Maintenance activities for multiple PX and PTA units have commenced in July, providing support to the market. The current focus is on the upcoming traditional peak season.

Key Insights on PX/PTA

Core View: Bullish

Multiple PX and PTA units have entered maintenance in July. The operating rates for PX and PTA have dropped to 72.95% and 52.35% respectively, placing supply in a low range. Current PTA social inventories remain high year-on-year, and spot market liquidity is still relatively ample. On the demand side, downstream orders are fewer in the off-season. However, with feedstock costs stabilizing, there are signs of increased sales in staple fiber and filament yarn, with staple fiber inventories declining while filament yarn stocks remain elevated. Polyester plants face significant overall inventory pressure, which in turn is suppressing the polyester operating rate. In mid-to-late July, as the traditional peak season approaches, the fundamental picture is expected to shift from weak supply and demand to simultaneous growth in both, with supply recovering. The performance of peak season demand requires continuous monitoring.

Strategy

The fundamental situation presents its own contradictions. A single-direction trade may follow the rebound in crude oil. The market narrative is shifting between near-term supply tightness due to reductions and the expectation of future supply recovery coupled with insufficient demand. Monitor the PX/PTA spread for a potential 9-1 calendar spread play, considering a rollover short on PTA01 processing fees above 500 yuan/ton.

Valuation

Neutral. PXN and short-process PX profits have declined, while PTA processing fees remain high. Profits for polyester products, except for bottle chips, have rebounded. The valuation across the polyester chain has recovered and is overall at a neutral level.

Cost

Bullish. The number of floating storage units in the Gulf has declined rapidly, easing their impact on the market. As major Middle Eastern producers significantly reduced their official selling price discounts to Asia, buying interest increased, leading to a short-term improvement in market sentiment. In the medium to long term, watch for bottom support from refinery restocking and Strategic Petroleum Reserve replenishment during the peak season.

Supply

Bullish.

PX: Domestic units: Hainan Refining's Phase I 660kta unit was shut for maintenance at the end of June, restarting in mid-September. Shenghong was shut for maintenance at the end of June for approximately 50 days. Fuhaichuang's 800kta unit is operating at reduced rates and is shut, restarting at the end of July. Weilian Chemical's 2 million ton unit recently underwent maintenance, shutting in mid-to-late June for about 45 days. Overseas units: Indonesia's TPPI was shut in mid-June, restarting at the end of June. S-Oil's 770kta unit was shut in early March, restarting in early July.

PTA: This week, units including Weilian Chemical's 2.5 million tons, Honggang Petrochemical's 2.5 million tons, Taicheng's 1.2 million tons, Zhongtai's 1.2 million tons, and Jiaxing Petrochemical's 1.5 million tons have entered maintenance in succession.

Demand

Bullish. Some idled units have restarted, with staple fiber operating rates increasing and polyester operating rates being adjusted upwards. Monitor downstream restocking as the peak season approaches.

Supply-Demand Balance

Neutral. PX and PTA operating rates have reached historically low levels, while polyester operating rates have increased slightly. This has accelerated the drawdown of PTA social inventories in the short term, but overall inventory levels remain high, and spot liquidity is not tight.

Key Insights on MEG

Core View: Bullish

There are still no signs of a recovery in imports, while domestic production has seen a slight reduction. Profits for coal-based units have narrowed, leading to shutdowns of previously unmaintained units. Demand-wise, downstream orders are fewer in the off-season. However, with feedstock costs stabilizing, there are signs of increased sales in staple fiber and filament yarn, with staple fiber inventories declining while filament yarn stocks remain elevated. Polyester plants face significant overall inventory pressure, which in turn is suppressing the polyester operating rate. In Q4, several new MEG plants are scheduled to start up, with pressure mainly reflected in the 01 contract, creating a pattern of near-term strength and longer-term weakness.

Strategy

The market previously priced in expectations of import recovery and new capacity additions, leading to a bearish bias that caused MEG prices to become overly undervalued. The 01 contract once approached the cash cost of coal-based units, indicating low overall valuation. In the near term, given the start-up progress of Middle Eastern units, the probability of imports falling short of expectations is high. For a single-direction trade, watch for buying opportunities near the 4000 yuan level in the front-month contract.

