The recent market paradox in ethylene lies in this: despite weakening prices, the industry has not achieved the desired outcome of “downstream sectors becoming significantly more profitable while upstream players moderately reduce margins.” Instead, it resembles a synchronized squeeze across the entire chain—upstream profits are compressed, downstream product prices follow suit downward, processing fees weaken, and both inventory and cash flow pressures intensify. The crux of the issue lies not in specific price levels, but in whether price signals accurately reflect supply-demand dynamics and support safe, stable plant operations alongside investments in industrial upgrading. Once price signals become distorted, competition easily descends into an inward-spiraling race to cut prices, ultimately leaving few winners.

In Q1 2025, ethylene remained 75 RMB/ton higher than propylene. However, by Q1 2026, the spread not only reversed but widened to 929 RMB/ton in favor of propylene. More critically, ethylene itself experienced a deep correction: down 2,061 RMB/ton from its 2025 peak, with Q1 2026's average price falling 1,595 RMB/ton year-on-year—a 20.31% decline.

If “ethylene decline = downstream benefit” held true, downstream prices should theoretically stabilize and processing margins widen. Yet the reality is the opposite: polyethylene weakened simultaneously during the same period. In Q1 2026, the average HDPE price fell by 862 RMB/ton year-on-year, while the average LLDPE price dropped by 1,513 RMB/ton year-on-year. The downward pressure from raw materials was quickly absorbed by homogenized competition and weak demand, translating into end-user price reductions. The overall “profitability” of the industry chain is diminishing.

Pressure stems from structure: Capacity expansion coupled with net inflows makes low-price shipments prone to becoming habitual

The supply pressure facing ethylene isn't driven by individual corporate choices but is structural. By 2025, China's ethylene capacity is projected to reach approximately 56 million tons/year, with production remaining high (around 46 million tons). Meanwhile, imported resources continue to exert marginal influence on spot markets: Customs data shows cumulative ethylene imports reached 2.8242 million tons in 2025, up roughly 25% year-on-year, while exports totaled only 19,800 tons—a significant year-on-year decline. The convergence of expanding supply, continuous plant operations, and net inflow of external resources makes it difficult for the market to achieve a “natural” tight balance within short cycles. Prices are increasingly dictated by the “first-to-cut-price, first-to-sell” mentality.

When prices are constantly driven by short-term sentiment, enterprises tend to shorten contract cycles, reduce inventories, and increase transaction frequency, using faster turnover to hedge against uncertainty. The more short-term the market becomes, the harder it is to establish predictable processing margins and investment returns. The result is often that everyone is busy, yet no one dares to invest or spend money on “invisible but essential” safety and maintenance.

“Cheaper ethylene” does not equate to “more profitable downstream”: In homogeneous markets, cost reductions first translate into price wars

There is no direct correlation between “upstream concessions” and “win-win outcomes across the supply chain.” For commodity materials like polyethylene, the market will remain characterized by rapid supply growth, high product homogeneity, and limited demand elasticity for the foreseeable future. Cost savings from raw materials typically translate into “lower transaction prices” through competition rather than higher profits. When demand growth is muted and product differentiation is weak, cost reductions often manifest first as pricing pressure.

Meanwhile, upstream ethylene plants cannot be idled or restarted at will. Cracking units are capital-intensive and operate continuously, with rigid requirements for maintenance cycles, spare parts investment, and safety/environmental compliance. When prices deviate from reasonable ranges for extended periods, upstream players first face pressure on cash flow and investment capacity. As this pressure accumulates, risks rise—maintenance and upgrades get postponed, supply stability declines—ultimately backfiring on downstream players through more severe volatility.

Persistently low prices do not merely “shift profits from upstream to downstream”; they more likely “squeeze out both the safety margins and upgrade investments within the industrial chain.”

Rebuilding Price Discovery Capabilities: Anchoring the Market

Within the global trade system, it is unsurprising that regional quotes like Northeast Asia CIF influence ethylene transactions and market expectations. The issue lies in this: within a super-sized market, prolonged absence of a widely accepted, verifiable, and replicable domestic benchmark fosters “passivity.” While domestic supply-demand dynamics may not shift synchronously, price expectations get pulled by external signals first. This accelerates short-termism in corporate operations and self-reinforces internal competition.

A more realistic approach isn't setting “how high ethylene should rise” as the goal, but rather making “how prices can be more genuine, transparent, and explainable” the objective: First, enhance the representativeness and verifiability of domestic benchmark prices by clearly defining rules for price collection, weighting, anomaly handling, regional weighting, and distinguishing between transactions and quotations—making price changes explainable and traceable; Second, promote more formulaic long-term contract pricing. Incorporate logistics, quality, payment terms, and supply-demand dynamics into publicly verifiable domestic benchmarks and premium/discount clauses, shifting upstream-downstream focus from “price haggling” to “efficiency and product quality.” Third, implement “anti-involution” by establishing competitive order and capacity governance. Constrain the externalities caused by persistent irrational low pricing and homogeneous expansion, redirecting competition toward efficiency, process, product, service, and technological innovation.

A reasonable price is not a “high price,” but a baseline that supports safety, investment, and upgrading.

From the industry's frontline perspective, the return of ethylene prices to a reasonable range is not about allowing one end to profit more, but about restoring three capabilities across the industrial chain: Companies can channel resources into high-end, differentiated, and low-carbon development rather than repeatedly engaging in price wars; Price signals can more accurately reflect supply and demand, encouraging investment and shifting business operations from short-term speculation back to medium-to-long-term competition.

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