**Summary of Views**

**PX/PTA** **Core View: Neutral** Market focus remains on the progress of US-Iran negotiations. Currently, both sides have expressed dissatisfaction with each other's proposed peace plans, indicating significant disagreement. The US may consider resuming military action against Iran, leaving the negotiation outlook unclear. On the industrial front, PX and PTA fundamentals show a pattern of weak supply and demand. PX operating rates are hovering at low levels, while PTA operating rates have reached their lowest point in five years. PTA visible inventories have not yet seen effective destocking. On the demand side, with the off-season approaching, downstream textile enterprises are receiving fewer orders and show general willingness to stockpile raw materials. Polyester factory inventories are increasing. As profits continue to weaken, there is potential for further reductions in staple fiber operating rates.

**Strategy:** Given the ongoing uncertainty in US-Iran negotiations, the market is expected to be primarily volatile. Long positions should remain cautious of a potential final drop if a US-Iran agreement is reached. Due to negative demand feedback, low PTA operating rates have not led to significant inventory destocking. Consider shorting PTA processing margins within the range of 450-500 yuan/ton. Staple fiber profits have been low for an extended period, and factory maintenance is expected. Monitor opportunities for going long on September staple fiber processing margins below 850 yuan/ton.

**Valuation: Neutral** PXN has rebounded, while PX-MX has declined. PTA processing margins remain high. Polyester product profits are diverging, with fiber segment profits low and bottle chip profits high. Driven by PTA's proactive production cuts, profitability in the PTA segment has improved significantly.

**Cost: Neutral** The overall US-Iran situation is trending towards easing, but negotiations are not progressing smoothly, with both sides dissatisfied with submitted proposals. The crude oil market's focus oscillates between the evolution of the Middle East situation and the ongoing supply-demand tightening due to the continued blockage of the Strait of Hormuz, keeping oil prices in a volatile pattern.

**Supply: Neutral** **PX:** Domestic plant operations show little change. Overseas, Hanwha Total's 770k ton unit in South Korea was shut down in early May with an undetermined restart date. A 550k ton unit in Malaysia was shut down on May 6th, with a planned two-month maintenance. **PTA:** This week, Dushan Energy's 3 million ton unit restarted, while Jiaxing Petrochemical's 2.2 million ton unit shut down for maintenance. Taicang Petrochemical's 1.5 million ton unit is under maintenance. Baimeng's 2.5 million ton unit increased its operating rate, and Weilian Chemical's 2.5 million ton unit slightly reduced its rate.

**Demand: Slightly Bearish** The textile industry has entered its off-season with fewer orders. Polyester factory inventories continue to accumulate. Fiber segment profits are at low levels, with expectations for further reductions in staple fiber operating rates.

**Supply-Demand Balance: Slightly Bullish** PX operating rates remain low. PTA plant maintenance has increased, pushing operating rates to a five-year low. However, affected by negative demand feedback, PTA social inventory destocking is not pronounced. For May-June, if the Middle East situation does not improve, inventory drawdown expectations persist.

**MEG** **Core View: Neutral** The US-Iran situation remains uncertain. There is still no sign of navigation resuming in the Strait of Hormuz, hindering MEG exports from the Middle East. Domestically, ethylene-based MEG production has increased slightly as domestic refinery operating rates rise. Coal-based syngas MEG production has reached high operating rates due to strong profitability. On the demand side, with the off-season arriving, downstream textile enterprises are receiving fewer orders. Coupled with strong resistance to high-priced raw materials, previous restocking enthusiasm has been tepid. Polyester inventories continue to accumulate. Amid low profits, staple fiber is expected to drive further reductions in polyester operating rates.

**Strategy:** The US-Iran situation carries significant uncertainty, suggesting short-term volatility. Medium to long-term, driven by inventory drawdown expectations, the price center of gravity is expected to shift upwards. Consider buying on significant dips.

**Valuation: Neutral** Recent MEG prices have declined, but crude oil prices have retreated more sharply. Oil-based production profits have recovered, while coal-based production margins have narrowed.

**Supply: Slightly Bearish** As of May 8th, the overall operating rate for MEG in mainland China was 58.4%, up 1.9% week-over-week. Ethylene-based capacity utilization was 53.8%, up 2% WoW. Non-ethylene-based MEG operating rates were 66.2%, up 1.6% WoW.