Valuation

Bullish. As crude oil prices fell, naphtha-based production profits recovered to normal levels. Affected by stronger coal prices, coal-based production profits continued to decline, with overall valuation remaining low.

Supply

Bullish. As of July 3, the overall operating rate for MEG in mainland China was 55.58%, up 0.48% week-on-week. The operating rate for ethylene-based capacity was 50.84%, up 0.7% week-on-week. The operating rate for non-ethylene-based MEG was 63.27%, down 0.23% week-on-week.

Imports

Bearish. With the Strait of Hormuz reopening, there is an expectation for a recovery in MEG imports from the Middle East, but no restart of relevant units has been observed yet. Expected arrival volumes have not shown significant improvement.

Demand

Bullish. With the Strait of Hormuz reopening, there is an expectation for a recovery in MEG imports from the Middle East, but no restart of relevant units has been observed yet. Expected arrival volumes have not shown significant improvement.

Supply-Demand Balance

Bullish. The situation between the US and Iran remains volatile, delaying the reopening timeline for the Strait of Hormuz. Import recovery will take time. MEG inventories saw a significant drawdown in Q2, and fundamentals continue to tighten, driven by supply factors.

Price, Spread, and Profit Analysis

The PX 9-1 calendar spread has declined. The number of floating storage units in the Gulf has declined rapidly, easing their impact on the market. As major Middle Eastern producers significantly reduced their official selling price discounts to Asia, buying interest increased, leading to a short-term improvement in market sentiment. In the medium to long term, watch for bottom support from refinery restocking and Strategic Petroleum Reserve replenishment during the peak season.

Naphtha prices followed crude oil lower. The Japan CFR price was $664.5/ton, up $7.75/ton or 1.18% week-on-week.

PX CFR Taiwan was $972.7/ton, down $6.7/ton or 0.68% week-on-week.

PXN and short-process profits both declined. The latest PXN was $309.42/ton, down $25.91/ton week-on-week. The PX-MX spread continued to fall sharply. Short-process PX production profit was 119.67 yuan/ton, down $18.16/ton week-on-week.

Gasoline crack spreads in the US, Europe, and Asia rebounded significantly.

Asian naphtha cracking margins improved. The naphtha crack spread continued to rise. On one hand, as naphtha prices continued to fall, some companies chose to purchase naphtha to increase ethylene unit operating rates. On the other hand, the narrowing arbitrage window between Asia and America somewhat alleviated the oversupply of naphtha in Asia, jointly promoting the price increase.

The economic viability of xylene and toluene for chemical use declined.

The PTA calendar spread weakened, while spot processing fees fluctuated at high levels. This week, PTA spot basis was firm. Some major suppliers sold at high prices. In the first half of the week, overall spot market negotiations were around 09+240~265, with some cargoes lower. In the second half, the spot basis loosened, with the trading focus shifting down to 09+240~250. This week, warehouse receipt trades occurred at 07+2~3 or 09+200~210.

PTA processing spreads remained at high levels this week, generally in the 600~700 yuan/ton range, averaging 658 yuan/ton for the week. On July 6, the main PTA futures contract closed at 5462 yuan/ton, down 108 yuan/ton or 1.94% week-on-week.

Both MEG basis and the 9-1 calendar spread weakened. This week, domestic MEG prices moved lower, with the basis falling rapidly. In the first half, MEG prices adjusted within a wide range, with some contract traders actively buying. The mainstream spot trade was at a premium of 158-165 yuan/ton to the 09 contract. From mid-week, a broad decline in energy and chemical commodities and news of sustained polyester production cuts weighed on market sentiment. Coupled with concentrated selling by some holders, the spot basis fell quickly, trading to a premium of around 115 yuan/ton to the 09 contract. Buying interest from polyester plants at lower levels was decent.

On July 6, the main MEG futures contract closed at 4005 yuan/ton, down 91 yuan/ton or 2.22% week-on-week.

