※ In 2026, the oversupply of chemical production capacity is expected to persist, and geopolitical risks will further heighten uncertainty in raw material supply, potentially pushing product–raw material price spreads even lower and keeping industry profit margins at subdued levels.

※ The chemical industry in Northeast Asia is highly developed, with strong demand for naphtha; China, South Korea, and Japan are the major importers. In the Middle East, Saudi Arabia has the largest naphtha production, but its domestic demand is robust, resulting in annual exports of less than 4 million tons. By contrast, Kuwait, the United Arab Emirates, and Qatar, with relatively modest domestic demand, export roughly 80% of their naphtha output, making them among the world’s leading naphtha exporters.

※ The Middle East and North America are the world’s primary supply hubs for liquefied petroleum gas (LPG), while Asia imports approximately 92 million tons of LPG annually, making it a major global consumer market. In China, nearly 40% of LPG resources are imported, with procurement sources spanning both North American and Middle Eastern supplies.

※ Ethane resources are primarily concentrated in the United States and the Middle East. U.S. shale gas boasts a high ethane content; by 2025, its production is projected at approximately 68.88 million tonnes, accounting for 63% of global output. Beyond domestic consumption, about 18% is exported, making the United States the only country currently engaged in large-scale ethane exports. In the Middle East, ethane is entirely consumed domestically, with no export‑ready shipping infrastructure; production in 2025 is estimated at roughly 27.81 million tonnes, representing 25% of global supply. The ethane‑cracking route offers both cost competitiveness and low‑carbon advantages, and demand has been shifting eastward in recent years. China has become the largest destination for U.S. ethane exports, with import volumes second only to those of the United States and the Middle East; imports are expected to exceed 7 million tonnes by 2026.

The 30th Conference of the Parties (COP30) to the United Nations Framework Convention on Climate Change, which concluded recently, centered on the core agenda of “from commitments to implementation,” further clarifying political expectations for the global pace of emissions reductions and fostering a series of institutional pressures aimed at restructuring energy systems, greening industrial value chains, and decarbonizing the chemical sector. At the international level, advanced economies—led by the European Union and the United States—are leveraging carbon tariffs, green subsidies, and supply-chain review mechanisms to build a new model of green trade, thereby driving a reshaping of rules governing the energy and chemical industries. Meanwhile, within emerging economies, a trend toward divergent emission‑reduction trajectories is emerging, intensifying North–South climate‑politics dynamics and bringing about structural shifts in the global flows of capital, technology, and green investment.

By 2025, prices for major chemical products are expected to trend downward amid volatility, with the product‑raw material price spread having already fallen to historic lows and industry profitability continuing to shrink. In 2026, overcapacity in the chemical sector is likely to persist, while geopolitical risks further heighten uncertainty in raw material supply, potentially pushing the product‑raw material spread even lower and keeping industry profit margins at depressed levels. Against this backdrop, low‑cost competition has become the dominant logic driving the basic chemicals industry. For bulk commodities such as polyethylene and polypropylene, raw material costs account for 70%–85% of total expenses; in naphtha steam cracking processes, this share exceeds 85%, meaning that fluctuations in feedstock prices directly determine corporate profitability. Consequently, securing low‑priced, stable, and high‑quality feedstock supplies—and reconfiguring cost structures through a “low‑cost feedstock strategy”—has emerged as a critical lever for companies to navigate market cycles and rebuild their competitive edge.

Analysis of Global Supply and Demand for Chemical Raw Materials

Naphtha, liquefied petroleum gas (propane and butane), and ethane are the primary chemical feedstocks traded across regions worldwide. Naphtha is mainly produced through atmospheric and vacuum distillation and secondary processing units in petroleum refineries, with a smaller portion derived from natural gas condensates; it is primarily used as a gasoline blending component, a steam‑cracking feedstock, and a reforming feedstock. Liquefied petroleum gas is predominantly sourced as a byproduct of oil and gas fields, with additional production occurring during refinery operations; its downstream demand is diversified, serving mainly as a domestic and commercial fuel gas and as a chemical feedstock for processes such as PDH and steam cracking, while also being utilized as industrial and automotive fuel. Ethane is chiefly obtained from natural gas or associated gas from oil fields and is primarily employed as a steam‑cracking feedstock.

