The market outlook for the PX/PTA chain is bearish due to weak fundamentals in both supply and demand. While some maintenance shutdowns are still occurring in July, tightening supply, downstream demand remains in the off-season with weak order books. End-users are maintaining low inventory strategies, showing little willingness to purchase raw materials. Polyester plants are under significant inventory pressure, which is suppressing operating rates. After July, market focus will shift to the anticipated recovery in supply and the strength of the peak demand season, transitioning the market dynamic from weak supply and demand to a simultaneous increase in both. Balance sheet estimates suggest destocking will continue through July and August, but the period of tightest supply has likely passed.

A recommended strategy is to watch for opportunities in the PX/PTA September-January spread (9-1) calendar spread trade, or to short the processing margin for the PTA September or January contracts. Previous strength in PX and PTA spreads and PTA processing margins has already largely priced in the earlier tight fundamentals. As crude oil supply recovers and refinery run rates increase, PX and PTA supply is gradually returning. Meanwhile, macroeconomic performance in the first half of the year has been weaker than expected, casting doubt on the strength of the upcoming polyester demand peak season. The market narrative is shifting from the tightness following the Strait of Hormuz reopening to a focus on recovering supply and potentially insufficient demand.

Valuations are bearish. The PXN spread and short-process PX margins are at neutral-to-high levels, while PTA processing margins remain elevated. Polyester product profits, except for bottle chip, have seen some recovery. A correction in valuations across the polyester chain is occurring alongside weaker crude oil prices.

The cost outlook is bearish. The crude oil market is currently reacting to the potential impact of floating storage releases following the Strait of Hormuz reopening. The North Sea CFD and West African crude differentials continue to decline, and sentiment remains weak, suggesting a wait-and-see approach in the short term. Medium to long-term, attention will be on potential bottom support from refinery restocking for the peak season and Strategic Petroleum Reserve (SPR) replenishment.

Supply Outlook: Bullish

For PX: Domestic units, including the second 1-million-tonne line at Hainan Petrochemical, which shut for maintenance at the end of June for an expected three months; Shenghong, which shut at end-June for around 50 days; one 2.5-million-tonne line at Zhejiang Petrochemical Phase II, recently shut; Fuhaichuang's 800,000-tonne unit, currently running at reduced rates and scheduled for restart in late July; and Weilian Chemical's 2-million-tonne unit, recently shut for about 45 days. Overseas, Indonesia's TPPI unit shut in mid-June and is expected to restart by the end of this month.

For PTA: This week, Dushan Energy's 3-million-tonne unit is under maintenance, and Fuhaichuang's 4.5-million-tonne unit is gradually reducing rates, with minor load adjustments at other individual units. A 1.5-million-tonne unit in Taiwan, China, has increased its operating rate to 90% from a previous 50%.

Demand Outlook: Bullish

Some idled units have restarted, with staple fiber operating rates seeing some improvement, leading to a slight increase in overall polyester operating rates. Market participants are watching for downstream restocking activity as the peak season approaches.

Supply-Demand Balance: Bullish

PX and PTA operating rates have fallen to low levels, while polyester operating rates have edged up slightly, contributing to a drawdown in PTA social inventories.

MEG Market View: Bearish

The core view for Monoethylene Glycol (MEG) is bearish. The reopening of the Strait of Hormuz has a relatively larger impact on MEG imports compared to other chemicals, though restoring Middle Eastern capacity takes time, limiting the impact on near-term contracts. Domestic production is seeing a slight reduction as coal-based unit margins narrow, prompting shutdowns at some previously unmaintained plants. On the demand side, the off-season continues with weak downstream orders, low inventory strategies at terminals, and weak raw material purchasing willingness. Polyester plants face high inventory pressure, capping operating rates. In the fourth quarter, significant new MEG capacity is scheduled to come online, with pressure mainly reflected in the January contract, creating a near-strong, far-weak overall pattern.

The suggested strategy is to adopt a wait-and-see approach on outright positions. The September-January spread has already reacted to fundamental strength. Given doubts about peak season demand, the calendar spread trade (selling the near, buying the far) offers a better risk-reward ratio.

Valuations are neutral. Falling crude prices have restored naphtha-based production margins to normal levels. However, due to stronger coal prices, coal-based production margins continue to decline, resulting in an overall neutral valuation.

Supply Outlook: Bullish

As of June 25, the overall operating rate for MEG in mainland China was 55.1%, down 0.68 percentage points week-on-week. Ethylene-based capacity utilization stood at 50.14%, up 0.85 percentage points week-on-week. Non-ethylene-based MEG operating rates were at 63.5%, down 3.33 percentage points week-on-week.

Import Outlook: Bearish

The reopening of the Strait of Hormuz raises expectations for a recovery in MEG imports from the Middle East, though no related plant restarts have been observed yet.