Polyester product profits, except for bottle chips, have rebounded.

Supply, Demand, and Inventory Analysis

The growth rate of polyester capacity additions in 2026 is higher than in 2025. A significant amount of new polyester capacity is planned for 2026, with an estimated addition of 5.47 million tons, representing a growth rate of 6.14%, higher than in 2025. By product category, due to numerous bottle chip plant additions in 2024 and 2025 and persistently low profits, few new bottle chip plants are planned for 2026, only two sets totaling 700kta. In contrast, filament yarn saw fewer additions in the previous two years, with profits improving significantly, making it the main focus for 2026 additions. In Q1, two units totaling 800kta are scheduled. From April to May, 1.01 million tons are planned, mainly involving filament yarn, chip, and bottle chips. If bottle chip profits continue to improve, there is an expectation for the startup of two bottle chip units.

Polyester operating rates increased slightly. As of July 3, the polyester operating rate was 78.5% (+0.5%). Within that, filament yarn was 73.5% (-0.3%), staple fiber was 75.3% (+3.1%), and bottle chips were 70.5% (-0.2%).

From January to May, net polyester exports were 6.207 million tons, up 4.5% year-on-year. Cumulative exports were 6.207 million tons, up 4.5%. Bottle chip exports were 2.701 million tons, up 0.17%. Filament yarn exports were 1.838 million tons, up 7.5%. Staple fiber exports were 711kta, up 6.3%.

FDY and POY inventories accumulated, while other products saw drawdowns. Staple fiber inventory days were 9.09 days (-0.61 days). DTY was 41.6 days (-0.2 days), FDY was 36.4 days (+0.7 days), and POY was 31.5 days (+1.5 days). Polyester chip was 8.15 days (-0.55 days), and polyester bottle chips were 10.6 days (-0.1 days).

Sales-to-production ratios for staple fiber and filament yarn increased week-on-week. The five-day average sales-to-production ratio for staple fiber was 65%, up 11.8% week-on-week. For filament yarn, it was 42.5%, up 7.3% week-on-week. For chip, it was 47.6%, up 17.8% week-on-week.

Both finished goods inventory days and raw material (polyester filament) stockpiling days decreased. As of July 2, the average inventory level for finished goods (filament fabric) at end-user weaving plants was 16.85 days, down 0.49 days from the previous week. The off-season for textiles and apparel deepened, with weak market sentiment persisting. However, a lack of end-user orders put pressure on production and sales. Most plants are currently operating on an order-based model, with some reducing operating rates. Some manufacturers are choosing to build inventory or plan production cuts and holidays to manage inventory accumulation, indicating insufficient market confidence.

As of July 2, the average raw material (polyester filament) inventory level at end-user weaving plants was around 8.57 days, down 0.93 days from the previous week. Oil prices fell more than they rose. Improved feedstock cash flow and local price negotiations led to lower prices for raw filament, increasing wait-and-see sentiment. Short-term purchasing interest is not high, with many waiting for a bottom-fishing opportunity. The absence of large-volume orders to boost the market has led to cautious观望.

Downstream order intake is average. As of July 3, the operating rates for warp knitting, air-jet weaving, water-jet weaving, circular knitting, and printing/dyeing were 46.4% (unchanged), 53.2% (-0.2%), 59.1% (-0.9%), 37.9% (unchanged), and 50.7% (unchanged) respectively.

As of July 2, the average order backlog for end-user weaving was 8.63 days, down 0.91 days from the previous week. Entering the traditional demand off-season, there is no significant increase in domestic or overseas orders. New order releases are currently weak, mainly consisting of small repeat orders from existing customers. Apart from fulfilling previous orders, factories are generally scheduling production of conventional autumn/winter fabrics to replenish inventory.

PX capacity additions in 2026 are concentrated in the second half. In 2026, there are 3.97 million tons of domestic capacity pending startup, representing a growth rate of 9.1%. This includes Fujia Daxing's 300kta expansion, Huajin's 2 million tons, and Jiujiang Petrochemical's 1.5 million tons (which may be delayed).

