PX and PTA margins hit multi-month lows as Middle East conflict escalates

Processing margins shrink as feedstock costs surge

Recently, as the Middle East conflict broke out again between the U.S. and Iran and the Strait of Hormuz was re-blockaded, crude oil prices have surged. However, processing margins for both PX and PTA dropped sharply. Asian PX-naphtha spread has been compressed to around $140/mt by Jul 23, the lowest level since mid-April, while Chinese yuan PTA-PX processing spread fell below 300yuan/mt, hitting a new low since April 18.

However, the naphtha to crude oil spread has rebounded sharply again, returning to the highs seen in mid-April and late April. Meanwhile, since the start of this year, the naphtha to crude oil spread and PXN spread have shown an extremely strong negative correlation, with a correlation coefficient of -0.89, compared with only -0.28 in 2025 and -0.48 over the 2018-2025 period.

Supply disruptions cause naphtha to crude oil spread to surge

Similar to the outbreak of conflict in March, the Strait blockade disrupted crude oil and naphtha shipments, sending feedstock prices surging. Naphtha, facing tight supply, saw its spread to crude oil rise sharply, squeezing downstream margins.

Given the more intense supply contraction at the front end, upstream price gains will continue to significantly outpace those of downstream products. Looking forward, recovery or expansion of downstream margins will likely depend on either a pullback in front-end prices or a sharp reduction in output due to feedstock shortages, which would in turn tighten the supply.

Naphtha-PX-PTA chain faces supply constraints

From the naphtha/PX/PTA chain perspective, products further upstream theoretically have firmer fundamentals. Middle Eastern naphtha cannot be exported due to logistics issues. Russia, whose refineries have been attacked, is already importing refined oil products, and naphtha supply is distinctly limited.

At the same time, high Western gasoline and diesel spread to crude oil continue to divert naphtha and aromatics into the refined oil pool, providing notable support for Asian naphtha, even though olefin and aromatics margins have been severely compressed, and the naphtha-LPG spread remains at mid-to-high levels since the conflict broke out, both of which weigh on naphtha demand.

PX and PTA are also in a supply-shortage situation. With concentrated turnarounds underway, Asian PX operating rates are at historical lows, making PX supply tight. Even with relatively good margins, PTA plants cannot sustainably increase production due to feedstock shortages, which has also pushed PTA into a sustained destocking phase.

Supply recovery expectations continue to pressure the margins

At present, however, the Strait transit timeline remains uncertain, and naphtha supply recovery is still unclear. But for PX/PTA, as China domestic maintenance gradually ends in August, supply is set to return, which has dampened market confidence and further suppressed industry margins.

With naphtha remaining strong and margins for aromatics (including PX) and olefins compressing rapidly, some overseas producers have begun considering output cuts, though whether it will materialize remains to be seen.

Low inventory leaves the industry highly vulnerable

In this volatile period where "a single tweet" can shift the landscape, industry seem powerless against geopolitics. But the market will eventually revert to fundamentals. At present, the supply-demand gap across the chain and the low inventories ahead will significantly reduce the industry's resilience to shocks.