory of PTA began to draw down. As of April 24, social inventory was 3.005 million tons, down 39k tons from pre-holiday. Breakdown: warehouse receipts -66k tons, in-warehouse/port inventory +121k tons, PTA plant inventory -66k tons, polyester plant inventory -28k tons. MEG capacity additions in 2026 are concentrated in Q4, totaling 2.75 million tons (mainly oil-based), with growth rate rebounding to 9.2%. BASF's unit started early 2026; others are due Q4, leaving Q2-Q3 as a capacity addition gap. MEG production in March was 1.706 million tons, up 1.8% MoM but down 2.3% YoY. Jan-Mar production was 5.154 million tons, up 1.6% YoY. Ethylene-based MEG operating rate edged down. Overall operating rate was 56.17% (+0.18% WoW). Ethylene-based rate was 53.38% (-0.03% WoW). Non-ethylene-based rate was 61% (+0.55% WoW). Specific unit changes noted. Recent oil price-driven naphtha increases weakened oil-based margins again; coal-based margins oscillated high. MEG imports in March were 557.5k tons, down 14.7% MoM and 19.4% YoY. Jan-Mar imports were 1.902 million tons, down 3.1% YoY. MEG port inventory peaked and began to decline. As of April 24, East China main port inventory was 848k tons, down 8k tons WoW. Expected arrivals fell sharply to historical lows, while outflows dipped slightly. MEG producer inventory fell, but polyester plant inventory rose MoM. As of April 24, polyester plants held 12.8 days of MEG feedstocks (+0.3 days WoW). Producer inventory in March was 365k tons, down 23k tons MoM but up 45k tons YoY. Polyester capacity growth in 2026 is higher than 2025, with 5.47 million tons planned (+6.14% growth). After heavy bottle chip additions in 2024-2025 depressed profits, 2026 focuses on filament (70k tons planned for bottle chips vs. significant filament). No new capacity was added in Q1. Polyester operating rates continued to decline. As of April 24, the rate was 81.4% (-0.9% WoW): filament 82.7% (-2.4% WoW), staple fiber 82% (-1.9% WoW), bottle chips 71.4% (-0.1% WoW). Polyester net exports Jan-Mar were 3.631 million tons, up 8.9% YoY. Breakdown: bottle chips 1.521 million tons (+1.7% YoY), filament 1.187 million tons (+19.8% YoY), staple fiber 392k tons (+6% YoY). Exports primarily go to Southeast/South Asia, supporting growth into Q2. Polyester product inventories rose slightly except for bottle chips. Staple fiber: 11.8 days (+0.1); DTY 34.2 days (+1.9); FDY 32.5 days (+0.5); POY 28.9 days (+0.4); polyester chip 14.9 days (+0.8); bottle chips 6.8 days (-1.2). Finished fabric inventory remained low, but raw material (polyester yarn) stocking stayed weak. As of April 23, finished fabric inventory averaged 18.04 days (+0.13 WoW). The traditional peak season is ending, sentiment is turning weaker, and production enthusiasm is low, with倾向 for rate cuts. Downstream expects caution due to geopolitical instability, maintaining rigid demand purchasing and weak active stocking. Raw material (yarn) inventory averaged ~9.02 days (-1.57 WoW). Despite minor price concessions, buying interest was weak, focusing on rigid needs. Weaving mills showed poor production enthusiasm, with strong holiday sentiment for May, prioritizing inventory digestion. The peak season is ending; downstream order days fell significantly. As of April 24, operating rates for various weaving processes declined. Order days averaged 7.55 days as of April 23, down 1.63 days WoW. Factories are fulfilling old orders; new domestic/export orders are weak, consisting mainly of small, short orders. Order differentiation is evident, with special fabrics faring better than conventional ones. Downstream maintains rigid demand logic with cautious outlook.
**Supply-Demand Balance Forecast** **PX Monthly Balance Forecast** Domestic production: No new PX capacity in H1 2026, so supply changes depend on existing unit rates. Seasonal refinery maintenance and precautionary rate cuts due to feedstock shortages should push domestic PX rates to a five-year low in Q2. Imports: High PXN and short-process margins, plus ample Japanese/Korean supply, led to high Q1 imports. From March, the U.S.-Iran conflict severely hindered Middle East crude/naphtha exports, causing Asian refinery cuts. Coupled with peak gasoline season favoring fuels over chemicals, PX and aromatics imports are expected to drop sharply. Q2 imports are forecast around 700k tons. Demand: PTA maintenance in Q2 is light, but rates will stay low due to expected PX shortages. Conclusion: Significant reductions in both domestic production and imports are expected in Q2. Demand will also see some reduction, but overall PX fundamentals point to substantial destocking. Monitor Strait of Hormuz transit. Given substantive crude production cuts in Middle East producers (requiring 3-6 months to restore), tight fundamentals should persist for at least six months.
**PTA Monthly Balance Forecast** Supply: No new PTA capacity in 2026. Q1 operating rates were neutral, leading to inventory buildup amid seasonally weak demand. Entering Q2, traditional maintenance season begins. Although maintenance volume is less than usual, PTA rates will stay low due to PX supply constraints. Net Exports: India became China's top PTA importer, partly offsetting reduced Turkish imports. However, India's GAIL 1.25 million tpa unit started in Q1 2026, reducing its import needs. Thus, China's PTA exports are expected to decline further in Q2. Demand: Significant polyester capacity additions are planned for 2026, with growth higher than 2025. However, operating rates should not be overestimated. Similar to 2022, substantial upstream cost increases could trigger downstream negative feedback, pushing polyester operating rates to low levels. Conclusion: In Q2, PTA production will decline due to feedstock constraints. Exports will decrease due to new overseas capacity. Fundamentals shift towards destocking.
**MEG Monthly Balance Forecast** Supply: Q2 2026 is a gap period for MEG capacity additions, with most new capacity due H2. Low MEG prices in Q1 kept both ethylene-based and non-ethylene-based margins low, but high existing capacity maintained strong output. In Q2, the impact of the Middle East conflict emerges, causing crude/naphtha shortages alongside domestic seasonal maintenance. Ethylene-based rates will fall further due to poor economics. Non-ethylene-based rates have limited upside despite better margins. Thus, domestic MEG production is expected to drop by 100-200k tons in Q2. Net Imports: The Strait of Hormuz disruption restricts Middle East MEG exports, which account for nearly 70% of China's imports. Imports are expected to fall by over 100k tons in the coming quarter. Other Asian countries may seek Chinese MEG, increasing exports. Net imports are projected to decline by 300-400k tons in Q2. Demand: Significant polyester capacity additions are planned for 2026, with growth higher than 2025. However, operating rates should not be overestimated. As in 2022, substantial upstream cost increases could trigger negative feedback, lowering polyester operating rates. Conclusion: Middle East geopolitical impacts will significantly reduce ethylene-based operating rates in China. Non-ethylene-based rates have limited increase potential. Imports will drop sharply, while exports rise somewhat. Fundamentals point to substantial destocking.
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