Demand Outlook: Bullish

Some idled units have restarted, with staple fiber operating rates seeing some improvement, leading to a slight increase in overall polyester operating rates. Market participants are watching for downstream restocking activity as the peak season approaches.

Supply-Demand Balance: Bullish

Fluctuations in US-Iran relations have delayed the Strait of Hormuz reopening timeline. As import recovery takes time, MEG is expected to continue significant destocking in the second quarter, with fundamentals tightening further driven by supply-side factors.

Price, Spread, and Margin Review

The PX September-January spread has retreated. The crude market is digesting the potential impact of floating storage releases post-Strait of Hormuz reopening. North Sea CFD and West African crude differentials continue to weaken, sentiment remains soft, suggesting a short-term观望 stance. Medium-term, watch for bottom support from peak season refinery and SPR restocking.

Naphtha prices followed crude lower. The Japan CFR spot price was $661 per tonne, up $12 week-on-week (+1.85%). PX CFR Taiwan was $997.3 per tonne, down $51 week-on-week (-4.86%).

Both the PXN spread and short-process margins declined. The latest PXN was $340.6 per tonne, down $33.3 week-on-week. The PX-MX spread continued to fall sharply, with short-process PX production margins at 144.3 yuan per tonne, up $4.5 per tonne week-on-week.

Gasoline crack spreads in the US, Europe, and Asia rebounded significantly. The Asian naphtha crack spread saw a slight recovery, continuing its upward trend. On the supply side, ongoing US-Iran talks and continued restoration of passage are boosting market confidence in the return of naphtha supply. The chemical economics for xylene and toluene have declined relative to their blending economics.

The PTA calendar spread weakened, while spot processing margins remained high and volatile. Trading for July delivery increased this week, strengthening the PTA spot basis. Early in the week, the spot basis was around September +195~210; by mid-week, the spot trading focus shifted higher, with the basis strengthening to September +220~230. By Friday, as trading shifted focus to July, the spot basis further strengthened to around September +240. Warehouse receipts traded between July -3 to July +3 this week. PTA processing margins remained high, reaching a peak of 714 yuan per tonne, averaging 662 yuan per tonne for the week. On May 29, the main PTA futures contract settled at 5,466 yuan per tonne, down 206 yuan week-on-week (-3.63%).

Both the MEG spot basis and the September-January spread weakened. The spot basis strengthened significantly due to port inventory drawdowns and active contract merchant buying at low levels. Early in the week, spot traded at a premium of 190-195 yuan per tonne to the September contract, with good buying interest. Later in the week, MEG futures fell sharply, pressured by cost-side weakness after crude price corrections and the news of several MEG vessels successfully passing through the Strait, indicating that floating storage in the Persian Gulf would gradually materialize as supply, dampening market sentiment. On July 1, the main MEG futures contract settled at 3,928 yuan per tonne, down 217 yuan week-on-week (-5.24%).

Polyester product profits, excluding bottle chip, have recovered.

Supply, Demand, and Inventory Analysis

New PX capacity in 2026 is concentrated in the second half of the year. Domestically, 3.8 million tonnes of capacity is scheduled to start up in 2026, representing an 8.7% growth rate. This includes Fujia Dahua's 300,000-tonne expansion, Huajin's 2-million-tonne unit, and Jiujiang Petrochemical's 1.5-million-tonne unit (which may be delayed). In terms of timing, Fujia Dahua is expected to start up around year-end 2025 or early 2026, Huajin in Q3 2026, and Jiujiang Petrochemical not until Q4 2026, meaning supply pressure will be felt mainly in Q4. Shandong Yulong Petrochemical's 3-million-tonne unit can only produce MX and has not yet obtained PX production approval, likely pushing its start-up to 2027. Overseas, few new PX units are planned for 2026, with only Indian Oil Corporation's 800,000-tonne unit expected in H2 2026, primarily to feed downstream PTA units.

Both Chinese and overseas PX operating rates declined. Domestic units include the second 1-million-tonne line at Hainan Petrochemical (shut late June, 3-month maintenance), Shenghong (shut late June, ~50 days), one 2.5-million-tonne line at Zhejiang Petrochemical Phase II (recent shutdown), Fuhaichuang's 800,000-tonne unit (running at reduced rates, restart late July), and Weilian Chemical's 2-million-tonne unit (recent shutdown, ~45 days). Overseas, Indonesia's TPPI unit shut mid-June, expected to restart end-month.

Chinese and overseas PX operating rates continued to fall. The domestic PX operating rate was 79.07%, down 0.26 percentage points week-on-week. The Asian PX operating rate was 67.27%, down 0.14 percentage points week-on-week. Domestic PX output in May was 2.961 million tonnes, down 5.6% month-on-month and down 1.7% year-on-year.