**Demand: Slightly Bearish** The textile industry has entered its off-season with fewer orders. Polyester factory inventories continue to accumulate. Fiber segment profits are at low levels, with expectations for further reductions in staple fiber operating rates.

**Supply-Demand Balance: Slightly Bullish** The US-Iran situation remains uncertain, reducing the likelihood of import recovery. MEG fundamentals still support expectations for significant inventory drawdown in Q2.

**01. Price, Spreads, and Margins**

**PX 9-1 Spread Declines** The overall US-Iran situation is trending towards easing, but negotiations are not progressing smoothly. The crude oil market's focus oscillates, keeping oil prices volatile. Naphtha prices trended weaker. Japan CFR mid-price was $919.75/ton, down $201/ton WoW (-17.93%). PX CFR Taiwan was $1184/ton, down $79/ton WoW (-6.25%).

**PXN Rebounds Sharply, Short-Route Margins Decline** The latest PXN is $264.25/ton, up $42.15/ton WoW. The PX-MX spread continued its significant rebound. PX short-route production margin was $136/ton, down $25.33/ton WoW.

**Asian Gasoline Crack Spread Rises**

**Asian Naphtha Cracking Margin Declines WoW** Naphtha supply from the Middle East remains disrupted, and tightness may persist. However, falling LPG prices, the still relatively high naphtha-LPG spread, and easing tightness in Asian gasoline are weighing on naphtha demand. Entering the peak gasoline consumption season, naphtha gasoline-type reforming margins have strengthened relative to aromatics-type reforming margins.

**Xylene and Toluene Chemical Economics Continue to Improve Relative to Blending**

**PTA Basis and Calendar Spreads Strengthen, Spot Processing Margins Continue to Improve** The spot basis was generally strong, though selling pressure from some major suppliers capped gains. Trading for this week and next was around September +180~190. Some warehouse receipts traded at June -19~21 this week. PTA processing margins recovered this week, averaging 463 yuan/ton. On May 11th, the PTA futures main contract settled at 6486 yuan/ton, down 304 yuan/ton WoW (-4.48%).

**MEG Basis Strengthens, 9-1 Spread Bottoms and Rebounds** Post-holiday, port MEG inventories confirmed a drawdown, and few vessels arrived from overseas, supporting firm MEG prices. Spot traded high around 5340-5350 yuan/ton. Subsequently, news that the US and Iran were close to a memorandum to end the war triggered a significant crude oil correction, pressuring commodity markets. MEG futures fell sharply, with spot trading low around 4870-4880 yuan/ton. Polyester factories showed decent follow-through buying at lower levels. On May 11th, the MEG futures main contract settled at 4833 yuan/ton, down 329 yuan/ton WoW (-6.37%).

**Polyester Product Margins Fluctuate and Decline**

**02. Supply, Demand, and Inventory**

**2026 PX Capacity Additions Concentrated in H2** In 2026, domestic planned capacity additions total 3.8 million tons, an 8.7% growth rate. This includes Fujia Dahua's 300k ton expansion, Huajin's 2 million tons, and Jiujiang Petrochemical's 1.5 million tons (possibly delayed). Timing-wise, Fujia Dahua is expected to start up by end-2025/early-2026, Huajin in Q3 2026, and Jiujiang Petrochemical in Q4 2026. Therefore, supply pressure is mainly concentrated in Q4. Shandong Yulong Petrochemical's 3 million ton unit can only produce MX and has not yet obtained PX production approval, likely delayed to 2027. Overseas PX capacity additions in 2026 are limited, with only Indian Oil Corporation's (IOC) 800k ton unit starting up in H2 2026, primarily to supply its downstream PTA plant.

**China PX Operating Rates Show Minor Changes, Two Overseas Units Shut Down** Domestic plants: Operating rates adjusted slightly with little significant change. Overseas plants: Hanwha Total's 770k ton unit in South Korea shut down in early May, restart date TBD. A 550k ton unit in Malaysia shut down on May 6th, with a planned two-month maintenance.

