Recently, the 2026 Economic Situation Analysis Conference for the Petroleum and Chemical Industries was held in Chengdu, Sichuan. Fu Xiangsheng, Vice President of the China Petroleum and Chemical Industry Federation, delivered an economic outlook report titled “Consolidating the Positive Momentum, Seizing New Opportunities, and Striving to Usher in a New Phase at the Outset of the 15th Five-Year Plan.” Experts attending the conference engaged in in-depth discussions on medium- and long-term transformation pathways and high-quality development strategies for the petrochemical sector. This edition summarizes the conference’s key takeaways and expert perspectives—stay tuned.

Unless otherwise credited, the text and photographs in this section are provided by our reporters Wei Jiaqi and Wang Yibing.

In the first half of 2026, the global economy has been weighed down by the triple pressures of geopolitical tensions, supply-chain disruptions, and persistent inflation. The recovery pace of major economies has continued to slow, prompting numerous international institutions to lower their full-year growth forecasts. Against this backdrop, China has adhered to the overarching principle of seeking progress while maintaining stability, with its GDP reaching RMB 69.6 trillion, up 4.7% year on year—a growth rate that continues to outpace that of other major economies, underscoring China’s role as a key engine and stabilizer of global growth. As a pillar of the national economy, the petrochemical sector has delivered a strong performance after five years, posting simultaneous increases in revenue, profits, and trade—its three core indicators. Nevertheless, deep-seated challenges have come to the fore: the sustainability of geopolitical windfalls is uncertain, supply‑demand imbalances persist, domestic and international trade face mounting pressure, and corporate performance remains uneven. The industry now stands at a crossroads, balancing short-term cyclical recovery with long-term transformation and upgrading.

Six key operational trends paint a positive picture of the industry’s first half.

Fu Xiangsheng, vice president of the China Petroleum and Chemical Industry Federation, reported that in the first half of this year, the petrochemical industry recorded operating revenue of 8.05 trillion yuan, up 7.8% year on year; total profits reached 571.39 billion yuan, a 54.9% increase compared with the same period last year; and total import‑export value amounted to 478.66 billion U.S. dollars, up 7.3% year on year. All three key performance indicators posted growth—the first such improvement in five years—while multiple subsectors and major products showed robust expansion, reflecting six distinct and well‑defined operational trends.

The most visible change in the industry is the comprehensive recovery of operating performance. Over the past four years, industry profits have been on a steady decline; however, in the first half of this year, a turnaround was achieved, with the oil and gas extraction, chemical, organic chemicals, synthetic resins, and specialty chemicals sectors all posting growth not seen in many years. Against a backdrop of weak global demand and mounting trade barriers, the industry’s overall profit recovery has been no small feat. The refining sector, which had posted aggregate losses for two consecutive years, reported profits exceeding RMB 36 billion in the first half, and is expected to turn profitable for the full year.

The effectiveness of ensuring supply and stabilizing production is becoming increasingly evident, with the output of major petrochemical products steadily rising. In the first half of the year, crude oil production reached 110 million tonnes, up 0.9% year on year; natural gas output totaled 133.04 billion cubic meters, a 1.6% increase, firmly safeguarding the nation’s energy security. Agricultural support products were robustly supplied: total fertilizer output (in terms of pure content) stood at 33.125 million tonnes, up 0.7% year on year, while pesticide output (in terms of pure content) reached 2.292 million tonnes, a 7.3% year-on-year rise, providing strong backing for an additional 2 billion jin of summer grain production. Production of basic chemical commodities—including ethylene, methanol, soda ash, caustic soda, PX (paraxylene), and PTA (purified terephthalic acid)—all expanded, while polymer materials such as synthetic resins and synthetic rubbers saw steady increases in output, supplying critical raw materials to high‑end manufacturing and emerging industries like new‑energy vehicles, rail transit, electronic information, and light industry and textiles. The industrial chain’s role in underpinning these sectors continues to strengthen.

