Market Overview

The analysis from a major research institute suggests a cautiously bullish outlook for the PX and PTA markets. Many PX and PTA units are expected to restart from late July, increasing supply on the margin. On the demand side, the off-season is resulting in fewer downstream orders. As geopolitical tensions rise, enthusiasm for purchasing from downstream polyester filament and staple fiber producers has waned, leading to a significant drop in production and sales. Before the peak season arrives, the possibility of concentrated restocking by end-users is low.

Trading Strategy and Valuation

The strategy is to follow the crude oil rebound in single-leg trading, as the polyester chain's valuation is at a low level. The approach is bullish on pullbacks, with the risk point being the potential for a US policy shift. With the Strait of Hormuz being blocked again, market attention has returned to the uncertainty of Middle Eastern raw material supply. A shortage of naphtha could impact the normal operations of both domestic and international PX plants. Investors should watch for the PX or PTA 9-1 calendar spread opportunities.

Valuation is considered bullish, as PXN continues to compress and PTA processing margins weaken, while overall polyester product profits narrow. With the rise in upstream costs, the valuation of the polyester chain is under compression.

Cost and Supply Dynamics

From a cost perspective, the outlook is bullish as the conflict between the US and Iran persists, with geopolitical premiums continuing to push up crude oil prices. The situation has the potential to escalate, with the US expanding its strikes on Iran to civilian infrastructure, such as bridges and power plants. Medium to long-term support is expected from refinery restocking and SPR replenishment during the peak season.

The supply outlook is bearish. For PX, domestic units like Liaoyang Petrochemical (700,000 tons) have a one-week maintenance plan at the end of July, while Zhongjin Petrochemical (1.6 million tons) may restart at the end of July or early August. Overseas, Lotte's 500,000-ton unit is restarting in mid-July. Domestically, Fujian Haichuang and Wilmar Chemical are scheduled to restart at the end of July, and Shenghong has a restart plan for August.

For PTA, Taiwan's Zhonghe (700,000 tons) restarted on July 13. Yisheng Dalian (2.25 million tons) has restarted and is producing products. Zhongtai Petrochemical (1.2 million tons) will restart in late July. Sichuan Nenghong, Fujian Haichuang, and Zhongtai Chemical are set to restart at the end of July.

Demand and Balance

The demand outlook is neutral. The polyester operating rate is expected to see minor short-term adjustments. Recently, due to increased geopolitical risk, raw material price uncertainty has grown, reducing downstream buying interest for staple fiber and filament yarn.

The supply-demand balance is neutral. PX and PTA unit operating rates are expected to rise, while polyester production rates remain largely unchanged. Low operating rates have accelerated the destocking of PTA social inventory. However, with the expected improvement in supply, the fundamentals are marginally weakening. Medium to long-term attention should be paid to the impact of a closure of the Strait of Hormuz on the raw material supply for the polyester chain.

Monoethylene Glycol (MEG) Analysis

The core view for MEG is bullish. Following the blockade of the Strait of Hormuz, there are still no signs of import recovery, and the timeline for import normalization has been pushed back. Meanwhile, export volumes have increased significantly year-on-year, leading to a substantial decline in net imports. Domestically, margins for coal-based units have narrowed, and more units that had not previously undergone maintenance are now planning turnarounds. On the demand side, the off-season is resulting in fewer downstream orders. As geopolitical tensions rise, downstream buying enthusiasm has waned, and production and sales have dropped significantly. Before the peak season, the likelihood of concentrated restocking by end-users is low. In the short term, the supply-demand gap for ethylene glycol remains large, making it a key issue. In the fourth quarter, more MEG capacity is expected to come online, with pressure primarily on the January contract, resulting in a near-strong, far-weak overall pattern.

MEG Strategy and Valuation

The strategy is to maintain long positions as Middle Eastern geopolitical tensions continue to develop and the upward driver from crude oil remains. Investors should watch for the possibility of unit load increases once domestic coal-based profits improve.

