Summary of Views: PX/PTA Core View: Slightly Bullish The fundamentals for PX and PTA present a scenario of weak supply and demand. PX operating rates continue to decline, with PXN and short-process profits currently at low levels, leading to expectations of further reductions in PX plant operations. PTA has entered its peak maintenance season, with operating rates reaching their lowest level in five years. On the demand side, the onset of the off-season has resulted in fewer orders for downstream textile enterprises. Coupled with concerns over high raw material costs, the willingness to stockpile raw materials is generally low. Upstream polyester product inventories are under significant pressure, with staple fiber and filament yarn stocks continuously accumulating. This, in turn, is forcing upstream staple fiber and filament yarn producers to reduce operating rates. Amid renewed tensions between the US and Iran, polyester plants are maintaining a strategy of low operating rates and low raw material inventories. Strategy: Driven by costs and under low valuation, a slightly stronger, range-bound trend is expected for outright positions. Due to negative demand feedback, low PTA operating rates have not led to significant inventory drawdowns. Consider shorting PTA processing spreads within the range of 450-500 yuan/ton. Staple fiber profits have been low for an extended period, with high inventory levels, raising the possibility of production cuts by plants. Monitor opportunities to go long on the September staple fiber processing spread below 850 yuan/ton. Valuation: Slightly Bullish. PXN and PX-MX spreads have fallen sharply, while PTA processing spreads have declined slightly. Polyester product profits are diverging, with fiber segment profits low and bottle chip profits high. Midstream and upstream profits have decreased, while downstream profits have improved marginally. The polyester industry chain valuation is relatively low compared to crude oil. Cost: Slightly Bullish. Following the conclusion of the US-China summit, the oil market's focus has returned to the evolution of the US-Iran situation. Until a breakthrough occurs in US-Iran relations, shipping traffic through the Strait of Hormuz is expected to remain low. With the Northern Hemisphere consumption peak season approaching, demand is anticipated to drive continued inventory drawdowns. Supply-demand tensions support a gradual upward shift in the oil price center. Supply: Neutral PX: Yangzi Petrochemical's unit underwent maintenance in mid-May, expected to last until early July. Overseas, the 1.5 million ton Hengyi Brunei unit began gradually increasing its operating rate in early May. PTA: This week, the 2.5 million ton Yisheng Hainan unit resumed after a brief shutdown. The 1.5 million ton Taicang unit is shut down, while its 1.2 million ton unit is operating normally. The 2.5 million ton Weilian Chemical unit increased its operating rate. Demand: Slightly Bearish. Terminal demand has entered the off-season, with textile enterprises receiving fewer orders. Polyester product inventories continue to accumulate, forcing polyester plants to reduce production. Polyester operating rates have fallen to levels seen during the 2022 Russia-Ukraine war period. Supply-Demand Balance: Slightly Bullish. PX operating rates remain low, and PTA plant maintenance has increased, pushing operating rates to a five-year low. However, due to negative demand feedback, the drawdown in PTA social inventories is not significant. From May to June, if the Middle East situation does not improve, inventory drawdown expectations persist.

MEG Core View: Slightly Bullish Significant differences remain between the US and Iran on nuclear issues, with the potential for escalating tensions. There are currently no signs of resumed shipping through the Strait of Hormuz, hindering Middle East MEG exports. Domestically, ethylene-based MEG production has increased slightly as domestic refinery operating rates have risen. Coal-based syngas MEG operating rates have been raised to high levels due to favorable profits. On the demand side, the off-season has arrived, with downstream textile enterprises receiving fewer orders. Combined with strong resistance to high-priced raw materials, the enthusiasm for earlier restocking was generally low. Polyester inventories continue to accumulate. Under low-profit conditions, staple fiber is expected to lead a further reduction in polyester operating rates. Strategy: Given high uncertainty in the US-Iran situation, low valuation, and rising costs, consider buying on dips for the main contract below 4700 for tactical trading. Risks to a long position lie in a further deepening of negative demand feedback and the resumption of shipping through the Strait of Hormuz. Valuation: Slightly Bullish. Prices fell sharply earlier due to eased US-Iran tensions, leading to significant declines in oil-based and coal-based profits. Overall valuation is low. Supply: Slightly Bearish. As of May 15, the overall operating rate for MEG in mainland China was 60.1%, up 1.72% week-on-week. Ethylene-based capacity utilization was 55.64%, up 1.8% week-on-week. Non-ethylene based MEG operating rates were 67.8%, up 1.58% week-on-week. Demand: Slightly Bearish. Terminal demand has entered the off-season, with textile enterprises receiving fewer orders. Polyester product inventories continue to accumulate, forcing polyester plants to reduce production. Polyester operating rates have fallen to levels seen during the 2022 Russia-Ukraine war period. Supply-Demand Balance: Slightly Bullish. Renewed US-Iran tensions have decreased the probability of import recovery. MEG is expected to continue significant inventory drawdowns in Q2, with fundamentals tightening further driven by supply.

