Petrochemical Market Outlook 2026: Prices Face Downward Pressure

First Half Performance: High-Level Volatility And Sector Divergence

During the first half of the year, the petrochemical market showed a pattern of high-level volatility and structural divergence. The main support came from sharp increases in international crude oil prices driven by escalating geopolitical tensions in the Middle East, while weak growth in China's chemical product demand created a market environment characterized by strong costs but weak demand.

The olefin chain remained relatively strong due to tight supplies of raw materials including crude oil, methanol, and propane. In contrast, the aromatics chain experienced more limited price increases as downstream demand weakened under high-cost pressure and export performance remained relatively soft.

Under high-cost conditions, downstream companies generally adopted a demand-based purchasing strategy. Average industry operating rates declined significantly compared with the same period last year, highlighting a clear divergence in profitability across the industrial chain.

In the refining sector, high oil prices and policy adjustments pressured overall margins. Costs for some basic raw materials, including olefins and aromatics, were transmitted relatively smoothly, while companies closer to end-user products faced greater pressure from both elevated costs and weak demand, leading to a noticeable deterioration in profitability.

Olefins Outperformed Aromatics Due To Raw Material Differences

Among different petrochemical products, olefin prices increased significantly more than aromatics prices, mainly due to fundamental differences in raw material structures and supply stability.

Besides crude oil-based production routes, olefin production relies heavily on propane dehydrogenation and methanol-to-olefin technologies. Both propane and methanol were directly affected by Middle East-related supply disruptions. Their high import dependence and significant exposure to Middle Eastern supply sources intensified supply shortages. The combined increase in raw material costs, along with market inventory-building activities driven by bullish sentiment, provided strong momentum for olefin price increases.

Aromatics products have a more concentrated raw material structure, with approximately 90% derived from crude oil and only around 10% from coal-based chemical processes. Their cost transmission system is more stable and supply resilience is stronger. Compared with olefins, aromatics experienced a much smaller direct impact from geopolitical disruptions. Price increases were mainly driven by passive transmission from higher crude oil costs, resulting in relatively moderate gains.

Demand Structure Created Different Price Performance

From the perspective of downstream demand, olefin products mainly serve essential consumer-related sectors including plastic bags, food packaging, express logistics, and daily-use materials. These sectors have relatively rigid demand, allowing downstream markets to absorb higher costs and maintain stronger pricing power. As a result, cost transmission faced fewer obstacles and continued supporting price increases.

Aromatics products mainly serve two major downstream markets. The first is blending demand for refined oil products, which has gradually weakened due to the continued replacement impact from new energy vehicles, limiting price support. The second is chemical demand related to textiles and apparel, which belongs to relatively non-essential consumption categories. End users have lower acceptance of high prices, creating stronger resistance to cost transmission.

As a result, the petrochemical market developed a clear pattern of stronger olefin performance and weaker aromatics performance, with unequal price growth across sectors.

Second Half Outlook: Cost Support With Downward Price Pressure

In the second half of the year, petrochemical prices are expected to follow a trend of cost support and overall decline from elevated levels. The core market logic will shift toward the gradual elimination of geopolitical premiums and increasing influence from looser supply-demand conditions.

Only a seasonal and short-term recovery opportunity is expected during the third quarter, while a clear upward market trend is unlikely during the second half of the year.

Crude Oil Outlook: Gradual Recovery And Inventory Support

On the macroeconomic side, the Federal Reserve is expected to remain cautious on interest rate policy. With oil price declines easing inflation pressure in the United States, monetary policy expectations will continue to depend on economic data. The financial impact on oil prices remains relatively negative.

A prolonged high-interest-rate environment will continue limiting speculative commodity demand and emerging market demand, although additional tightening pressure is unlikely.

On the supply side, the current US-Iran understanding and the announcement of the reopening of the Strait of Hormuz represent a technical reopening rather than a full commercial recovery. From mine-clearing and safety procedures after reopening to the return of shipowners' confidence and the restoration of normal commercial operations, the process will require time.

Under the base-case scenario of safety clearance in July, the recovery of approximately 40% of commercial shipping in August, and gradual normalization between October and December, supply shortages combined with low inventories could continue supporting crude oil prices in the third quarter. As supply gradually returns, oil prices are expected to decline in the fourth quarter.

On the demand side, July and August will enter the Northern Hemisphere summer demand season. Lower oil prices may encourage some previously suppressed demand to recover. Refinery maintenance is expected during September and October, followed by heating-season demand in November and December.

However, structural demand damage caused by previous high oil prices is unlikely to fully reverse. Annual demand growth is expected to remain limited, providing relatively weak support.

Supply And Demand Outlook: New Capacity Expansion To Increase Pressure

In the second half of the year, concentrated new production capacity in olefins and aromatics will increase supply pressure. Although scheduled maintenance during the third quarter may temporarily tighten supply, total new capacity for major olefin and aromatics products is expected to exceed 34 million tonnes, with most projects coming online between September and December.

During July and August, the industry will enter the traditional maintenance season. Some Chinese refineries, PX units, and styrene facilities are expected to reduce operations, temporarily limiting supply. Combined with inventory preparation expectations ahead of the traditional peak consumption season, chemical product prices may experience a short-term rebound.

However, after maintenance ends and new production units fully operate in the fourth quarter, combined with weaker seasonal downstream demand, chemical prices are expected to face renewed downward pressure.

Export Pressure May Increase As Global Supply Recovers

Exports are also expected to face growing pressure. In the first half of the year, production reductions in Middle Eastern chemical facilities significantly boosted China's exports of some chemical products. Exports became an important channel for offsetting weak domestic demand and absorbing China's additional supply.

However, as Strait of Hormuz shipping gradually recovers in the second half of the year, Middle Eastern supply is expected to return to global markets. Narrowing international price differences may weaken the role of exports in absorbing China's supply growth.

End-User Demand: Structural Recovery But Limited Broad Improvement

In the second half of the year, continued implementation of China's special government bond policies and automotive and home appliance stimulus measures may prevent a deeper decline in demand.

However, the real estate sector is expected to remain under pressure, with new construction and completion activity maintaining negative growth. Demand for pipes and home decoration-related raw materials is likely to remain weak.

The textile sector is also expected to face continued weakness in both domestic and overseas demand, while polyester demand remains under pressure.

Some demand growth will come from high-end chemical products supporting integrated circuits and new energy vehicles. Electronic-grade and specialty chemical products are expected to maintain steady growth, providing structural support to offset weakness in traditional sectors.

On the external demand side, slow global economic recovery and limited growth in overseas orders suggest that the strong export performance seen in the first half of the year may be difficult to sustain.

Conclusion: Market Expected To Remain Range-Bound With Year-End Pressure

Overall, the petrochemical industry is expected to maintain a differentiated market pattern in the second half of the year. Domestic demand support may reduce downside pressure, while uncertainty in external demand will continue weighing on market performance.

Prices are expected to retreat from high levels, and the probability of a significant market reversal for the full year remains low. However, strong demand support from essential sectors may limit price declines for some products, allowing profitability to gradually recover.

Entering the fourth quarter, traditional peak-season demand is expected to fade, while concentrated new capacity launches will increase supply pressure. Petrochemical prices are likely to face broader downward pressure.

The overall industry outlook points to a pattern of seasonal recovery in the third quarter followed by renewed pressure toward the end of the year, with market conditions remaining range-bound under cost support and supply expansion.