In terms of timing, Fujia Daxing's expansion is expected to come online early in the year. After Jinling Petrochemical restarts at the end of May, its capacity will expand by 170kta to 870kta. Huajin is expected to start up in Q3 2026, and Jiujiang Petrochemical will not start until Q4. Therefore, for the full year, PX supply pressure is mainly reflected in Q4. Shandong Yulong Petrochemical's 3 million ton unit can only produce MX and has not yet obtained the production permit for PX; it is expected to be delayed until 2027.

There are few new PX units overseas in 2026, with only Indian Oil Corporation's 800kta unit scheduled for startup in the second half of 2026, mainly to supply feedstock for downstream PTA units.

Both Chinese and overseas PX operating rates declined. Domestic units: Hainan Refining's Phase I 660kta unit was shut for maintenance at the end of June, restarting in mid-September. Shenghong was shut for maintenance at the end of June for approximately 50 days. Fuhaichuang's 800kta unit is operating at reduced rates and is shut, restarting at the end of July. Weilian Chemical's 2 million ton unit recently underwent maintenance, shutting in mid-to-late June for about 45 days. Overseas units: Indonesia's TPPI was shut in mid-June, restarting at the end of June. S-Oil's 770kta unit was shut in early March, restarting in early July.

Chinese PX operating rates fell sharply, while overseas rates increased. The current operating rate for domestic PX units is 72.95%, down 6.12% week-on-week. The operating rate for Asian PX units is 63.93%, down 3.34% week-on-week.

Domestic PX production in May was 2.961 million tons, 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. From January to May 2026, China's cumulative PX imports were 4.02 million tons, up 7.6% year-on-year. May imports were 482kta, down 30.6% month-on-month and 37.7% year-on-year.

No new PTA capacity is scheduled for startup in 2026. As units including Luoyang Petrochemical's 325kta, Yizheng Chemical Fiber's 350kta, Ya Tung's 750kta, and Sanfangxiang's Phase II 1.2 million tons, totaling 2.625 million tons, have been shut for over two years with no immediate restart expectations, they are excluded from the capacity base. Effective January 1, 2026, the PTA capacity base in mainland China is adjusted to 92.09 million tons. There is no new PTA capacity planned for 2026, easing startup pressure.

PTA production in May fell 10.9% month-on-month and 10.3% year-on-year. From January to May 2026, PTA production was 30.304 million tons, up 6.7% year-on-year. Domestic PTA production in May was 5.301 million tons, down 650kta or 10.9% month-on-month, and down 609kta or 10.3% year-on-year.

PTA exports in May rose 12.1% month-on-month and 23% year-on-year. From January to May 2026, PTA exports were 1.533 million tons, down 4.3% year-on-year. May exports were 326.1kta, up 12.1% month-on-month and 23% year-on-year.

Domestic PTA operating rates declined significantly week-on-week. This week, units including Weilian Chemical's 2.5 million tons, Honggang Petrochemical's 2.5 million tons, Taicheng's 1.2 million tons, Zhongtai's 1.2 million tons, and Jiaxing Petrochemical's 1.5 million tons have entered maintenance in succession.

The PTA operating rate was 52.35%, down 11.7% week-on-week.

PTA warehouse receipt quantities declined from high levels.

Total PTA social inventories continued to draw down significantly. According to the latest inventory data, as of July 3, PTA social inventories fell sharply, down 96kta week-on-week to 2.426 million tons. Within that, warehouse receipts fell by 19kta, in-warehouse and in-port inventories fell by 66kta, PTA plant inventories fell by 20kta, and polyester plant inventories increased by 8,961 tons.

MEG capacity additions are concentrated in Q4, with a high growth rate. In 2026, a total of four units, mainly oil-based, totaling 2.75 million tons, are scheduled to start up. The MEG startup 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 startup in Q4, creating a window with no startups in Q2 and Q3.

MEG production in May rose 8.9% month-on-month and 9.7% year-on-year. From January to May 2026, MEG production was 8.406 million tons, up 3% year-on-year. MEG production in May was 1.695 million tons, up 138kta or 8.9% month-on-month, and up 149kta or 9.7% year-on-year.