1. Naphtha Supply and Demand Situation

Naphtha exhibits a pattern in which the Asia-Pacific region serves as the global hub of supply and demand, while the Middle East is the primary source of resource outflows. In the Asia-Pacific, naphtha supply falls short of demand; only India exports over 4 million tonnes annually. Northeast Asia boasts a well-developed chemical industry, generating substantial naphtha demand, with China, South Korea, and Japan among the major importers. Among Middle Eastern producers, Saudi Arabia has the highest naphtha output, yet domestic demand is robust, limiting its annual exports to less than 4 million tonnes. By contrast, Kuwait, the United Arab Emirates, and Qatar, benefiting from relatively modest domestic consumption, channel roughly 80% of their production into export markets, making them key global naphtha exporters.

Global oil demand growth is gradually slowing, while naphtha supply remains relatively inelastic. As the Middle East remains a major global source of hydrocarbon resources, incremental naphtha exports are unlikely to be significant, pushing the supply‑demand balance toward tightness. Amid U.S.–Israel–Iran tensions, throughput capacity in the Strait of Hormuz has declined, and oilfields, refineries, and export facilities in Saudi Arabia, Bahrain, Iran, and other countries have been repeatedly targeted and damaged. Under these pressures, Middle Eastern naphtha exports are expected to contract sharply by 2026. In the U.S. Gulf of Mexico, naphtha exports to East Asia have recently been ramped up urgently; however, compared with pre‑conflict Middle Eastern supplies, U.S. volumes fall short in both scale and transport economics, making it difficult to effectively close the supply gap. Even if hostilities subside, given the lengthy time required to repair damaged infrastructure and restore production capacity, global naphtha supply is unlikely to return to normal levels in the near term. On the demand side, elevated feedstock prices have kept chemical‑plant utilization rates generally subdued. Nevertheless, as geopolitical tensions ease and new capacity comes online in Northeast Asia, the underlying trend of rigidly growing naphtha demand is unlikely to change fundamentally. The widening supply gap in Northeast Asia will continue to shape global trade flows, with China—key to the region’s expanding ethylene capacity—exhibiting sustained growth in naphtha demand. Overall, the supply landscape is characterized by domestic resources as the mainstay, supplemented by imports.

2. Supply and Demand of Liquefied Petroleum Gas

The Middle East and North America are the world’s primary supply hubs for liquefied petroleum gas (LPG). By 2025, North America is projected to have net exports of 80.46 million tonnes, while the Middle East will export a net 45.68 million tonnes. Asia, with its dense population and well-developed chemical industry, exhibits robust demand in both residential fuel and chemical feedstock markets, importing roughly 92 million tonnes of LPG annually and serving as a major global consumer market. Japan and South Korea primarily source LPG from North America, whereas India relies mainly on Middle Eastern supplies. China depends on imports for nearly 40% of its LPG needs, sourcing from both North America and the Middle East. Downstream demand is characterized by strong growth in both residential fuel‑gas consumption and chemical feedstock applications: by 2025, approximately 40% of LPG will be used as residential fuel, while 43% will serve as feedstock for steam cracking and PDH processes.

From a supply-and-demand perspective, the commissioning of new oil and gas fields in the Middle East and North America is expected to drive a sustained increase in the volume of LPG available for export. On the demand side, compared with fuel‑gas consumption, the demand for chemical feedstocks such as PDH and steam cracking is more price‑sensitive. Under conditions of relatively ample supply and open import arbitrage opportunities, this would typically favor PDH and steam‑cracking feedstock demand in Northeast Asia. However, mirroring the situation with naphtha supplies, recent geopolitical tensions have led to a sharp contraction in LPG availability from the Middle East. Although U.S. LPG exports are on a clear upward trajectory, constraints such as downstream capacity and transportation logistics make it difficult to effectively offset the Middle Eastern shortfall. With infrastructure damage caused by the conflict, the impact of the war has extended beyond logistical disruptions to include production cuts at the source; output is unlikely to rebound in the short term. As a result, limited resources will be prioritized for essential, rigid‑demand sectors like fuel gas, while chemical plants—such as those producing PDH and steam‑cracked feedstocks—will operate at reduced loads for an extended period due to unfavorable economics.