01. Prices, Spreads, and Profits The PX September-January spread has bottomed and rebounded. Following the conclusion of the US-China summit, the oil market's focus has returned to the evolution of the US-Iran situation. Until a breakthrough occurs in US-Iran relations, shipping traffic through the Strait of Hormuz is expected to remain low. With the Northern Hemisphere consumption peak season approaching, demand is anticipated to drive continued inventory drawdowns. Supply-demand tensions support a gradual upward shift in the oil price center. Naphtha prices strengthened, with the Japan CFR middle price at $1,022.5/ton, up $102.75/ton or 11.17% week-on-week. PX CFR Taiwan was $1,207.33/ton, up $23.33/ton or 1.97% week-on-week.

PXN and short-process profits have both fallen sharply. The latest PXN is $184.83/ton, down $79.42/ton week-on-week. The PX-MX spread fell significantly. PX short-process production profit was $81.67/ton, down $54.33/ton week-on-week.

Gasoline crack spreads in the US, Europe, and Asia all rose.

Asian naphtha cracking profits have bottomed and rebounded. Naphtha crack spreads rose further this week. Overall gasoline demand is good, leading to stronger crack spreads. Nigeria's lifting of fuel oil export restrictions has exacerbated tightness in the European refined products market, providing some support for naphtha prices. Entering the gasoline consumption peak season, naphtha gasoline-type reforming profits have strengthened relative to aromatics-type reforming profits.

The economic attractiveness of MX and toluene for chemical use versus blending has declined significantly relative to blending.

PTA basis and calendar spreads weakened slightly, with spot processing spreads compressed. During the week, as news of joint production cuts by downstream polyester plants developed, the June-September spread narrowed, and the PTA spot basis weakened noticeably. At the start of the week, the spot basis was around +180 vs. September. On Tuesday afternoon, it quickly weakened to around +150 vs. September. On Wednesday, it continued the weak trend from Tuesday's close, with the spot basis around +142~150 vs. September. In the latter half of the week, it weakened further to around +125~135 vs. September. PTA processing spreads were compressed week-on-week, averaging 327 yuan/ton for the week. On May 18, the main PTA futures contract settled at 6,494 yuan/ton, up 8 yuan/ton or 0.12% week-on-week.

The MEG basis weakened slightly, while the September-January spread bottomed and rebounded. At the start of the week, boosted by rising crude oil prices, MEG spot transactions reached above 5,000 yuan/ton, but follow-up buying interest was generally subdued. In the first half of the week, MEG futures fluctuated widely, and the spot basis declined. This week, spot transactions were around a premium of 92-93 yuan/ton to the September contract. In the latter half of the week, MEG prices weakened and moved lower. Polyester plants made some purchases on dips, and some traders with contract shortfalls actively restocked, keeping the basis relatively stable. On May 18, the main MEG futures contract settled at 4,793 yuan/ton, up 60 yuan/ton or 1.27% week-on-week.

Polyester product profits increased slightly.

02. Supply, Demand, and Inventories 2026 PX capacity additions are concentrated in the second half of the year. In 2026, domestic planned capacity additions total 3.8 million tons, representing a growth rate of 8.7%. This includes Fujia Dahua's 300,000-ton expansion, Huajin's 2 million tons, and Jiujiang Petrochemical's 1.5 million tons (which may be delayed). In terms of timing, Fujia Dahua is expected to start up around the end of this year or early 2026, Huajin in Q3 2026, and Jiujiang Petrochemical not until Q4 2026. Therefore, for the full year, PX supply pressure is mainly concentrated in Q4. Shandong Yulong Petrochemical's 3 million-ton unit can only produce MX and has not yet obtained a PX production license; it is expected to be delayed until 2027. Overseas PX capacity additions in 2026 are limited, with only an 800,000-ton unit by Indian Oil Corporation (IOC) scheduled for startup in H2 2026, primarily to supply raw materials for downstream PTA units.