Coal-based MEG maintenance increased, while non-ethylene-based operating rates declined slightly. As of July 3, the overall operating rate for MEG in mainland China was 55.58%, up 0.48% week-on-week. The operating rate for ethylene-based capacity was 50.84%, up 0.7% week-on-week. The operating rate for non-ethylene-based MEG was 63.27%, down 0.23% week-on-week.

For ethylene-based units: Gulei Petrochemical's 700kta unit plans to restart in mid-to-late July. Yuandonglian's 500kta unit successfully restarted at the end of June, with the rate recovering to around 70%. Hengli's 900kta line will shut for maintenance for one month in late July. Zhejiang Petrochemical's Phase II 800kta unit restarted at the end of June. Shenghong Refining's 900kta unit is gradually shutting down, expected to last about 50 days. For non-ethylene-based units: Xinjiang Tianye's Phase III 600kta unit plans to shut for maintenance for one month in August. Yangmei Shouyang's 200kta unit plans to shut for maintenance in mid-July. Hongsifang shut in mid-to-late June for about three weeks. Inner Mongolia Yankuang's 400kta unit will shut from July 5 to August 1. Guanghui's 400kta unit is shut for maintenance. Zhonghuaxue's 300kta unit started a 28-day maintenance on June 15. Zhengdakai will undergo maintenance in July.

As crude oil prices fell, naphtha-based production profits recovered to normal levels. Stronger coal prices and the sharp drop in MEG prices caused coal-based production profits to continue declining.

MEG imports in May fell 43.7% month-on-month and 66.9% year-on-year. From January to May 2026, China's MEG imports totaled 2.457 million tons, down 23.9% year-on-year. May imports were 200kta, down 43.7% month-on-month and 66.9% year-on-year.

MEG port inventories continued to decline. On July 3, MEG port inventories in East China's main ports were 479kta, down 70kta week-on-week. Expected arrival volumes increased slightly to 13kta. Outflow volumes increased significantly as downstream users began restocking.

MEG plant inventories increased significantly month-on-month, while polyester plant inventory days increased slightly. As of July 3, polyester plant MEG feedstock inventory days were 13.5 days (up 0.5 days week-on-week). MEG plant inventories in May were 450kta, up 58kta month-on-month and 170kta year-on-year.

Supply-Demand Balance Forecast

Monthly PX Supply-Demand Balance Forecast

Entering Q2, due to limited crude oil supply, PX units followed refineries in reducing operating rates, but the overall reduction was not large, and the rate level remained high year-on-year. Downstream PTA entered a concentrated maintenance season starting in April, coupled with feedstock shortages at some plants, causing PTA operating rates to drop to multi-year lows. PX fundamentals marginally eased. In June and July, with the maintenance of several large units like Shenghong and Weilian Chemical, operating rates will reach the annual low point, and the PX supply-demand structure will begin to tighten meaningfully. In Q4, with the startup of new units and the arrival of the downstream off-season, PX will begin to accumulate inventory.

Monthly PTA Supply-Demand Balance Forecast

In Q2, PTA units were affected by insufficient PX feedstock supply and seasonal maintenance, leading to a significant reduction in operating rates and production. This situation will continue into July. Exports are down year-on-year due to new overseas capacity additions. Fundamentals show a large inventory drawdown in May-June-July, with the drawdown narrowing in August. In Q4, with supply recovery and the arrival of the off-season, fundamentals will shift into inventory accumulation.

Monthly MEG Supply-Demand Balance Forecast

Entering Q3, with the reopening of the Strait of Hormuz, China's ethylene-based MEG operating rates will slowly recover. Non-ethylene-based operating rates are already at high levels and will gradually decline from these highs as profits fall. Overall, production is expected to increase slightly quarter-on-quarter compared to Q2. Imports fell sharply in Q2. With the Strait of Hormuz reopening in June, imports are expected to recover slightly in July and increase significantly starting in August. Downstream polyester units will also increase operating rates and restock. Fundamentals are expected to maintain an inventory drawdown state in Q3.