**China PX Operating Rates Show Minor Changes, Two Overseas Units Shut Down** Domestic PX operating rate is currently 83.27%, up 0.02% WoW. Asian PX operating rate is 73.17%, up 0.01% WoW. Domestic PX production in April was 3.135 million tons, down 4.8% MoM, up 9.4% YoY.

**Paraxylene Imports in March +8.9% MoM, +22.9% YoY** China's cumulative PX imports for Jan-Mar 2026 were 2.8435 million tons, up 26.9% YoY. March imports were 1.04 million tons, up 8.9% MoM, up 22.9% YoY.

**No New PTA Capacity Additions in 2026** As units from Luoyang Petrochemical (325k tons), Yizheng Chemical Fiber (350k tons), Ya Dong (750k tons), and Sanfangxiang Phase II (1.2 million tons), totaling 2.625 million tons, have been shut down for over two years with no imminent restart expectations, they are excluded from the capacity base effective year-end. From Jan 1, 2026, the PTA capacity base in mainland China is adjusted to 92.09 million tons. In 2026, there are no new PTA capacity additions, easing commissioning pressure.

**PTA April Monthly Production -12.2% MoM, +2.2% YoY** PTA production for Jan-Apr 2026 was 25.003 million tons, up 6.7% YoY cumulatively. Domestic PTA production in April was 5.951 million tons, down 825k tons MoM (-12.2%), up 128k tons YoY (+2.2%).

**PTA Exports Rebound Significantly MoM and YoY** PTA exports for Jan-Mar 2026 were 916k tons, down 3.1% YoY. March PTA exports were 311.3k tons, up 51.4% MoM, up 7.4% YoY.

**Domestic PTA Operating Rates Continue to Decline WoW** This week, Dushan Energy's 3 million ton unit restarted. Jiaxing Petrochemical's 2.2 million ton unit shut down for maintenance. Taicang Petrochemical's 1.5 million ton unit is under maintenance. Baimeng's 2.5 million ton unit increased its operating rate. Weilian Chemical's 2.5 million ton unit slightly reduced its rate. PTA operating rate is 60.49%, down 4.82 percentage points WoW.

**PTA Warehouse Receipt Quantity Remains High**

**PTA Total Social Inventory Increases** Latest inventory data shows that as of May 8th, PTA social inventory increased by 62k tons WoW to 3.066 million tons. This includes a +49k ton increase in warehouse receipts, a +110k ton increase in in-warehouse/in-port inventory, a -59k ton decrease in PTA factory inventory, and a -38k ton decrease in polyester factory inventory.

**MEG Capacity Additions Concentrated in Q4, Growth Rate High** In 2026, a total of four units are scheduled to start up, primarily oil-based, totaling 2.75 million tons. The MEG capacity growth rate for 2026 rebounds to 9.2%. BASF's unit already started up in early 2026. The other three units are all scheduled for Q4, creating a capacity addition gap in Q2 and Q3.

**MEG April Production -8.7% MoM, -2.4% YoY** MEG production for Jan-Apr 2026 was 6.711 million tons, up 0.7% YoY. April MEG production was 1.557 million tons, down 149k tons MoM (-8.7%), down 39k tons YoY (-2.4%).

**MEG Operating Rate Slightly Recovers** As of May 8th, the overall operating rate for MEG in mainland China was 58.4%, up 1.9% WoW. Ethylene-based capacity utilization was 53.8%, up 2% WoW. Non-ethylene-based MEG operating rates were 66.2%, up 1.6% WoW. For ethylene-based units: Yangzi Petrochemical's 300k ton unit plans maintenance for one and a half months in early May; Gulei Petrochemical's 700k ton unit restart is delayed; Sanjiang Petrochemical is running at extremely low rates; Far Eastern Union's 500k ton unit plans maintenance in mid-to-late May. For non-ethylene-based units: Qianxi Coal Chemical's 300k ton unit increased its rate; Yulin Chemical's third line plans to shut down on May 13th. Recent MEG price declines, coupled with a sharper correction in naphtha prices, have led to a recovery in oil-based margins and a narrowing of coal-based margins.

**March MEG Imports -14.7% MoM, -19.4% YoY** China's MEG imports for Jan-Mar 2026 totaled 1.902 million tons, down 3.1% YoY. March MEG imports were 557.5k tons, down 14.7% MoM, down 19.4% YoY.