Chinese PX operating rates declined slightly, while overseas rates fell sharply. Domestic units: Yangzi Petrochemical's unit underwent maintenance in mid-May, expected to last until early July. Overseas units: Hanwha TotalEnergies' 770,000-ton line in South Korea shut down in early May, with restart timing pending. A 550,000-ton unit in Malaysia shut down on May 6, planning a two-month maintenance. The 1.5 million ton Hengyi Brunei unit began gradually increasing its operating rate in early May.

Chinese PX operating rates declined slightly, while overseas rates fell sharply. The current operating rate for domestic PX units is 83.19%, down 0.08% week-on-week. The operating rate for Asian PX units is 63.89%, down 5.06% week-on-week. Domestic PX production in April was 3.135 million tons, down 4.8% month-on-month but up 9.4% year-on-year.

Paraxylene imports in March increased 8.9% month-on-month and 22.9% year-on-year. Cumulative PX imports from January to March 2026 were 2.8435 million tons, up 26.9% year-on-year. March imports were 1.04 million tons, up 8.9% month-on-month and 22.9% year-on-year.

No new PTA capacity additions in 2026. As units from Luoyang Petrochemical (325,000 tons), Yizheng Chemical Fiber (350,000 tons), Ya Dong (750,000 tons), and Sanfangxiang Phase II (1.2 million tons), totaling 2.625 million tons of capacity, have been shut down for over two years with no immediate restart expectations, they are excluded from the capacity base by year-end. Effective January 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 monthly production in April decreased 12.2% month-on-month but increased 2.2% year-on-year. Cumulative PTA production from January to April 2026 was 25.003 million tons, up 6.7% year-on-year. Domestic PTA production in April was 5.951 million tons, down 825,000 tons or 12.2% month-on-month, but up 128,000 tons or 2.2% year-on-year.

PTA exports increased significantly both month-on-month and year-on-year. PTA exports from January to March 2026 were 916,000 tons, down 3.1% year-on-year. PTA exports in March were 311,300 tons, up 51.4% month-on-month and 7.4% year-on-year.

Domestic PTA operating rates increased week-on-week. This week, the 2.5 million ton Yisheng Hainan unit resumed after a brief shutdown. The 1.5 million ton Taicang unit is shut down, while its 1.2 million ton unit is operating normally. The 2.5 million ton Weilian Chemical unit increased its operating rate. PTA operating rates were 63.17%, up 2.68% week-on-week.

PTA warehouse receipt quantities have retreated from highs.

PTA total social inventories have fallen sharply. According to the latest Zhongpu inventory data, as of May 15, PTA social inventories fell sharply, down 78,000 tons week-on-week to 2.989 million tons. This includes a decrease of 68,000 tons in warehouse receipts, an increase of 55,000 tons in in-warehouse and in-port inventories, a decrease of 45,000 tons in PTA plant inventories, and a decrease of 20,000 tons in polyester plant inventories.

MEG capacity additions are concentrated in Q4, with a relatively high growth rate. In 2026, a total of four units are scheduled for startup, primarily oil-based, totaling 2.75 million tons. The MEG capacity growth rate for 2026 rebounds to 9.2%. BASF's unit started up in early 2026. The other three units are all scheduled for startup in Q4, creating a window with no new capacity in Q2 and Q3.

MEG production in April decreased 8.7% month-on-month and 2.4% year-on-year. Cumulative MEG production from January to April 2026 was 6.711 million tons, up 0.7% year-on-year. MEG production in April was 1.557 million tons, down 149,000 tons or 8.7% month-on-month, and down 39,000 tons or 2.4% year-on-year.

MEG operating rates increased slightly. As of May 15, the overall operating rate for MEG in mainland China was 60.1%, up 1.72% week-on-week. Ethylene-based capacity utilization was 55.64%, up 1.8% week-on-week. Non-ethylene based MEG operating rates were 67.8%, up 1.58% week-on-week. For ethylene-based units: Yangzi Petrochemical's 300,000-ton unit began maintenance on May 15 for two months. Sinopec Wuhan's 280,000-ton unit plans to shut down for maintenance from late May. Gulei Petrochemical's 700,000-ton unit has no restart plan for May-June. Hainan Refining's 800,000-ton unit will begin maintenance in early June. Sanjiang Petrochemical's 1 million-ton unit is operating at extremely low rates. Far East Union's 500,000-ton unit plans maintenance starting May 20. For non-ethylene based units: Yulin Chemical's third line shut down on May 13. Naphtha-based profits declined, while coal-based profits narrowed.