3. Ethane Supply and Demand Situation

Ethane resources are primarily concentrated in the United States and the Middle East. U.S. shale gas boasts a high ethane content; by 2025, its production is projected at approximately 68.88 million tonnes, accounting for 63% of global output. With domestic consumption fully met, about 18% is exported, making the United States the only country currently engaged in large-scale ethane exports. In the Middle East, ethane is entirely consumed domestically, as the region lacks the infrastructure to export or ship it; its 2025 production is estimated at around 27.81 million tonnes, representing 25% of global supply. Ethane‑cracking offers both cost competitiveness and low‑carbon advantages, and demand has been shifting eastward in recent years. China has become the largest destination for U.S. ethane exports, with import volumes second only to those of the United States and the Middle East; imports are expected to exceed 7 million tonnes by 2026. Beyond imported supplies, China also possesses modest domestic ethane resources, characterized by dispersed distribution and small scale, primarily recovered through separation at PetroChina’s natural gas processing plants and used mainly for on‑site consumption and local utilization. Overall, ethane resources remain increasingly sought after in the Asia‑Pacific region, yet bottlenecks persist across resource acquisition, transportation capacity and routes, and storage and handling facilities, leaving ethane a scarce commodity that is “visible but hard to secure.”

Low-Cost Chemical Raw Material Supply Chain

The low cost of raw materials depends not only on price but also on the overall economic efficiency of processing. Supply chains for low-cost chemical feedstocks can be categorized into two main types: first, operational and production‑optimization pathways that focus on immediate, short‑term improvements; and second, strategic planning frameworks that take a long‑term, system‑wide approach.

1. Optimization Path for Production and Operations

First, optimize the feedstock mix. In recent years, the marginal profitability of cracking feedstocks has ranked as follows: C2 gas > light naphtha > hydrotreated tail oil > LPG > full-range naphtha. Although light feedstocks offer superior margins, some refineries have not fully exploited their available light‑hydrocarbon resources. During production, it is essential to ensure stable operation of the dry‑gas enrichment and saturated‑gas recovery units, directing the highest possible volumes of high‑quality ethylene‑rich gas, ethane‑rich gas, and disproportionated dry gas to the cracker. Furthermore, all light hydrocarbons across the plant should be recovered to the greatest extent possible, thereby increasing the lightness of the ethylene feedstock.

Second, optimize the quality of feedstocks. For naphtha, the content of normal paraffins is positively correlated with ethylene yield; under identical cracking temperatures and steam‑to‑oil ratios, as paraffin content increases, the yield of high‑value co‑products rises, boosting the economic value of the cracking products while reducing ethylene production costs. As for tail oil, its relatively high saturated hydrocarbon content and low aromatic content confer favorable cracking performance; however, it is essential to improve segregated storage and fractionation facilities to prevent diesel and other components from contaminating the tail oil, thereby avoiding broadening of the distillation range and elevated aromatic levels that could degrade cracking performance. Taking into account both product yields and their impact on unit operation, when using diesel as a cracking feedstock, the aromatic content should be kept below 15%.

Third, enhance the capability for low-cost resource procurement. Based on market dynamics and processing window periods, optimize the procurement mix of naphtha and propane/butane. In the long term, propane/butane offers higher marginal returns as a chemical feedstock than imported naphtha, and its prices exhibit pronounced seasonality; procuring and building inventories during the off-season can effectively reduce procurement costs. Employ financial instruments to lock in processing margins in advance, closely monitor price trends in naphtha/LPG and various chemical futures contracts, and by hedging the forward price spread between chemicals and naphtha/LPG, realize processing profits ahead of time.

2. Strategic Planning Pathway

First, the strategy is to develop ethane‑ and coal‑based chemical pathways. Based on cost estimates for producing one ton of ethylene, during the 14th Five-Year Plan period, the cost ranking of the three feedstock routes is: naphtha‑based > coal‑to‑olefins > ethane‑based. By 2026, although the ethane route will face multiple challenges—rising resource scarcity, tightening transportation capacity, and mounting supply‑chain instability—the cost center will have shifted upward. Nevertheless, it will still maintain a significant cost advantage over the naphtha route, and the competitive barriers and profit margins associated with domestic ethane cracking capacity are expected to become even more pronounced. The ethane route offers dual advantages—cost efficiency and low carbon emissions—and its blended‑feedstock model allows flexible adjustments to the processing ratios of ethane, propane, naphtha, and other feedstocks in response to market conditions, enabling dynamic optimization of the feedstock mix. This approach effectively mitigates risks stemming from reliance on a single feedstock, strengthens supply‑chain resilience, and enables timely responses to feedstock price fluctuations, thereby maximizing economic returns through optimized feedstock allocation.