Paraxylene imports in May fell 30.6% month-on-month and 37.7% year-on-year. Cumulative PX imports for January-May 2026 were 4.02 million tonnes, up 7.6% year-on-year. May imports were 482,000 tonnes.

No new PTA capacity is scheduled for 2026. Units with a total capacity of 2.625 million tonnes, including Luoyang Petrochemical (325,000 tonnes), Yizheng Chemical Fibre (350,000 tonnes), Ya Dong (750,000 tonnes), and Sanfangxiang Phase II (1.2 million tonnes), have been idled for over two years with no restart expectations and are thus excluded from the capacity base from year-end. Effective January 1, 2026, the PTA capacity base in mainland China is adjusted to 92.09 million tonnes. This alleviates near-term capacity pressure.

PTA production in May was 5.301 million tonnes, down 10.9% month-on-month and down 10.3% year-on-year. Cumulative output for Jan-May 2026 was 30.304 million tonnes, up 6.7% year-on-year.

PTA exports in May were 326,100 tonnes, up 12.1% month-on-month and up 23% year-on-year. Cumulative exports for Jan-May 2026 were 1.533 million tonnes, down 4.3% year-on-year.

Domestic PTA operating rates declined week-on-week. This week, Dushan Energy's 3-million-tonne unit is under maintenance, and Fuhaichuang's 4.5-million-tonne unit is gradually reducing rates, with minor load adjustments at other units. A 1.5-million-tonne unit in Taiwan, China, increased its operating rate to 90% from a previous 50%. The PTA operating rate was 61.37%, down 6.3 percentage points week-on-week.

PTA warehouse receipt volumes have fallen from recent highs. Social inventory of PTA has begun to accumulate. According to the latest Zhongpu data, as of June 26, PTA social inventory fell significantly, increasing by 8,358 tonnes week-on-week to 2.522 million tonnes. This change comprised a 12,500-tonne decrease in warehouse receipts, a 43,000-tonne increase in in-warehouse and in-port inventory, a 6,100-tonne decrease in PTA plant inventory, and a 16,000-tonne decrease in polyester plant inventory.

New MEG capacity is concentrated in Q4 2026, with a high growth rate. Four units totaling 2.75 million tonnes, primarily oil-based, are scheduled, raising the 2026 MEG capacity growth rate to 9.2%. BASF's unit started up in early 2026. The other three units are scheduled for Q4, creating a capacity addition gap in Q2 and Q3.

MEG production in May was 1.695 million tonnes, up 8.9% month-on-month and up 9.7% year-on-year. Cumulative output for Jan-May 2026 was 8.406 million tonnes, up 3% year-on-year.

Coal-based MEG maintenance increased, and non-ethylene-based operating rates declined slightly. As of June 25, the overall MEG operating rate in mainland China was 55.1%, down 0.68 percentage points week-on-week. Ethylene-based capacity utilization was 50.14%, up 0.85 percentage points. Non-ethylene-based operating rates were 63.5%, down 3.33 percentage points. For ethylene-based units: Yangzi Petrochemical's 300,000-tonne unit (maintenance from May 15) restart delayed to Aug-Sep; Far Eastern Union's 500,000-tonne unit (shut May 20) restarting end-month;斯尔邦's unit (shut June 9) for one month; Zhejiang Petrochemical Phase II's 800,000-tonne unit (shut June 8) restarting end-June; Shenghong's 900,000-tonne unit running, maintenance starting end-June. For non-ethylene-based units: Xinjiang Tianye Phase III's 600,000-tonne unit increased load, plans one-month maintenance in August; Hongsifang recently shut for about three weeks; Inner Mongolia Yankuang's 400,000-tonne unit plans July maintenance;广汇's 400,000-tonne unit under maintenance;中化学's 300,000-tonne unit shut June 15 for about 28 days;正达凯 plans July maintenance. Falling crude prices have restored naphtha-based margins to normal. Stronger coal prices and falling MEG prices have further squeezed coal-based margins.

MEG imports in May were 200,000 tonnes, down 43.7% month-on-month and down 66.9% year-on-year. Cumulative imports for Jan-May 2026 were 2.457 million tonnes, down 23.9% year-on-year.

MEG port inventory continued to decline. As of June 26, MEG port inventory in East China's main ports was 549,000 tonnes, down 7,000 tonnes week-on-week. Expected arrivals dropped to zero. Outflow volume fell significantly, with no improvement in downstream restocking.

MEG plant inventory increased significantly month-on-month, while polyester plant inventory days fell sharply. As of June 26, polyester plants held 13 days of MEG原料备货 (down 0.5 days week-on-week). MEG plant inventory in May was 450,000 tonnes, up 58,000 tonnes month-on-month and up 170,000 tonnes year-on-year.