The valuation outlook is bearish. While oil products have surged and MEG prices have recovered, naphtha-based production profits have fallen, but coal-based profits have improved significantly.

MEG Supply and Imports

The supply outlook is bullish. As of July 17, the overall MEG operating rate in mainland China was 53.72%, up 0.45% week-on-week. The utilization rate for ethylene-based capacity was 50.88% (+0.79%), while for non-ethylene-based capacity, it was 58.62% (-0.15%).

The import outlook is positive. The Strait of Hormuz has been blocked again, pushing back the timeline for recovery of Middle Eastern MEG imports. A supply gap for MEG overseas has led to an increase in China's MEG exports.

MEG Balance and Price Review

The demand outlook is neutral. Polyester rates are expected to see minor short-term adjustments. Due to recent geopolitical risks, raw material price uncertainty has increased, reducing downstream purchasing interest.

The supply-demand balance is positive. The situation in the US-Iran conflict remains volatile, delaying the resumption of transit through the Strait of Hormuz. Import recovery will take time, and MEG is expected to undergo significant destocking in the third quarter. Fundamentals are tightening due to very low net imports.

A review of PTA and MEG prices shows recent trends in price, spreads, and profits.

Price, Spreads, and Profits

The PX 9-1 monthly spread is trading in a bottom range. The US-Iran conflict continues, with geopolitical premiums pushing up crude oil prices. The situation has the potential to escalate, with strikes possibly expanding to civilian infrastructure. Medium to long-term support is expected from peak-season refinery restocking and SPR replenishment.

Naphtha prices have weakened in line with crude oil. The Japan CFR mid-price was $855.25/ton, up $21.88/ton week-on-week (+2.63%). PX CFR Taiwan was $1,071.7/ton, down $17/ton week-on-week (-1.56%).

The PXN spread continues to fall, while short-process margins have rebounded. The latest PXN was $216.42/ton, down $38.88/ton week-on-week. The PX-MX spread has also dropped significantly, with PX short-process production profit at $109.67/ton, down $38/ton week-on-week.

Gasoline crack spreads in the US, Europe, and Asia have rebounded strongly. Asian naphtha cracking profits have recovered, and gasoline-type reforming margins are performing better. Due to the renewed conflict and disruption to Strait transit, European naphtha supply is tight, leading to higher naphtha prices and stronger cracking margins. During the peak gasoline consumption season, the profit from blending naphtha into gasoline has improved relative to aromatics-type reforming margins. The economic viability of blending xylene and toluene into gasoline has strengthened significantly.

PTA Basis and Processing Margins

PTA spot basis and monthly spreads have weakened. The spot processing margin has fallen from highs. This week, the PTA spot basis weakened, starting the week at a premium of 240-250 over the 09 contract before moving lower to 220-255, then further to 208-225, and finally to a low of 198-215 by Friday. Warehouse receipts were traded at a 210 premium over the 09 contract.

In the middle of the week, PX prices rebounded strongly, but PTA struggled to follow, leading to a significant compression of the PTA processing spread, which fell to a low of 370 yuan/ton, with a weekly average of 483 yuan/ton.

On July 22, the main PTA futures contract closed at 5,890 yuan/ton, up 138 yuan/ton week-on-week (+2.4%).

MEG Basis and Spreads

Both the MEG basis and the 9-1 monthly spread have strengthened. In the first half of the week, MEG prices rose sharply, with decent buying interest. Spot prices were traded as high as 4,830-4,840 yuan/ton, and the spot basis also strengthened. In the second half of the week, MEG futures experienced high-level wide fluctuations, with some holders increasing their selling. Buying interest for forward months picked up, with August-delivery futures trading at a premium of 160-165 yuan/ton over the 09 contract by Friday.

On July 22, the main MEG futures contract closed at 4,776 yuan/ton, up 126 yuan/ton week-on-week (+2.71%).

Profits for all polyester products have declined.