Domestic demand continues to be unleashed, and the apparent consumption of major products remains stable. Domestic policies to boost domestic demand have taken effect, while geopolitical turmoil in conflict‑prone regions has created additional space in the global market. In the first half of the year, apparent consumption of basic chemicals rose 2.2% year on year, with both inorganic and organic chemical consumption expanding in tandem. Apparent consumption of acetic acid, urea, and potash fertilizers all increased by more than 10% year on year, while demand for bulk feedstocks such as ethylene, methanol, caustic soda, and soda ash continued to grow steadily. With marginal improvements in the automotive, home appliance, and real estate markets, coupled with the ongoing advancement of a unified national market, the petrochemical industry’s downstream demand has provided clear support.

Foreign trade exports have demonstrated remarkable resilience, and the international competitiveness of Chinese products has strengthened significantly. In the first half of the year, the industry’s exports totaled US$188.8 billion, up 17.9% year on year, while imports reached US$289.85 billion, registering a modest increase of just 1.3%. The trade structure continued to improve. Soda ash exports rose by 44.1%, synthetic resin exports by 41.5%, and synthetic rubber exports by 60.5%. Polyethylene exports surged 258.1% year on year, and exports of polypropylene, ABS resin, polystyrene, epoxy resin, and other materials all posted strong growth. With both volume and prices rising across a range of products, this underscores the steadily strengthening international competitiveness of China’s petrochemicals and materials.

The decline in crude oil processing volumes and refined‑product production and sales is consistent with the industry’s long-term trend. Affected by geopolitical tensions, crude oil imports fell 11.5% year on year. Coupled with the accelerating shift to new energy sources, crude oil processing volume in the first half of the year totaled 344 million tonnes, down 4.9% from the same period last year; refined‑product output reached 189 million tonnes, a 5.7% decline year over year. Both gasoline and diesel production and apparent consumption declined in tandem, with apparent refined‑product consumption at 180 million tonnes, down 3.6% year on year. With domestic penetration of new‑energy vehicles now at 50%, and LNG‑powered and electric heavy‑duty trucks gaining rapid traction, the peak in conventional fuel demand has become inevitable. The contraction of the refined‑products market is an unavoidable outcome of the energy transition, further underscoring the industry’s strategic shift toward “reducing oil and increasing chemicals.”

Earnings divergence across sectors, companies, and thematic tracks has intensified, with structural characteristics becoming increasingly pronounced. Among the three major segments, the chemical sector posted revenue of RMB 5 trillion, up 9.7% year on year, and profits of RMB 312.63 billion, a 65.2% increase, demonstrating the strongest earnings elasticity; the oil and gas segment reported revenue of RMB 747.6 billion, up 9% year on year, with profits of RMB 215.92 billion, a 17.8% rise; the refining segment generated over RMB 2 trillion in revenue, nearly 4% higher than last year, and recorded profits exceeding RMB 36 billion, an increase of more than RMB 47 billion, finally emerging from losses. In the coal‑chemicals subsector, differentiation was pronounced: coal‑to‑oil production and sales declined due to plant maintenance, while coal‑to‑gas and coal‑to‑ethylene glycol saw double-digit growth in output and sales, with profits in these areas expanding by several multiples. On the capital markets, the performance of listed chemical companies has been sharply bifurcated. Among the 94 chemical firms that have disclosed their interim results forecasts on the Shenzhen Stock Exchange, more than 60% reported profits and projected year‑on‑year growth; 46 of them expect gains of over 50%, and 10 anticipate turning around from loss to profit. Private refining and petrochemical giants such as Hengyi Petrochemical, Rongsheng Petrochemical, and Hengli Petrochemical have seen net profits surge by several times, while companies like Wanhua Chemical, Satellite Chemical, and Huafeng Chemical have also posted substantial earnings increases. Nevertheless, nearly 30% of firms remain mired in losses, and the gap in profitability between companies continues to widen.

Short-term geopolitical tailwinds can hardly mask the industry’s deep-seated structural contradictions.