MEG imports in March decreased 14.7% month-on-month and 19.4% year-on-year. Cumulative MEG imports from January to March 2026 were 1.902 million tons, down 3.1% year-on-year. MEG imports in March were 557,500 tons, down 14.7% month-on-month and 19.4% year-on-year.

MEG port inventories have fallen sharply. As of May 15, MEG port inventories in East China's main ports were 674,000 tons, down 64,000 tons week-on-week. Expected arrivals have bottomed and are rebounding but remain at low levels overall, while outbound shipment volumes remain low.

MEG plant inventories increased significantly month-on-month, and polyester plant inventory days increased week-on-week. As of May 15, polyester plants held MEG raw material inventory for 14 days (up 0.2 days week-on-week). MEG plant inventories in April were 392,000 tons, up 27,000 tons month-on-month and 102,000 tons year-on-year.

2026 Polyester capacity growth rate is higher than in 2025. A significant amount of new polyester capacity is planned for 2026, with expected additions of 5.47 million tons, representing a growth rate of 6.14%, higher than in 2025. By product category: Due to substantial bottle chip capacity additions in 2024 and 2025 and persistently low profits, few new bottle chip units are planned for 2026—only two units totaling 700,000 tons (Fuhai's 300,000 tons plus Kesen New Materials' 400,000 tons). In contrast, filament yarn additions were relatively low in the past two years, and profits have improved significantly, making filament yarn the main focus of capacity additions in 2026. In early March, Tongkun Hengyou and Hengyi Haining units started up. In mid-April, Huacheng's 360,000-ton old unit resumed operation.

Polyester operating rates increased slightly. Polyester operating rates increased slightly. As of May 15, the polyester operating rate was 81.1% (up 0.22%). This includes filament yarn at 79.78% (down 2.6%), staple fiber at 76.84% (down 2.8%), and bottle chips at 71.44% (unchanged).

Polyester net exports from January to March were 3.631 million tons, up 8.9% year-on-year. Cumulative polyester exports from January to March were 3.631 million tons, up 8.92% year-on-year. This includes cumulative bottle chip exports of 1.521 million tons, up 1.7% year-on-year. Cumulative filament yarn exports were 1.187 million tons, up 19.8% year-on-year. Cumulative staple fiber exports were 392,000 tons, up 6% year-on-year. The 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 in the downstream and terminal segments, requiring substantial imports of polyester products from China as raw materials. Polyester exports are expected to continue their growth trend in Q2.

Inventories decreased for staple fiber, FDY, and bottle chips; others increased. Staple fiber equity inventory days: 11.11 days (down 1.17 days). DTY: 38.1 days (up 1.8 days), FDY: 32.8 days (down 0.4 days), POY: 29.6 days (up 2.1 days). Polyester chip: 14.59 days (up 0.22 days), polyester bottle chips: 8.51 days (down 0.35 days).

Finished product inventories have declined, but raw material (polyester yarn) stocking remains weak. As of May 14, the average inventory level for terminal weaving finished products (filament fabric) was 17.54 days, up 0.16 days week-on-week. May is a transition period between the conclusion of spring-summer fabric orders and the initial sampling for autumn-winter fabrics. Enterprises face significant shipment difficulties, industry inventories remain high, dampening production enthusiasm. Some factories face inventory pressure. Overall, market conditions are "lukewarm," with most enterprises producing based on orders. As of May 14, the average raw material (polyester yarn) inventory level for terminal weaving enterprises was around 9.32 days, down 0.56 days week-on-week. Raw material prices fluctuated weakly during the week. Discounts on raw yarn prices expanded, leading to some downstream restocking for immediate needs. However, high raw material prices continue to suppress downstream purchasing enthusiasm. Coupled with relatively weak demand for new orders, the willingness to stockpile raw materials remains restrained.