Supply, Demand, and Inventories

Polyester capacity additions in 2026 are expected to be higher than in 2025. New polyester capacity in 2026 is significant, with an estimated 5.47 million tons to be added, representing a growth rate of 6.14%, higher than in 2025. In terms of product type, due to heavy bottle-grade chip capacity additions in 2024 and 2025 and persistently low profits, few new bottle-grade chip units are planned for 2026. Filament yarn, which saw limited capacity additions in the previous two years and has seen a significant profit recovery, will be the main driver of capacity growth in 2026. In the first quarter, two units with a total capacity of 800,000 tons were started. In April and May, an additional 1.01 million tons of capacity came online, mainly for filament yarn, chips, and bottle-grade chips. With the continued improvement in bottle-grade chip profits, units from Hanjiang and Anhua are expected to come online.

The polyester operating rate has increased slightly. As of July 17, the overall polyester operating rate was 80.05% (+0.45%). The filament yarn rate was 74.39% (+0.19%), staple fiber was 75.71% (-1.66%), and bottle-grade chips were 74.91% (+2.62%).

From January to June, polyester net exports totaled 7.4108 million tons, up 3.1% year-on-year. Cumulative polyester exports for the period were 6.207 million tons, an increase of 3.1% year-on-year. Bottle-grade chip exports were 3.208 million tons (-1.1%), filament yarn exports were 2.155 million tons (+1.9%), and staple fiber exports were 847,000 tons (+4.7%).

Polyester product inventories have all declined. Staple fiber rights inventory was 7.8 days (-0.64 days). DTY inventory was 33 days (-4.3 days), FDY was 30.3 days (-2.2 days), and POY was 25.9 days (-0.5 days). Polyester chip inventory was 6.03 days (-0.42 days), and bottle-grade chip inventory was 8.43 days (-0.78 days).

The production-to-sales ratio for staple fiber and filament yarn has declined week-on-week. The five-day average production-to-sales ratio for staple fiber was 58.7%, down 10.3% week-on-week. For filament yarn, it was 37.6%, down 10.2% week-on-week. For chips, it was 48.1%, down 5.8% week-on-week.

Finished goods inventory days and raw material (polyester yarn) stocking days have both decreased. As of July 23, the average finished goods inventory level for end-use weaving (long-fiber fabric) was 18.02 days, an increase of 0.41 days from the previous week. Due to insufficient orders, some manufacturers are opting to produce standard varieties like microfiber fleece and plain weave for inventory. Demand for conventional grey fabrics is weak with poor transactions. Order books are insufficient, and downstream purchasing is very cautious. Grey fabric inventories are gradually accumulating, and the market is in a deep off-season.

As of July 23, the average raw material (polyester yarn) inventory level for end-use weaving enterprises was about 10.70 days, down 0.07 days from the previous week. The ongoing geopolitical crisis has caused wide fluctuations in raw material prices. Weaving mills made small, concentrated purchases again, but there is no substantial improvement in downstream demand. Purchases are mainly to maintain current operating rates, and manufacturers are not very proactive. Some small-scale enterprises are reducing operating rates to hedge against risk, leading to a slight drop in average raw material inventory levels compared to the previous week.

Downstream order intake is average. As of July 23, the operating rates for warp knitting, air-jet, water-jet, circular knitting, and printing/dyeing were 46.2% (0%), 52.7% (-0.5%), 58.02% (-0.77%), 35.74% (-0.46%), and 49.32% (-1.37%), respectively.

The average order lead time for end-use weaving was 7.16 days as of July 23, down 0.61 days from the previous week. Due to high temperatures, consumption downgrading, and the deepening off-season for textiles and apparel, orders are scarce. While inquiries and sampling for autumn/winter fabrics are gradually increasing, some summer functional fabrics with cooling properties still have outstanding orders. However, with significant raw material price volatility, there is a large pricing disagreement between upstream and downstream, and both sides are generally cautious about accepting new orders.