In the first half of the year, industry performance improved markedly, driven primarily by price gains stemming from geopolitical tensions. However, the global market remains characterized by an overall oversupply of crude oil and bulk commodities, while domestic petrochemicals continue to grapple with pronounced structural imbalances and intensifying “involutionary” competition—issues that have yet to be fundamentally resolved. As a result, the foundations for sustained industry improvement remain fragile.

Profitability is highly dependent on external geopolitical disruptions, and price volatility risks remain elevated. Since late February, geopolitical tensions have disrupted shipping through the Strait of Hormuz and prompted production cuts or shutdowns at overseas chemical facilities. As a result, the average price of Brent crude oil in the first half of the year stood at $92.6 per barrel, up 28.9% year on year. Rising crude prices have cascaded down the supply chain, driving broad-based increases across the chemical sector. By late April, the European chemical feedstock index surged by 61%, while in March, Brent crude recorded its largest monthly gain in five years; among 71 organic chemicals and 54 synthetic materials, more than 80% saw year-on-year price hikes starting in March. However, this upward momentum has been highly contingent and fragile: in May, the European chemical feedstock index plunged 13.6% month-on-month, with sharp price volatility exposing significant weaknesses in the industry’s risk‑resilience. From a supply‑and‑demand perspective, the global oversupply dynamic for crude oil and bulk chemicals remains unchanged. Should geopolitical tensions ease and overseas plants resume operations, product prices could quickly reverse course, making it difficult to sustain the high profit margins seen in the first half of the year over the long term. Fu Xiangsheng cautions that current market interpretations of corporate performance are often one‑sided: some companies posted net profit margins below 1% during the same period last year, so this year’s dozens‑of‑times surge in profits merely reflects a low‑base effect, with only limited improvements in underlying operational quality. Consequently, it is premature to judge the health of the industry solely on the basis of growth rates.

Supply-demand imbalances and mismatches between high- and low-end segments remain the industry’s core pain points. Over the past decade, China has seen a concentrated wave of construction and commissioning of petrochemical facilities, with major units such as refineries and ethylene plants—and their key product capacities—successively reaching world‑leading levels. This has not only met domestic demand for petrochemical products but also helped fill gaps in the international market. However, from a supply‑demand perspective, while this has partially alleviated structural imbalances, it has also, to some extent, exacerbated oversupply and further distorted the balance between supply and demand. More than ten product categories—including propylene oxide, polypropylene, and nylon 66—have already been placed on lists identifying overcapacity risks. During the 14th Five‑Year Plan period, capacity expansions for ethylene, PX, PTA, and other products are projected to range from a minimum of 30% to a maximum exceeding 77%. Unregulated expansion of low‑end production has sparked “involutionary” price wars, continuously squeezing industry average profit margins. By contrast, high‑end electronic chemicals, high‑performance specialty materials, and dedicated catalysts remain heavily reliant on imports, leaving the structural imbalance of “oversupply at the low end and shortages at the high end” largely unresolved. It is now imperative for the industry to break away from the traditional path of scale‑driven growth: strictly controlling “two high” projects, rigorously implementing capacity‑replacement measures, phasing out inefficient and outdated capacity, and advancing the optimization of existing assets.

Global trade protectionism is escalating, intensifying the risks of prolonged downward pressure on foreign trade. Against the backdrop of a sluggish global economic recovery, unilateralism and the reshoring of manufacturing have become policy priorities for many countries, while the United States and Europe continue to impose trade restrictions. In March this year, the European Union unveiled the “Industrial Accelerator Act,” systematically narrowing the market space for Chinese chemical products in Europe through measures such as market access controls, investment reviews, and industrial support policies. Meanwhile, recurring geopolitical tensions in the Middle East have disrupted global supply chains, driving up uncertainty in both raw-material imports and product exports. Despite strong export performance in the first half of the year, the overall outlook for foreign trade remains pessimistic, making overseas market expansion and trade‑risk management enduring challenges for businesses.