**MEG Port Inventory Declines Sharply** On May 8th, MEG port inventory in East China's main ports was 738k tons, down 110k tons WoW. Expected vessel arrivals are low, while outbound shipments declined significantly.

**MEG Producer Inventory Increases Sharply MoM, Polyester Factory Inventory Days Increase MoM** As of May 8th, polyester factory MEG raw material inventory days were 13.8 days (up 0.7 days WoW). MEG producer inventory in April was 392k tons, up 27k tons MoM, up 102k tons YoY.

**2026 Polyester Capacity Growth Rate Higher Than 2025** Polyester capacity additions in 2026 are substantial, with an estimated 5.47 million tons, representing a 6.14% growth rate, higher than 2025. By category: due to significant bottle chip capacity additions in 2024-2025 and persistently low profits, few new bottle chip projects are planned for 2026—only two sets totaling 700k tons (Fuhai 300k tons + Kesen New Materials 400k tons). Filament yarn additions were limited in the previous two years, leading to significantly improved profits, making it the main driver of 2026 capacity growth. In early March, Tongkun Hengyou and Hengyi Haining units started up. In mid-April, Huacheng's 360k ton old unit resumed production.

**Polyester Operating Rates Continue Slight Decline** Polyester operating rates continue to decline slightly. As of May 8th, the polyester operating rate was 80.87% (-0.08% WoW). This includes filament yarn at 82.38% (+0.5% WoW), staple fiber at 79.64% (-2.01% WoW), and bottle chips at 71.44% (unchanged WoW).

**Jan-Mar Polyester Net Exports 3.631 Million Tons, +8.9% YoY** Jan-Mar polyester cumulative exports were 3.631 million tons, up 8.92% YoY. This includes bottle chip cumulative exports of 1.521 million tons, up 1.7% YoY; filament yarn cumulative exports of 1.187 million tons, up 19.8% YoY; and staple fiber cumulative exports of 392k tons, up 6% YoY. Main export destinations for polyester products are Southeast Asian and South Asian countries. In recent years, the polyester industry chain has been shifting overseas, primarily the downstream, terminal-end segments, requiring substantial imports of polyester products from China as raw material. Polyester exports are expected to maintain growth in Q2.

**Polyester Product Inventories Increase Across the Board** Staple fiber equity inventory days: 12.28 days (+0.39 days). DTY: 36.3 days (+2.9 days), FDY: 33.2 days (+3.0 days), POY: 27.5 days (+4.6 days). Polyester chip: 14.37 days (+0.13 days), Polyester bottle chip: 8.86 days (+3.13 days).

**Finished Product Inventory Declines, Raw Material (Polyester Filament) Stocking Remains Weak** As of May 7th, the average finished product (filament fabric) inventory level for terminal weaving was 17.37 days, down 0.61 days WoW. During the May Day holiday, some factories initiated holiday or production cut modes, primarily consuming existing inventory. After the holiday, new order intake was insufficient, and grey fabric warehousing volume was low. Current negotiated prices for conventional grey fabrics have risen less than expected, though some functional fabrics see better sales providing support. As of May 7th, the average raw material (polyester filament) inventory level for terminal weaving enterprises was about 9.88 days, down 1.76 days WoW. High crude oil volatility has led downstream fabric traders to adopt a hand-to-mouth purchasing strategy, strictly controlling both raw material and finished product inventories. Post-holiday high raw yarn prices have dampened downstream manufacturers' purchasing enthusiasm.

**Off-Season Arrives, Downstream Order Intake Moderate** As of May 8th, operating rates for warp knitting, air-jet weaving, water-jet weaving, circular knitting, and dyeing were 43.85% (+2.59% WoW), 50% (-0.17% WoW), 61.07% (-1.01% WoW), 43.08% (-0.78% WoW), and 51.31% (+0.62% WoW), respectively. As of May 7th, the average order days for terminal weaving was 8.76 days, up 0.81 days WoW. The May Day holiday coincided with the Canton Fair, leading to slight order increments for high-value-added, functional products. Current orders are mainly repeat orders and零星补货, with significant batch orders noticeably reduced. Downstream ordering has become cautious, with a "small batch, multi-frequency, quick repeat" model becoming mainstream. The weaving industry overall faces characteristics of few orders, thin profits, and severe homogenized competition. New order intake is moderate.