Second, optimize the overall refining and petrochemical process flow. For integrated refining‑petrochemical enterprises, the heavy‑oil conversion pathway is key to achieving low‑cost “oil‑to‑product” conversion. Currently, two mainstream heavy‑oil processing routes are in use: the “fixed‑bed residue hydrotreating plus catalytic cracking” process, which boosts production of low‑carbon olefins such as ethylene and propylene while co‑producing aromatics; and the “slurry‑bed or ebullating‑bed residue hydrotreating plus hydrocracking” process, which increases yields of both cracking feedstocks and aromatic feedstocks, while also offering flexibility in producing refined petroleum products. From a “molecular refining” perspective, designing an integrated “oil–olefin–aromatics” process that matches feedstock characteristics and appropriately sizing refining, ethylene, and aromatics units can help achieve the goal of “producing olefins when appropriate, aromatics when appropriate,” resulting in a more rational feedstock mix, reducing unnecessary molecular recirculation during processing, and lowering overall operating costs. Existing refineries can employ technologies such as efficient separation and reactive conversion—e.g., integrated light‑hydrocarbon separation, n‑butane isomerization and conversion, naphtha isomerization, diesel hydrocracking/hydro‑upgrading/adsorption‑based separation, and the production of ethylene and propylene from diesel, naphtha, and light hydrocarbons—to upgrade and refine “inferior” cracking feedstocks, improve feedstock quality, increase high‑value‑added product yields, and enhance unit energy efficiency. In addition, direct crude‑oil cracking to produce ethylene is another viable option. By flash‑evaporating light crude oil, the light fractions are fed directly into cracking, while the heavy fractions undergo hydrotreating followed by catalytic cracking to generate low‑carbon olefins. This combined process delivers ethylene and propylene yields that exceed those of conventional “refining–ethylene” integrated facilities by more than 20 percentage points, while maintaining ethylene production costs comparable to those of traditional integrated refineries and even lower than those of companies relying on purchased feedstocks.

Third, the value-added utilization of mid‑stream by‑products. The naphtha‑based route generates substantial quantities of mixed C4s, pyrolysis gasoline, and ethylene tar, among others. With the advancement of downstream deep‑processing technologies, a distinctive high‑value product chain has gradually taken shape, encompassing C4s, C5s, C9s, and tar derivatives. By leveraging these mid‑stream by‑products in high‑value applications, the added value of cracking products can be enhanced, intermediate handling steps reduced, and feedstock costs effectively diluted, thereby boosting plant competitiveness. The downstream C4 value chain includes butadiene—used for synthetic rubber, adiponitrile/nylon; isobutylene—used for PMMA, butyl rubber, polyisobutylene; and maleic anhydride—used for BDO/degradable polyester materials and high‑end alcohols. The downstream C5 value chain comprises isoprene—employed in rubber and fine chemicals; dicyclopentadiene—used to produce C5 petroleum resins and epoxy curing agents; and bicyclopentadiene—used in unsaturated resins. C9s are primarily utilized to produce gasoline blending components and solvents, C9 petroleum resins, and to extract monomers such as mesitylene. Ethylene tar is mainly processed into carbon black and ethylene tar resin, with the potential to recover cracked naphthalene fractions for producing indene‑coumarone resins and petroleum naphthalene, among other products.

Conclusion

The development of a low-cost raw-materials strategy should focus on two core dimensions: first, ensuring stability by establishing in-house production capacity or securing long-term supply contracts to meet baseline demand; second, pursuing diversification to build a resilient supply chain through a diversified portfolio of raw-material sources. These two pillars—stability and diversification—are mutually reinforcing, together forming a robust and competitive raw-materials supply system that underpins corporate resilience and competitiveness.