The company’s internal operational weaknesses are pronounced, and there remains substantial room to enhance profitability. In the first half of the year, 28.4% of companies in the sector reported losses; the oil and gas extraction, refining, and chemical industries each saw loss rates exceeding 27%, with losses from these loss-making firms accounting for 18.1% of the industry’s total profits. If potential‑driving measures to boost efficiency were implemented, reducing both the share of loss‑making firms and the aggregate loss amount by one percentage point, industry profitability would improve substantially. The issue of capital tied up in receivables and inventories is weighing on operational efficiency: across the sector, accounts receivable rose 10.1% year over year, finished goods inventory increased 12.3%, and overall stock levels grew 8.9%, leaving substantial working capital stagnant in receivables and inventory and resulting in low turnover ratios. Cost pressures are also mounting: operating costs climbed 5.3% year over year, while financial expenses surged 18.6%, with the chemical sector seeing a 27.1% increase in financial expenses. Administrative expenses have likewise risen. Effective centralization of funds and refined cost management are critical levers for enhancing corporate efficiency.

The full-year trend is expected to be “high in the front, low in the back,” with high-quality transformation emerging as the key to breaking the industry’s impasse.

Drawing on first-half performance data from the petrochemical sector and shifts in both domestic and global macroeconomic conditions, the China Petroleum and Chemical Industry Federation has assessed the full-year outlook: overall growth is expected to follow a “high‑first, low‑later” trajectory. Full-year operating revenue is likely to remain near the historical peak of roughly RMB 16 trillion per year—consistent with the average annual level during the 14th Five-Year Plan period—while total profits are projected to exceed RMB 900 billion, remaining at a historically elevated level. However, the confluence of factors—including the gradual waning of growth‑boosting effects stemming from geopolitical tensions in the second half, persistent overcapacity pressures, and a tightening external trade environment—is set to moderate the sector’s growth momentum.

From the perspective of both short-term operational stability and medium- to long-term high-quality development, the petrochemical industry has now reached a clear consensus on its transformation and upgrading. In the short term, the industry must leverage its existing industrial base and resource advantages to consolidate its core production and operations, thereby underpinning its overall growth. In the long term, the traditional, extensive growth model—driven by capacity expansion—is no longer aligned with the sector’s evolving needs; instead, high-endization, digitalization, and green development will become the central pillars of China’s petrochemical industry’s transformation and upgrading during the 15th Five-Year Plan period.

Centering on the goal of high-quality development, Chen Meitao, Director of the Petrochemical and Light‑Textile Business Department at China International Engineering Consulting Corporation, outlined a systematic approach to the petrochemical industry’s development across six key dimensions. First, adopt precision‑driven, differentiated strategies along each value chain to enhance quality and efficiency. Specifically: in the petroleum‑chemical sector, prioritize upgrading technological capabilities and product quality; in modern coal‑chemicals, steadily advance industrial upgrading while optimizing development models; and in the chemical new‑materials field, focus on overcoming critical “bottleneck” technologies, addressing gaps in high‑end segments, continuously refining traditional competitive chemical products, elevating product quality and brand competitiveness, and fostering coordinated progress across all links of the entire industrial chain. Second, deepen structural optimization and upgrading. With “reducing oil output while increasing chemical production” and lightening feedstocks as core strategies, extend the petrochemical value chain, effectively cut energy consumption and costs, and steer the industry from mere scale expansion toward quality‑driven, efficiency‑enhancing transformation, thereby continuously refining the overall industry structure. Third, concentrate on new materials as a pivotal lever for quality improvement and upgrading. Chemical new materials constitute a crucial foundation for the development of strategic emerging industries; technological innovation will become the central rationale guiding future corporate investment. The industry must leverage breakthroughs in new‑material technologies and product upgrades to propel high‑quality growth. Fourth, anchor green and low‑carbon transformation in the dual‑carbon goals. The sector should comprehensively embrace energy conservation, carbon reduction, and circular‑economy principles, restructure its green production system, and drive end‑to‑end green upgrades across production processes, energy‑use management, and waste‑disposal, achieving synergistic progress between industrial development and ecological protection. Fifth, accelerate the elimination of inefficient and outdated capacity. Leveraging national policies—such as large‑scale equipment renewal and consumer‑goods trade‑in programs—the industry can encourage enterprises to proactively phase out obsolete products and underperforming capacity, speed up the replacement of aging equipment, and promote product‑line upgrades, thereby significantly enhancing overall capacity utilization and core competitiveness. Sixth, strengthen scientific and technological innovation to break bottlenecks across the entire industrial chain. On one hand, address the sector’s most pressing pain points—such as monopolies on high‑end catalysts, heavy reliance on foreign‑supplied core process packages, and insufficient reserves of high‑end products—by concentrating efforts on critical core technologies and bolstering original innovation capacity. On the other hand, refine the innovation ecosystem, dismantle barriers to industry–university–research collaboration, close gaps in pilot‑scale testing, shorten the R&D‑to‑commercialization cycle, and establish an efficient mechanism for translating scientific advances into practical applications.