Polyester capacity growth in 2026 is higher than in 2025. Significant new polyester capacity is planned for 2026, estimated at 5.47 million tonnes, representing a 6.14% growth rate, higher than 2025. In terms of product types, due to numerous bottle chip unit startups in 2024-2025 and persistently low margins, few new bottle chip units are planned for 2026—only two sets totaling 700,000 tonnes (Fuhai 300,000 tonnes + Kesen New Materials 400,000 tonnes). Filament yarn, which saw less capacity addition in the prior two years and enjoyed significantly improved margins, becomes the main focus for 2026 capacity additions. In early March, Tongkun Hengyou and Hengyi Haining units started up. In mid-April, Huacheng's 360,000-tonne old unit resumed production.

Polyester operating rates increased slightly. As of June 26, the polyester operating rate was 78% (+0.3 percentage points week-on-week), comprising filament yarn at 73.8% (+0.3 p.p.), staple fiber at 72.2% (+1.6 p.p.), and bottle chip at 70.7% (flat).

Polyester net exports for Jan-May 2026 were 6.207 million tonnes, up 4.5% year-on-year. This includes bottle chip exports of 2.701 million tonnes (+0.17% YoY), filament yarn exports of 1.838 million tonnes (+7.5% YoY), and staple fiber exports of 711,000 tonnes (+6.3% YoY).

Staple fiber inventories decreased, while other product inventories rose. Staple fiber equity inventory days were 9.7 days (-0.3 days). DTY inventory was 41.8 days (+3.5 days), FDY 35.7 days (+5 days), and POY 30 days (+3.5 days). Polyester chip inventory was 8.7 days (-0.9 days), and polyester bottle chip inventory was 10.7 days (+1.1 days).

Both finished product inventory days and raw material (polyester yarn) stockpile days decreased. As of July 2, finished product (filament fabric) inventory at终端织造averaged 16.85 days, down 0.49 days week-on-week. The textile and apparel off-season deepened, with weak sentiment persisting. However, terminal orders remain scarce, putting pressure on producer sales. Most are now operating on an order-based production model, with some local operating rate declines. Some producers are choosing to build inventory or plan production cuts/holidays to cope with accumulating stock, reflecting low market confidence. As of July 2, raw material (polyester yarn) inventory at终端织造enterprises averaged around 8.57 days, down 0.93 days week-on-week. With oil prices falling more than rising and improved原料现金流, some local negotiations saw price cuts. Fluctuating raw yarn prices加重观望情绪, with weak short-term purchasing willingness. Many are waiting for a bottom-fishing opportunity. The lack of large-volume订单成交is keeping most participants cautiously观望.

Downstream order intake is moderate. As of June 26, operating rates for warp knitting, air-jet weaving, water-jet weaving, circular knitting, and dyeing were 46.4% (flat), 53.4% (-0.1 p.p.), 60% (flat), 37.9% (flat), and 50.7% (flat), respectively. As of July 2, the average order book days for终端织造was 8.63 days, down 0.91 days week-on-week. Entering the traditional demand off-season, there is no significant increase in domestic or overseas orders. New order releases remain weak, dominated by small-volume repeat orders from existing customers. Apart from fulfilling existing backlog orders, factories are generally producing常规秋冬面料 to replenish inventory.

Supply-Demand Balance Sheet Forecast

PX Monthly Balance Forecast: Entering Q2, due to constrained crude supply, PX units reduced rates alongside refineries, though the overall reduction was modest, with rates remaining relatively high year-on-year. Downstream PTA entered a集中检修季 starting in April, compounded by原料短缺at some plants, pushing PTA rates to multi-year lows and marginally easing PX fundamentals. In June and July, with major maintenance at units like Shenghong and Weilian Chemical, operating rates will reach annual lows, and the PX supply-demand格局will become genuinely tight. In Q4, with new unit startups and the arrival of the downstream off-season, PX is expected to begin inventory accumulation.

PTA Monthly Balance Forecast: In Q2, PTA units were affected by insufficient PX supply and seasonal maintenance, leading to a significant production decline expected to persist into July. Exports are down year-on-year due to new overseas capacity. Fundamentals suggest significant destocking in May, June, and July, with the pace slowing in August. In Q4, with supply recovery and the off-season, the market is forecast to shift into inventory accumulation.

MEG Monthly Balance Forecast: Entering Q3, with the Strait of Hormuz reopening, domestic ethylene-based MEG operating rates are expected to slowly recover. Non-ethylene-based rates are already high and may gradually decline from peaks later as margins weaken, leading to a slight quarter-on-quarter increase in overall production. Q2 imports fell sharply. With the Strait reopening in June, imports are expected to recover slightly in July and increase notably from August. Downstream polyester units will also raise rates and restock. Fundamentals are forecast to maintain a destocking trend in Q3.