Polyester February Report: Production Reaches New Highs in Off-Season as Demand Fails to Keep Up

In late January, PX and TA futures increased their open interest and rose, with valuations climbing again after a period of volatile correction following their surge at the end of last year. Polyester raw material prices hit new highs during the off-season, primarily driven by the end of TA's production cycle. As industry capacity expansion concludes, new capacities are set to come online: Honggang Petrochemical Phase III's 2.5 million tons in June 2025, Sanfangxiang Phase III's two lines of 3.2 million tons in July and August respectively, and Dushan Energy Phase IV's 3 million tons in October. This brings the total new capacity for the year to 8.7 million tons. As of now, the PTA capacity base in mainland China has been adjusted to 92.09 million tons. PTA will enter a production vacuum period in 2026.

The valuation of polyester products has risen to a new level compared to 2025. Although the growth rate of production for some chemical products has slowed down, the current capacity base is still large due to the high production growth rate in the past few years.

The growth rate of downstream polyester capacity in the PTA industry has slowed down in 2026. Currently, profits in the polyester industry chain are mainly distributed upstream, and the PX-N and PTA processing spreads have gradually rebounded. Previously, the market was trading on the expectation of weak supply and surplus of ethylene glycol, and ethylene glycol has fallen back to its December low. However, the market is sensitive to changes in ethylene glycol supply at low prices. The May contract faces spring maintenance, and the marginal cost of coal-to-ethylene glycol units acts as a lower bound for ethylene glycol at around 3700. Future attention needs to be paid to the reduction or suspension of ethylene glycol production at low prices.

In light of recent geopolitical tensions, the United States' reinforced military presence around Iran, and the boost in fuel demand caused by cold snaps in Europe and the U.S., oil prices continue to provide cost-side support for an upward trend in the polyester sector in the short term.

Without geopolitical catalysts, the upward potential of the aromatics sector is limited. According to current feedback from downstream sectors, some polyester plants have already reduced production due to the approaching Chinese New Year, and the operating rate of polyester plants is expected to be lowered to around 80% in February. The demand side is not a strong driver of polyester prices before the holiday, and its impact on prices is limited.

[Strategy Recommendation]

1. Unilateral: PX and TA's bullish sentiment has cooled and pulled back, so go long on dips. Without a cost-side crude oil driver, the upward momentum is not strong. Ethylene glycol maintains a wide range of fluctuations. Pay attention to the market's trading of oversupply and inventory accumulation expectations, and the switching of the chemical sector's rebound sentiment.

2. Arbitrage: Long PX, TA; Short MEG. For MEG, focus on long spread opportunities. For TA, short processing spread at high levels. 3. Options: Wait and see.