PE market review in H1 2026

I. Market Review: consolidation, surge, and pullback

In the first half of 2026, China's PE market experienced sharp volatility driven by Middle East geopolitical conflicts, characterized by a cost-driven rally, a supply-demand mismatch, and a surge followed by a pullback.

From January to February, the market mainly consolidated, with limited price movements and relatively stable trading. Entering March, the Middle East conflict escalated abruptly, with passage through the Strait of Hormuz blocked, international oil prices surging sharply, and expectations of tightening import supply intensifying. PE prices rose rapidly. However, as the initial rally was overly inflated, prices soon corrected sharply downward. Thereafter, the market repeatedly staged stronger-than-expected rebounds, fueled by risk premiums associated with the Middle East situation.

In early April, prices remained firm at high levels, with market sentiment once running high. However, from mid-to-late April, prices came under pressure as demand weakened and expectations of easing tensions grew. Entering May, geopolitical premiums began to unwind, with prices across various grades rising first then falling. It was not until June, when the US and Iran remotely signed a memorandum of understanding and the Strait of Hormuz reopened, that geopolitical uncertainties faded, market logic rationally returned to fundamentals, and prices moved significantly lower.

II. Capacity: growth continues, but at a slower pace

In the first half of 2026, China domestic PE capacity continued to grow, but the pace of expansion slowed notably. New capacity in the first half totaled 800kt, bringing total capacity to 40.525 million tons. Compared with the strong expansion in the first half of 2025, when 5.43 million tons of new capacity were added at a growth rate of 16.61%, the pace of capacity expansion in the first half of this year eased considerably.

Overall, new capacity in the first half of 2026 was limited, with a rare commissioning gap from March to June. However, total PE new capacity for the full year 2026 is expected to exceed 6 million tons, and capacity release is expected to accelerate notably in the second half of 2026. Currently, two units at PetroChina Tarim II have already started production, and overall supply may continue to increase going forward.

III. Operating Rates: geopolitical impact drives sharp decline

Affected by the Middle East conflict, most PE plants both domestically and internationally reduced operating rates or shut down for maintenance due to constrained raw material supply and disrupted transportation. Daily vessel transits through the Strait of Hormuz plunged from around 130 in February to just 6 in March, a drop of 95%. Physical supply disruptions of key upstream raw materials such as naphtha and ethylene occurred in the Asian market.

China domestic operating rates followed suit with a sharp decline. At the beginning of March, PE operating rates were still at 88-90%, then declined steadily. In April, with concentrated spring maintenance and rising raw material prices, some plants reduced run rates or shut down to avoid risks due to profit losses, and capacity utilization continued to fall, bottoming out at 71.49% in the first half of 2026. It was not until May-June, as previously shut plants gradually restarted, that operating rates recovered.

Due to the notable decline in operating rates, China domestic PE production saw significant losses. According to CCFGroup statistics, domestic PE production in January-June 2026 totaled approximately 17.6198 million tons, up 4.47% year-on-year. Although the total volume still maintained positive growth-mainly due to the higher capacity base at the start of the year and relatively stable operating rates in January-February-the monthly production trend from April to June clearly reflected the impact of the geopolitical conflict, with production falling below the 3 million ton mark for three consecutive months.

IV. Import and Export Data: historic reversal - first transition from net importer to net exporter

In the first half of 2026, China's PE import and export landscape underwent a historic reversal. From January to May, domestic PE imports totaled approximately 4.5514 million tons, down about 23.70% year-on-year. Imports declined month by month, hitting a single-month low in May, and the lowest in nearly 13 years. The sharp drop in imports was mainly due to the Middle East situation.

In stark contrast to the sharp contraction in imports, exports saw explosive growth. From January to May, cumulative exports reached 1.4392 million tons, up 246.54% year-on-year. In May alone, exports reached 516kt, surpassing the month's imports (508.9kt) for the first time, achieving a net export of approximately 7.1kt. This marked the first time in history that China transitioned from a net importer to a net exporter of PE. Export markets were mainly concentrated in Southeast and South Asia, where local buyers turned to Chinese procurement due to supply disruptions from the Middle East.

Summary

In the first half of 2026, China's PE market experienced a complete surge-and-pullback cycle under the sharp disruption of Middle East geopolitical conflicts. Geopolitics replaced fundamentals as the core driver of market movements in the first half of 2026. On the supply side, new capacity in the first half of the year was limited, and plant operating rates and production both suffered significant losses due to raw material supply disruptions. On the demand side, downstream was in the traditional off-season, with sustained weakness in agricultural film, pipe, and other demand. The historic reversal in the import and export landscape was particularly notable - China transitioned from a net PE importer to a net exporter for the first time. In the second half of 2026, geopolitical factors will continue to influence the market, though their impact may gradually fade. Combined with concentrated new capacity release, the market may later return to fundamentals-driven logic.