PX Capacity and Operating Rates

In 2026, domestic units slated for startup total 3.97 million tons, a capacity growth rate of 9.1%. This includes an expansion of 300,000 tons by Fujia Dahua, 2 million tons by Huajin, and 1.5 million tons by Jiujiang Petrochemical (which may be delayed). Fujia Dahua's expansion is expected to start production early in the year. Jinling Petrochemical's restart in late May will expand its capacity by 170,000 tons to 870,000 tons. Huajin's unit is scheduled for the third quarter of 2026, while Jiujiang's unit will not start until the fourth quarter. As a result, PX supply pressure will be concentrated in the fourth quarter. Shandong Yulong Petrochemical's 3 million ton unit can only produce MX and has not yet obtained a PX production license, which is expected to be delayed until 2027.

Overseas, there are few new PX units in 2026, with only IOC's 800,000-ton unit coming online in the second half of 2026, primarily to supply its downstream PTA unit.

Chinese and overseas PX operating rates have seen little change. The operating rate for domestic PX units is currently 62.58%, unchanged week-on-week. The Asian PX unit operating rate is 59.64%, down 0.08% week-on-week.

China's PX production in June was 2.897 million tons, a month-on-month decrease of 2.1% and a year-on-year decrease of 10.2%.

Paraxylene imports in June increased by 0.02% month-on-month but fell 37% year-on-year. From January to June 2026, China's cumulative PX imports were 4.502 million tons, up 0.02% year-on-year. June imports were 482,000 tons, up 0.04% month-on-month, but down 37% year-on-year.

PTA Capacity and Production

There are no new PTA units scheduled for startup in 2026. Due to units from Luoyang Petrochemical (325,000 tons), Yihua (350,000 tons), Yadong (750,000 tons), and Sanfangxiang Phase 2 (1.2 million tons) being idle for over two years with no recovery expectations, they will be excluded from the capacity base. As of January 1, 2026, the mainland China PTA capacity base has been adjusted to 92.09 million tons.

PTA production in June was 5.518 million tons, up 3.8% month-on-month but down 12.3% year-on-year. From January to June 2026, PTA production was 35.839 million tons, a cumulative year-on-year increase of 0.3%. June output was 5.518 million tons, up 200,000 tons month-on-month (+3.8%) and down 771,000 tons year-on-year (-12.3%).

PTA exports in June increased by 9.8% month-on-month and 40.3% year-on-year. From January to June 2026, PTA exports were 1.891 million tons, up 1.8% year-on-year. June exports were 358,000 tons, up 9.8% month-on-month and 40.3% year-on-year.

The domestic PTA operating rate has rebounded from lows. The PTA operating rate is 55.29%, up 2.41% week-on-week.

PTA warehouse receipt volumes have declined from highs.

Total PTA social inventory continues to destock significantly. According to the latest data from Zhongpu, as of July 17, total PTA social inventory continued to drop significantly, falling by 144,000 tons week-on-week to 2.139 million tons. This included a decrease of 29,500 tons in warehouse receipts, a decrease of 60,000 tons in port and warehouse inventory, an increase of 13,500 tons in PTA plant inventory, and a decrease of 67,500 tons in polyester plant inventory.

MEG Capacity and Production

In 2026, a total of four MEG units are scheduled to start up, primarily oil-based, with a total capacity of 2.75 million tons. The MEG capacity growth rate for 2026 is expected to rebound to 9.2%. BASF's unit has already started production in early 2026. The other three units are all scheduled for the fourth quarter, leaving the second and third quarters as a capacity addition window period.

MEG production in June decreased by 8.6% month-on-month but increased by 1.5% year-on-year. From January to June 2026, total MEG production was 9.956 million tons, up 2.2% year-on-year. June MEG production was 1.55 million tons, down 146,000 tons month-on-month (-8.6%) and up 23,000 tons year-on-year (+1.5%).

