China Chemical Market Prices Surge: Is a New Cycle Starting in 2026?
From late 2025 to early 2026, China's chemical market has seen a notable rebound, with prices of several products surging sharply. In some cases, prices accumulated gains of more than 50% within a single month, lifting overall sentiment across the sector. The rally has sparked debate within the industry: some argue that 2026 could mark the beginning of a new prosperity peak for China's chemical industry, while others caution that the current momentum may be a short-term market illusion rather than the start of a new supercycle.
Against this backdrop, key questions emerge: Has China's chemical industry entered a new high-prosperity cycle? And how might the market evolve in 2026?
Core Logic of China's Chemical Cycle Theory
China's chemical industry is widely regarded as cyclical, although cyclical characteristics may vary by product category. The core of chemical cycle theory lies in the recurring imbalance and rebalancing of supply and demand, reflected in periodic fluctuations in prices, profitability, and capacity utilization rates.
Typically, a full industry cycle spans around 10 years, though some cycles may extend to 8 or 12 years. Within each major cycle, multiple minor cycles — usually lasting 2–5 years — also occur. However, as industrial structures evolve and supply chains become more complex, the duration and frequency of minor cycles have diverged from historical norms.
Different phases of the cycle exhibit distinct market characteristics:
• Boom phase
Downstream restocking accelerates while supply growth remains gradual. Markets experience tight supply, sharp price increases, surging corporate profits, capacity utilization exceeding 85%, expanded capital expenditure, and accelerated commissioning of new capacity.
• Downturn phase
Weak demand and oversupply drive sustained price declines, shrinking profits, elevated inventories, and lower operating rates.
• Depression phase
Prices bottom out amid severe supply-demand imbalances, industry-wide losses expand, capacity exits accelerate, and capital expenditure falls to cyclical lows.
• Recovery phase
Demand gradually improves while supply contracts, prices stabilize and rebound, profitability strengthens, inventories decline, and utilization rates rise.
Where Is China's Chemical Industry in the Current Cycle?
Determining the current phase requires evaluating theoretical profit margins, operating rates, and other leading indicators.
Industry data tracking 133 chemical products over the past 16 years shows that average theoretical profit margins in China's chemical sector formed two major peaks between 2009 and 2025: one during 2010–2011 and another during 2020–2021. Troughs occurred in 2014–2016 and around 2025.
If the sector continues to follow an approximately 10-year cycle, profit margin trends suggest that 2026 may still be near a cyclical bottom, albeit with signs of improvement, potentially marking the early stage of a broader upward cycle.
Another important indicator is the spread between ethylene and naphtha prices. In petrochemicals, profitability in the olefin industry often serves as a barometer of overall sector prosperity. A full petrochemical cycle typically spans 8–10 years, with minor cycles lasting about five years. The wider the spread between ethylene and naphtha, the stronger ethylene production margins and the higher the industry's prosperity level.
Historical data indicate long-cycle peaks in 2006 and 2016–2017, with interim highs in 2010 and 2021. The period from 2023 to 2025 represents a phase of cyclical weakness. Based on spread trends, 2026 could see a short-term cyclical rebound before the start of a broader upcycle in subsequent years. This pattern broadly aligns with the profit margin cycle derived from the 133-product sample, though profit and spread indicators do not always reflect identical cycle phases.
Price movements in Northeast Asian ethylene and Japanese naphtha suggest that 2015–2017 may have marked the end of a major cycle, while 2009–2012 may have concluded a smaller sub-cycle. Importantly, the start of a new cycle often involves a prolonged adjustment period rather than an immediate surge into a prosperity peak. Therefore, 2026 is unlikely to represent an instant leap into a full boom phase; it may instead signify either the beginning of a new cycle or the final adjustment stage of the previous one.
Consumption: The Key to a Sustainable Boom
A durable transition into a prosperity phase ultimately depends on demand recovery.
The recent price rebound in many chemical products may largely reflect a technical correction after prolonged declines. In numerous segments — including plastics, rubber, and basic chemicals — market prices had fallen close to or even below production costs. This forced producers to cut output or limit supply, creating conditions for price stabilization and value recovery.
On the demand side, while the broader macro environment remains moderate, several downstream segments have shown growth. In 2025, automobile sales increased by 9.4% year-on-year, textile and apparel retail sales rose by 4.69%, and trade-in stimulus policies supported consumer activity. Rapid expansion in the new energy sector also boosted demand for related chemical materials.
However, demand recovery remains structurally uneven. Many bulk basic chemicals lack strong consumption catalysts, and export constraints have added short-term pressure. Chemicals tied to the real estate sector, in particular, are unlikely to exit recession conditions in the near term.
Overall, China's chemical consumption market shows early signs of recovery, but the rebound is structural rather than comprehensive. While aggregate demand remains subdued, long-term recovery signals are gradually emerging — suggesting that 2026 may represent a transitional year rather than the definitive peak of a new chemical supercycle.