China’s Polyester Industry Faces Margin Erosion as Supply Chain Volatility Hits
The Chinese polyester industry is currently weathering a storm of margin erosion and supply chain volatility, driven by escalating geopolitical tensions in the Middle East, with the effective closure of the Strait of Hormuz choking essential petrochemical supply lines and sending feedstock costs upwards.
An average of 20 million barrels per day of crude oil and oil products transited through the Strait in 2025, according to the International Energy Agency. With the blockade creating a critical bottleneck in global energy flows and the shockwaves trickling down the value chain, petrochemical producers are being forced into defensive production cuts to mitigate losses. Under the dual pressure of soaring feedstock costs and heightened supply uncertainty, the industry now faces a significant demand-supply squeeze and thinning margins.
Crisis Sends Polyester Feedstock Prices Soaring
Following the U.S.-Israel attack on Iran on Feb. 28, global crude oil prices soared from $72.87/bbl pre-conflict to $77.74/bbl on March 2 before peaking at $103.14/bbl on March 13, according to Intercontinental Exchange data. The last time Brent crude oil prices soared above $100/bbl was in July 2022, according to industry sources.
The acute global shortage of crude oil and feedstocks ignited a wave of panic buying as refiners and petrochemical producers rushed to secure sufficient inventory to maintain operational continuity. Although the IEA and member countries have agreed to release emergency oil reserves, initially easing volatility in the crude oil market, persistent feedstock shortages in the downstream derivative sector continued to drive panic buying.
Consequently, the acute shortage of naphtha, an important polyester feedstock, exerted upward pressure on prices across the polyester chain. “My naphtha trader is trying to procure naphtha from other traders in the market, but we have not been successful. No one has sufficient cargo availability to spare. At this rate, we don’t have enough inventory for second-half March and April if supplies continue to be disrupted,” an industry source said.
According to OPIS data, the naphtha price jumped 66.5% from pre-conflict levels on Feb. 27 to $1,060 per metric ton CFR Japan on March 13, while the paraxylene price increased 37.2% over the same period to end at $1,276.67/mt CFR China on March 13. The last time the PX price stood at these levels was on April 16, 2024, OPIS data shows. Meanwhile, the domestic Chinese price of purified terephthalic acid rose 35.8% from pre-conflict levels on Feb. 27 to 6,999 yuan/mt on March 13, industry sources said.
Short-Term Outlook: Production Curtailments and Force Majeures
The tightened supplies across the polyester value chain have led to cuts in operating rates across Asia in the short term, to mitigate intensifying supply chain bottlenecks.
“Producers will first cut their cracker run rate to prioritize feedstock for fuel production. Reformate will be prioritized for gasoline production and there will be less incentive to produce aromatics, an industry source said.
In South Korea, several major players have implemented significant cuts. LG Chem lowered cracker rates by 10%, while Yeochun NCC and GS Caltex both reduced operations by 20%. Additionally, KPIC Corp. cut rates by 5 percentage points, and Hanwha TotalEnergies adjusted its cracker operating rates downward by 7-8 percentage points. According to industry sources, Japanese producer Eneos has also lowered its cracker utilization to an operating rate of 75%.
The feedstock shortage has hit China particularly hard, due to its heavy reliance on Middle Eastern energy imports. According to the IEA, approximately 37% of total exports transiting the Strait of Hormuz—exceeding 5.2 million barrels per day—are destined for the Chinese market. Consequently, the disruption of this primary shipping route has significantly intensified supply pressures on Chinese refiners, forcing a rapid reassessment of inventory levels and production strategies.
Sinopec has reduced cracker operations across several key sites, with Zhenhai and Zhongke cutting rates by 10 percentage points and Maoming by 20 percentage points. Similarly, China National Petroleum Corp. lowered its Jilin cracker operations by 20 percentage points, while PetroChina Guangxi and Zhejiang Petrochemical or ZPC implemented 20 percentage point cuts. Hengli Petrochemical adjusted its rates downward by 10 points, and Sinochem Quanzhou reported the most substantial cut at 40 points, industry sources said.
Asian petrochemical producers have also struggled to maintain feedstock inventories and fulfill delivery obligations. Market volatility intensified following Chandra Asri’s declaration of force majeure on all products, marking the first major regional operational casualty of the war. As the feedstock scarcity worsened, other petrochemical players followed suit, with YNCC and SCG Chemicals declaring force majeure across their entire product portfolios, while Petrochemical Corporation of Singapore declared force majeure on its cracker operations, impacting other petrochemical players dependent on them for feedstock.
More petrochemical players have since declared force majeure on some parts of their product deliveries. Wanhua Chemicals declared force majeure on all their product deliveries to their Middle East customers, Cnooc and Shell Petrochemicals Co (CSPC) declared force majeure on their polymer products, while Formosa Petrochemical declared force majeure on their olefins products.
While the polyester industry initially appeared shielded from the wave of production cuts and force majeure declarations sweeping through other petrochemical sectors, this resilience proved short-lived. On March 9, China’s Hainan Yisheng Petrochemical Co. and Yisheng Dahua Petrochemical Co. also declared force majeure on certain polyethylene terephthalate contracts with immediate effect due to severe disruptions of the companies’ supply chain following the Middle East tensions, industry sources said.
This was followed by Jiangsu-based Hailun Petrochemicals Co., Jiangsu Xingye Plastics Co. and Jiangyin Xingjia New Materials Co. — subsidiaries of major polyester producer Sanfangxiang Group — jointly declared force majeure on all contracts, orders and deliveries to customers starting March 13.