MEG coal-based unit maintenance has increased, and the non-ethylene-based operating rate has fallen significantly. As of July 17, the overall MEG operating rate in mainland China was 53.72%, up 0.45% week-on-week. The ethylene-based utilization rate was 50.88% (+0.79%), and the non-ethylene-based rate was 58.62% (-0.15%). For ethylene-based units, Sinopec Wuhan's 280,000-ton unit is running at low load, and Gulei Petrochemical's 700,000-ton unit has restarted. Far Eastern Union's 500,000-ton unit is increasing load, and one 900,000-ton line at Hengli has shut down for a month of maintenance. Loads at Zhejiang Petrochemical's Phase 1 and Phase 2 units have decreased slightly. For non-ethylene-based units, Xinjiang Tianye's Phase 3 (600,000 tons) plans a month of maintenance in August. Yangquan Shouyang's 200,000-ton unit started maintenance in mid-July. Hongsifang is increasing load. Woneng's 300,000-ton unit plans maintenance from late July to August 20. Guanghui's 400,000-ton unit is in maintenance and expected to restart at the end of July. Meijin's 300,000-ton unit shut down this week with a restart date pending. Zhonghuaxue's 300,000-ton unit is restarting. Zhengdakai plans maintenance in late July.

Oil product prices have surged, leading to a recovery in MEG prices, while naphtha-based profits have fallen and coal-based profits have improved significantly.

From January to June, MEG imports fell 80.1% year-on-year, while exports surged. In the first half of 2026, China's total MEG imports were 2.58 million tons, down 32.9% year-on-year. June MEG imports were 123,000 tons, down 38.5% month-on-month and 80.1% year-on-year. From January to June 2026, China's total MEG exports were 339,000 tons, up 368.9% year-on-year. June MEG exports were 98,000 tons, up 13.2% month-on-month and 1019.8% year-on-year.

MEG port inventory continues to decline. As of July 17, MEG port inventory in the main east China ports was 380,000 tons, down 48,000 tons week-on-week. Expected arrivals have rebounded slightly to 116,500 tons. Outbound volumes have increased significantly.

MEG producer inventory increased significantly month-on-month, while days of inventory at polyester plants increased slightly. As of July 17, the raw material (MEG) stocking days for polyester plants was 13.5 days (down 0.3 days week-on-week). MEG plant inventory in June was 480,000 tons, up 30,000 tons month-on-month and up 171,000 tons year-on-year.

Supply-Demand Balance Estimates

For the PX monthly supply-demand balance, entering the second quarter, due to limited crude oil supply, PX units followed refineries in reducing loads, but the reduction was not significant, and operating rates were higher year-on-year. Downstream PTA entered a concentrated maintenance season starting in April, coupled with raw material shortages for some producers, leading to PTA operating rates falling to multi-year lows. The PX fundamentals marginally loosened. In June and July, with maintenance at several large units like Shenghong and Wilmar, operating rates will hit their year's low point, tightening the PX supply-demand balance further. In the fourth quarter, with new unit startups and the arrival of the downstream off-season, PX will begin to accumulate inventory.

For the PTA monthly supply-demand balance, in the second quarter, PTA units were affected by insufficient raw material (PX) supply and underwent seasonal maintenance. Output saw a significant reduction, a situation expected to continue until July. Exports declined year-on-year due to new overseas unit startups. The fundamentals show significant destocking in May, June, and July, with destocking narrowing in August. In the fourth quarter, with the recovery of supply and the arrival of the off-season, fundamentals will shift to inventory accumulation.

For the MEG monthly supply-demand balance, entering the third quarter, due to ongoing uncertainty in the US-Iran situation and the uncertain navigability of the Strait of Hormuz, imports are expected to remain at low levels. Domestically, maintenance on China's non-ethylene-based MEG units is increasing. As profits decline, operating rates are falling from highs. Overall, production is expected to see limited sequential increase from the second quarter. Assuming the Strait of Hormuz becomes navigable in August, imports will begin to slowly increase from September. Downstream polyester units will also raise rates and restock. The fundamentals are expected to remain in a destocking state for the third quarter.

Disclaimer: This article is for reference only and does not constitute investment advice.