Chemical futures prices have surged across the board recently, driven by escalating Middle East conflicts and disruptions to shipping through the Strait of Hormuz. Over the past week, the price of paraxylene (PX) has climbed by more than 22%, while purified terephthalic acid (PTA) prices have risen over 20%. On March 9, Sinopec increased its PX spot price by 400 yuan per ton to 8,600 yuan per ton. Amid this wave of chemical price hikes triggered by geopolitical tensions, how is the pricing logic for PX—the upstream product in the polyester chain—evolving? Have substantial changes already occurred on the supply side? What lies ahead for the market?

Multiple analysts indicate that the core driver of the recent PX price increase has shifted from initial "cost push" to a tangible "supply shock." Output reductions at Asian refineries are expanding, turning supply constraints from expectation into reality.

Wang Jiangnan, a polyester analyst at Hongyuan Futures, revealed that in South Korea, aside from the scheduled maintenance of S-OIL's 800,000-ton PX unit, facilities operated by SK, Hanwha, and GS are also expected to reduce operating rates. Japan has not yet announced any production cuts. Domestically, several plants have already implemented or planned output reductions due to feedstock issues, affecting PX supply. These include Zhejiang Petroleum & Chemical, Sinochem Quanzhou, Fujian Refining & Petrochemical, while Ningbo Daxie has halted operations. No production cut plans have been announced in Taiwan.

"Supply disruptions of Middle Eastern crude have not yet substantially impacted Asian PX plants, with a very limited effect on overall operating rates," Wang noted. He added that PX supply was already expected to tighten in the second quarter due to seasonal maintenance, and recent Middle East conflicts have acted as a catalyst. Factoring in both maintenance and geopolitical impacts, domestic operating rates are projected to decline by 5% to 8% in the second quarter.

Di Yilin, an energy and chemical analyst at Everbright Futures, supplemented that PX units in Oman, Kuwait, and Israel have already been shut down.

According to CCF statistics, as of March 6, China's PX operating rate stood at 90.4%, down 2 percentage points week-on-week, while the Asian PX operating rate was 83.2%, a decrease of 1.7 percentage points from the previous week.

"Most of the refineries currently reporting forced output reductions process feedstocks, largely Middle Eastern crude, and are companies with long-term supply contracts with Middle Eastern oil producers," Di explained.

Regarding the current valuation of PX, the two analysts provided their respective assessments.

Wang Jiangnan stated that the recent PX price increases have largely priced in geopolitical risks and already reflect market sentiment. PX has the strongest fundamental structure among polyester-related commodities. The Middle East conflicts directly affect PX production feedstocks because, since 2018, most new global PX capacity has been integrated refineries that process crude oil and produce various petroleum and chemical products through long-process routes.

However, Wang also highlighted risks related to limited downstream absorption capacity. "End-users are still in the early stages of post-holiday resumption, with real demand not yet fully materialized and acceptance of high-priced raw materials remaining weak. Peak season demand is expected to be normal to weak. End-user companies prefer to wait for market sentiment to calm and geopolitical risks to fully dissipate before making decisions," he said. He explained that demand responds to PX prices differently than cost and supply factors do. Initially, prices are driven up by crude oil and logistics disruptions, but over the medium to long term, persistently weak end-user orders may lead to insufficient demand support. Future upside potential depends on the conflict's trajectory. If widespread refinery output cuts occur, significant room for price increases remains. If the Strait of Hormuz reopens, prices may pull back, and negative demand feedback would then come into play.

Di Yilin offered a more optimistic valuation outlook. Using Brent crude prices as a benchmark, she stated, "When Brent is between $105 and $110 per barrel, the corresponding PX valuation range is 9,200 to 9,900 yuan per ton. On March 9, Brent crude approached $120 per barrel, implying a PX valuation between 10,100 and 10,600 yuan per ton. With PX prices closing at 9,028 yuan per ton on March 9, there is still room for upward movement."

Di noted that from a fundamental perspective, China has no new PX capacity planned from 2024 through the first half of 2026, while downstream PTA capacity continues to expand at about 10% annually, leading to a tight supply-demand balance for PX. Additionally, China imports approximately 9.6 million tons of PX annually, with an import dependency of about 20%. If preventive output cuts occur in Japanese and Korean refineries, domestic PX imports would decrease. With domestic operating rates already around 90%, further increases are limited. Unplanned maintenance, combined with the seasonal second-quarter turnaround period, points to an expected contraction in domestic PX supply.

"Beyond that, rising costs remain a key market focus. If Middle East conflicts persist and crude oil prices reach new highs, PX has further upside potential. Market participants should closely monitor the evolution of Middle East tensions and the duration of the Strait of Hormuz blockade," Di added.

Looking ahead, will the impact of this conflict on PX be short-term or medium-term? Wang Jiangnan believes that medium-term trading will certainly focus on supply reductions. Both geopolitical conflicts and second-quarter maintenance lead to supply cuts, so the core trading logic remains unchanged, albeit triggered by different factors. Geopolitical risks bring not only direct feedstock impacts but also indirect logistics disruptions. Future attention should be paid to the timing of the strait's reopening, changes in polyester production and sales, and operating rate adjustments in terminal textile manufacturing.

Di Yilin indicated that market pricing of Middle East conflicts is gradually shifting from short-term to medium-term considerations. The Middle East is not only a major source of ethylene glycol for China but also a significant demand region for PTA and polyester products. Therefore, Middle East conflicts have a notable impact on China's polyester demand.

Regarding key variables to watch, Di highlighted three areas: the operational efficiency of the Strait of Hormuz, the operating rates of domestic suppliers—specifically whether large-scale output reductions occur—and the transmission of negative feedback from downstream sectors, such as potential declines in overseas orders or reduced end-user acceptance of high raw material prices.