Off-season arrives, downstream order intake is average. As of May 15, the operating rates for warp knitting, air-jet weaving, water-jet weaving, circular knitting, and dyeing were 43.63% (down 0.22%), 53.83% (up 3.83%), 61.07% (unchanged), 43.03% (down 0.05%), and 50.58% (down 0.62%), respectively. As of May 14, the average order days for terminal weaving was 8.50 days, down 0.25 days week-on-week. As temperatures gradually rise, the off-season for textile and apparel demand has arrived. May is a transition period between the conclusion of spring-summer fabric orders and the initial sampling for autumn-winter fabrics. Actual market orders are mainly small to medium batches, lacking support from large orders. Subsequent new order demand has shown a clear weakening trend. Seasonal finished product inventories are high, overall downstream purchasing and order placement willingness is weak, and market transactions are mainly sporadic restocking orders.

03. Supply-Demand Balance Table Estimates Monthly PX Supply-Demand Balance Estimate Domestic Production: There are no new PX capacity additions in China in H1 2026, so changes in PX supply mainly come from changes in operating rates of existing units. Seasonal refinery maintenance in China, combined with preventive rate reductions to cope with potential raw material shortages, is considered. However, given expectations for Strait of Hormuz shipping to resume, there is limited room for further rate reductions. Imports: In Q1, high PXN and short-process profits, along with ample PX supply from Japan and South Korea, led to high PX imports into China. Entering March, the US-Iran conflict severely hindered crude oil and naphtha exports from the Middle East. Many Asian refineries reduced operating rates. Coupled with peak gasoline demand season and a shift from chemicals to fuels, imports of PX and other aromatics are expected to decrease significantly. PX imports in Q2 are estimated at around 700,000 tons. Demand: PTA has a significant amount of maintenance in Q2. Under expectations of PX supply shortages, operating rates remain low. However, with high processing spreads, restarts are expected to increase in June. In summary, both domestic PX production and imports are expected to decrease in Q2. Demand will also see some reduction. Overall, however, the PX fundamental picture points to inventory drawdowns. The key focus later will be the situation regarding Strait of Hormuz shipping. Considering that Middle Eastern crude oil producers have implemented substantial production cuts, fundamentals are expected to remain tight, though the degree of tightness in Q2 may ease somewhat compared to before.

Monthly PTA Supply-Demand Balance Estimate Supply Side: There are no new PTA capacity additions this year. PTA operating rates were neutral in Q1, leading to continuous inventory accumulation amid seasonally weak downstream demand. Entering Q2, PTA is in its traditional maintenance season. Considering tight PX supply, PTA unit operating rates remain low. Later, as processing spreads continue to rise, operating rates are expected to gradually increase in June. Net Exports: India has become China's largest PTA importer this year, partially offsetting reduced imports from Turkey. However, with the startup of GAIL's 1.25 million-ton unit in India in Q1 2026, import demand is expected to decrease. Therefore, China's PTA exports are likely to continue declining in Q2. Demand Side: A significant amount of polyester capacity is scheduled for startup this year, with a growth rate higher than last year. However, operating rates should not be overestimated. Referring to 2022, when upstream raw material prices rose sharply, downstream demand experienced negative feedback, and polyester operating rates fell to low levels. In summary, in Q2, PTA production is expected to decrease due to raw material supply constraints. Exports are likely to decline due to new overseas capacity. The fundamental picture points to inventory drawdowns.

Monthly MEG Supply-Demand Balance Estimate Supply Side: There is a window with no new MEG capacity additions in Q2 this year, with most capacity additions concentrated in H2. MEG prices were low in Q1, with both ethylene-based and non-ethylene based profits low. However, due to substantial existing capacity, production remained high. Entering Q2, the impact of the Middle East US-Iran conflict is gradually being felt, causing shortages in crude oil and naphtha supply, combined with seasonal maintenance of domestic units. Ethylene-based unit operating rates continue to be adjusted downward due to poor economics. Non-ethylene based profits are better, but there is limited room for further rate increases. Therefore, domestic MEG production is expected to decrease by 100,000-200,000 tons in Q2. Net Imports: There are expectations for Strait of Hormuz shipping to resume in May, gradually restoring Middle East MEG exports, but this will take time. A significant recovery in net imports is not expected until after July. Demand Side: A significant amount of polyester capacity is scheduled for startup this year, with a growth rate higher than last year. However, operating rates should not be overestimated. Referring to 2022, when upstream raw material prices rose sharply, downstream demand experienced negative feedback, and polyester operating rates fell to low levels. In summary, domestic ethylene-based MEG operating rates have decreased significantly, with limited room for further reduction. Non-ethylene based operating rates are already high. Imports fell sharply in April and May, beginning to recover in June and significantly recovering in July. The magnitude of fundamental inventory drawdowns is expected to narrow compared to earlier periods.