**03. Supply-Demand Balance Table Forecast**

**PX Monthly Supply-Demand Balance Forecast** **Domestic Production:** No new PX capacity is expected in H1 2026 in China, so supply changes mainly depend on existing plant operating rate adjustments. Seasonal refinery maintenance and preventive rate cuts in response to potential feedstock shortages are considered. Given expectations for Strait of Hormuz navigation to resume, significant further rate cuts are unlikely. **Imports:** In Q1, high PXN and short-route margins, coupled with ample PX supply from Japan and South Korea, led to high Chinese imports. Entering March, the US-Iran war severely disrupted Middle East crude oil and naphtha exports, causing significant Asian refinery rate cuts. Combined with peak gasoline demand season and a shift towards reducing chemicals and increasing fuels, imports of PX and other aromatics are expected to drop sharply. Q2 PX imports are forecast around 700k tons. **Demand:** Significant PTA maintenance is scheduled for Q2. Under expectations of PX supply shortages, PTA rates are expected to remain low. However, with high processing margins, restarts are anticipated to increase in June. **Conclusion:** Both domestic PX production and imports are expected to decline in Q2. Demand will also see some reduction. Overall, PX fundamentals point towards inventory drawdown. Key future focus is Strait of Hormuz navigation. Considering substantial crude oil production cuts in major Middle East producers, fundamentals will remain tight, though Q2 tightness is expected to ease somewhat compared to before.

**PTA Monthly Supply-Demand Balance Forecast** **Supply Side:** No new PTA capacity additions in 2026. Q1 PTA operating rates were neutral, leading to continuous inventory accumulation amid seasonally weak downstream demand. Entering Q2, PTA enters its traditional maintenance season. Considering PX supply tightness, PTA operating rates are expected to remain low. As processing margins continue to rise, rates are expected to gradually increase in June. **Net Exports:** India became China's largest PTA importer this year, partially offsetting reduced imports from Turkey. However, with GAIL's 1.25 million ton unit in India starting up in Q1 2026, import demand is expected to decrease. Therefore, China's PTA exports are forecast to decline further in Q2. **Demand Side:** Significant polyester capacity additions are planned for 2026, with a growth rate higher than last year. However, operating rates should not be overestimated. Referring to 2022, when upstream raw material prices surged sharply, downstream demand showed negative feedback, pushing polyester operating rates to low levels. **Conclusion:** In Q2, constrained by feedstock supply, PTA operating rates and production are expected to decline. Exports are expected to decrease due to new overseas capacity. Fundamentals point towards inventory drawdown.

**MEG Monthly Supply-Demand Balance Forecast** **Supply Side:** A capacity addition gap is expected in Q2 2026, with major additions concentrated in H2. Q1 MEG prices were low, with both ethylene-based and non-ethylene-based margins weak. However, due to substantial existing capacity, production remained high. Entering Q2, the impact of the Middle East US-Iran war is gradually materializing, causing crude oil and naphtha supply shortages, coupled with seasonal domestic plant maintenance. Ethylene-based unit rates are expected to decline further due to poor economics. Non-ethylene-based units have good margins but limited room for further increases. Therefore, domestic MEG production in Q2 is expected to decline by 1-2 million tons. **Net Imports:** There are expectations for Strait of Hormuz navigation to resume in May, gradually restoring Middle East MEG exports, though this will take time. Significant net import recovery is not expected until after July. **Demand Side:** Significant polyester capacity additions are planned for 2026, with a growth rate higher than last year. However, operating rates should not be overestimated. Referring to 2022, when upstream raw material prices surged sharply, downstream demand showed negative feedback, pushing polyester operating rates to low levels. **Conclusion:** Domestic ethylene-based MEG operating rates have declined significantly with limited further downside, while non-ethylene-based rates are already high. Imports dropped sharply in April-May, beginning recovery in June and significant recovery in July. The magnitude of fundamental inventory drawdown is expected to narrow compared to earlier periods.