Amid ongoing tensions in the Middle East and disruptions to shipping through the Strait of Hormuz, chemical futures have surged across the board recently. On 9 March, Sinopec raised its spot paraxylene price by RMB 400 per tonne to RMB 8,600 per tonne. As the feedstock for the polyester industry chain, paraxylene's future trajectory is closely watched amid this wave of chemical price hikes triggered by geopolitical tensions.

I. Core Logic Behind Price Hikes: From ‘Rising Costs’ to ‘Tangible Supply Constraints’

The fundamental rationale for this round of paraxylene price increases has evolved. Initially driven by crude oil-induced cost escalation, the impetus has shifted to supply contraction stemming from expanded production cuts at Asian refineries. Crucially, this supply tightening is transitioning from market anticipation to tangible reality.

(1) Paraxylene Plant Operations Across Asian Regions

- South Korea: Beyond the scheduled maintenance of S-OIL's 800,000-tonne Xylene unit, further capacity reductions are anticipated at SK, Hanwha, and GS's Xylene facilities.

- Japan: No formal plans for Xylene production cuts have been announced at present.

- Mainland China: Affected by feedstock supply constraints, preparatory rate reductions have commenced at Zhejiang Petrochemical, Sinochem Quanzhou, and Fujian United's Xylene plants. The shutdown of Ningbo Daqiao's Xylene facility has directly impacted domestic Xylene supply.

- Taiwan Region: No Xylene production cut plans have been announced at present.

- Middle East: Xylene plants in Oman, Kuwait, and Israel are currently offline; however, the disruption to Middle Eastern crude oil supply has not yet substantially impacted Asian Xylene facilities, with only minimal effects on overall industry capacity utilisation.

(II) Operating Rate Data Confirms Supply Contraction

Statistics indicate that as of 6 March, China's xylene operating rate stood at 90.4%, representing a 2 percentage point weekly decline. Asia's xylene operating rate was 83.2%, down 1.7 percentage points week-on-week. This coincides with the second quarter being the peak maintenance season for paraxylene plants, where supply contraction was already anticipated. Recent Middle East conflicts have acted as a catalyst accelerating this contraction. Domestic paraxylene operating rates are projected to decline by 5%–8% during the second quarter.

(3) Core Reasons for Refinery Rate Reductions

Refineries currently announcing force majeure-related rate reductions predominantly process Middle Eastern crude oil and are largely enterprises with long-term supply agreements with Middle Eastern oil-producing nations. Since 2018, most newly commissioned paraxylene plants globally have been integrated refineries processing crude oil feedstock through lengthy processes to produce various petroleum products and chemicals. Consequently, disruptions to Middle Eastern crude supplies and shipping directly impact raw material availability for these refineries, leading to reduced operating rates or shutdowns of paraxylene units.

II. Current Market Constraints: End-User Demand Yet to Fully Materialise

Despite supply-side contraction and robust cost support, end-user demand currently faces significant constraints. Downstream industries remain in the early stages of resumption, with genuine demand yet to fully materialise. Downstream enterprises exhibit limited acceptance of high-priced raw materials, suggesting seasonal demand will likely remain weaker than normal. End-users are increasingly adopting a ‘time-for-space’ strategy, awaiting market sentiment stabilisation and full resolution of geopolitical risks before adjusting procurement decisions.

Overall, demand responds to xylene prices at a different pace than costs and supply: initially, rising crude oil prices and disrupted logistics will deliver a certain upward pressure on xylene prices. However, in the medium to long term, persistently weak terminal orders and insufficient demand support will constrain prices.

III. Market Outlook: Upside Potential Depends on Conflict Trajectory; Medium-Term Supply Reduction Highly Certain

Industry analysts offer varied perspectives on paraxylene's future trajectory, though consensus holds that short-term prices retain upside potential while medium-term supply contraction remains unequivocal. Specific movements will hinge heavily on Middle East conflict developments.

(I) Optimistic Valuation: Significant Upside Potential Remains

Using Brent crude oil prices as the benchmark for calculation, it is estimated that:

- At Brent crude oil prices of US$105–110 per barrel, the corresponding paraxylene valuation ranges from RMB 9,200 to RMB 9,900 per tonne; On 9 March, Brent crude peaked near USD 120 per barrel, implying a corresponding paraxylene valuation range of RMB 10,100–10,600 per tonne. As of 9 March, the daily closing price of Brent crude equated to RMB 9,028 per tonne, indicating further upside potential for paraxylene prices.

Fundamentally, no new paraxylene capacity is expected domestically from 2024 through the first half of 2026, while downstream PTA capacity continues expanding at approximately 10% annually, maintaining a tight supply-demand balance for paraxylene itself. Furthermore, China imports roughly 9.6 million tonnes of paraxylene annually, with import dependency at around 20%. Should refineries in Japan and South Korea implement preventative capacity reductions, domestic imports of paraxylene would decrease. Currently, domestic paraxylene operating rates have reached 90%, leaving limited scope for further increases. Combined with unplanned maintenance and the concentrated maintenance season in the second quarter, domestic paraxylene supply is still expected to contract. Concurrently, should Middle Eastern conflicts persist and crude oil prices reach new interim highs, further upside potential for paraxylene remains conceivable.

(II) Medium-Term Logic: Supply Contraction as a Certain Trend

From a medium-term perspective, the primary trading logic of ‘supply contraction’ in the paraxylene market remains established. Whether driven by geopolitical tensions or concentrated maintenance in Q2, Xylene supply will contract. The fundamental trading logic remains unchanged, differing only in its triggering factors. Moreover, geopolitical conflicts not only directly impact Xylene feedstock supply but also indirectly affect industry supply through disrupted logistics. Key monitoring points include the timing of Hormuz Strait reopening, polyester production-sales dynamics, and downstream textile mill operating rates.

The market's pricing of Middle East conflict impacts is currently shifting from short-term to medium-term considerations. The Middle East region is not only a primary source of ethylene glycol for China but also a major consumer of PTA and polyester products. Consequently, the conflict will significantly affect China's polyester demand.

(3) Key Variables to Monitor

For future market trends, three core variables warrant close attention: firstly, the operational efficiency of the Strait of Hormuz; secondly, the production levels of domestic paraxylene suppliers and whether large-scale capacity reductions occur; thirdly, downstream negative feedback transmission, including whether overseas orders decline and whether end-users' tolerance for high raw material prices diminishes.

As an integrated internet platform providing benchmark prices, on March 11, SunSirs' benchmark PX price was RMB 10,600.00/ton, an increase of 39.47% compared to the beginning of the month (RMB 7,600.00/ton).

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