“Across the polyester feedstock supply chain, producers are cutting run rates in response to the shortage of feedstock, but downstream polyester makers are still running at high operating rates. The fast drawdown on inventories is creating a supply squeeze and eventually a supply vacuum in the market that will send prices soaring again,” an industry source said.
Average operating rates of PX plants in China slipped 3 percentage points week on week on March 13 to 81%, while average PTA plant operating rates dipped 1 percentage point over the same period to 80%. However, average polyester plant operating rates rose 3.7 percentage points week on week to 87.2% on March 13, another source added. At the same time, PX inventories fell 2.2% week on week to 3.720 million mt on March 13 as buyers continued to draw down on stocks, but PTA inventories were higher by 3% over the same period to 3.85 million mt due to previously higher run rates, the source added.
Meanwhile, other players in the polyester market have brought forward their plant maintenance plans, with some market participants seeing this as a pragmatic defensive strategy amid heightened feedstock insecurity. With producers already mulling production cuts to offset supply constraints, an offline period provides a necessary buffer for firms to recalibrate their operations. Companies that have made such moves include S-Oil, which shut its aromatics and reformate units and crude distillation units on March 4, and ZPC, which shut its aromatics and reformer units on March 5 ahead of its scheduled maintenance.
Long-term Outlook: Polyester Players Face Margin Erosion and Liquidity Risks
Domestic cash margins in the Chinese polyester market have seen a notable recovery, with 10-day averages as of March 17 rising to 569 yuan for partially oriented yarn, 379 yuan for fully drawn yarn, and 326 yuan for PET bottle chips. This represents a significant rebound from the pre-conflict levels of Feb. 27, when margins stood at 263 yuan, 95 yuan, and a mere 1 yuan, respectively. According to industry sources, this profitability surge—coupled with the looming peak summer demand for beverage packaging in June—has incentivized polyester producers to ramp up production.
On the surface, the resurgence of demand from panic buying across the polyester value chain and the sharp spikes in prices may seem like a positive outcome for the polyester sector, but some market players warn of the long-term consequences the U.S.-Iran war may bring to the industry.
Rising oil prices and fears of supply disruptions have pushed up the cost of PX and Mono ethylene glycol or MEG — important raw materials for PTA production — and increasing production expenses for polyester producers. The Middle East is one of the largest exporters of MEG globally, exporting about 7 million mt of MEG in 2025, with the majority of shipments bound for Asia, industry sources said. Hence, the closure of the Strait of Hormuz will severely impact the supply of MEG cargoes to China and indirectly affect the production of PTA and downstream polyester products. MEG inventories in China have fallen by 4% week on week to 927,000 mt on March 13, sources added.
Market participants in the polyester industry are also raising concerns about the inability of higher feedstock costs to be passed on to downstream polyester consumers. “Unlike the travel industry, where consumers accept that their air ticket is costing more as airlines are being charged higher prices for jet fuel due to fuel shortages, the average consumer on the street is not going to understand why that shirt or the bottle of soft drink is going to cost two times more because of supply disruptions in the polyester chain. Clothing retailers and beverage manufacturers cannot pass on the higher costs of textiles and PET bottles to their end user,” an industry source said.
“While our retail and beverage customers understand the necessity of rising costs for textiles and PET bottles, there is a definitive ceiling to what they can absorb. Beyond that breaking point, price resistance becomes absolute, as these increases can no longer be effectively passed on to the end consumer. When that happens, demand across the polyester chain will weaken and profit margins will start to shrink,” the source added.
Prior to the onset of the Middle East conflict, the rapid capacity expansion of the Chinese polyester industry between 2021 and 2025 had resulted in overcapacity and overall lower profit margins. China’s polyester production capacity grew from 71.6 million mt in 2021 to about 91 mt in 2025, according to Chemical Market Analytics by OPIS data. The rapid capacity increases resulted in lower profits, created unhealthy competition between players and eventual intervention from the Chinese government.
China’s Ministry of Industry and Information Technology Department of Raw Materials Industry organized a closed-door symposium among the six major Chinese polyester producers to discuss the development of the PTA and bottle-grade polyester chips industry in China last October. The aim was to prevent and resolve infighting within the PTA and bottle-grade polyester chips industry and promote the stable operation of the industry.
Although the Chinese polyester industry experienced a marginal recovery early in the year, the escalation of Middle East tensions following the Feb. 28 conflict has thrown the sector back into turmoil. “I am bracing for another downhill in the polyester industry. Prior to the onset of the Middle East conflict, the market was already in a state of being ‘half-dead but not alive’. The U.S.-Iran war just accelerated its death”, said an industry source.
Other market participants are warning of a severe long-term economic impact across the polyester value chain, particularly given China’s role as a dominant polyester producer. The country exported close to 15 million mt of polyester products in 2025, said industry sources, who suggest that prolonged feedstock shortages will inevitably cap export availability and create a global supply crunch that will further erode margins.
In 2025, the total value of China’s clothing exports was estimated at about $151 billion, an industry source said. The country’s export earnings are projected to decline in 2026 as export availability is capped by persistent supply chain disruptions and manufacturing constraints, the source added. Although Beijing set a conservative GDP growth target of 4.5% to 5% during the “Two Sessions” in early March—a slight moderation from the 5% growth rate recorded in 2025—market participants anticipate that China may have to revise these projections as the full economic weight of the Middle East conflict begins to materialize.
—Reporting by Serena Seng, sseng@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com