Drawing on the global competitive landscape of the petrochemical industry and the practical realities of domestic petrochemical enterprises, Lu Chaohui, Deputy General Manager of Sinopec’s Chemical Sales Division, outlined four strategic measures. First, optimize the full‑chain industrial layout, deepen the integrated industrial system, address cost‑related shortcomings in production and operations, and solidify the foundation for China’s petrochemical sector. Second, accelerate the structural upgrading of the industry to break free from the constraints of low‑end, homogeneous competition. On one hand, promote flexible upgrades of large‑scale production facilities, focus on four high‑growth new‑material segments, and prioritize breakthroughs in high‑end areas such as electronic chemicals; on the other hand, drive the industry toward service‑oriented manufacturing, offering customized product formulations and on‑site technical support tailored to the core needs of downstream sectors like automotive, photovoltaics, and semiconductors, thereby strengthening upstream–downstream supply‑chain collaboration. Third, deepen end‑to‑end digital transformation, aiming to reduce costs, boost efficiency, and enable flexible production; refine the full‑chain production scheduling system, advance the development of digital twin factories, and leverage digital technologies to enhance the quality and productivity of operations. Fourth, steadily advance international business expansion, build a diversified overseas market network, effectively hedge against cyclical fluctuations and geopolitical risks, and strengthen the resilience of corporate growth.

The global petrochemical industry’s adjustment and restructuring continue to deepen.

The geopolitical tensions in the Middle East, which began at the end of February, are accelerating strategic adjustments and restructuring across the global petrochemical industry. In early June, the American Chemistry Council announced that trade policy, environmental legislation, and chemical logistics have emerged as the “three critical unresolved issues” facing the U.S. chemical sector. Meanwhile, the German Chemical Industry Association reported that, driven by the Middle East’s geopolitical turmoil and disruptions to shipping through the Strait of Hormuz, the costs of key feedstocks—crude oil, natural gas, and naphtha—have surged, becoming a central factor weighing on domestic chemical production in Germany. As a result, the overall operating environment for the industry throughout the year remains bleak. In the first quarter, German chemical output fell 4.3% year over year, with capacity utilization still below the threshold needed to achieve profitability. On June 22, the European Chemical Industry Council released an industry‑trend report noting that, under the combined pressure of rising energy costs, weakening market demand, and intensifying global competition, total chemical output in the 27 EU member states declined 3.2% year over year in the first quarter. Production of basic chemicals and polymers dropped 12.7% and 9.2%, respectively, while capacity utilization remained persistently low, hovering around a historic 74%. In late July, the Japan Petrochemical Industry Association reported that Japan’s ethylene‑plant capacity utilization rate in June stood at 66.5%, marking yet another record low.

Among leading international companies, BASF has accelerated the divestiture of non-core businesses: its coatings business has relinquished its controlling stake and officially began operating as an independent entity on July 1. Under its previously announced new corporate strategy, the company plans to further divest businesses such as agricultural chemicals and battery materials.

In the first half of the year, restructuring and realignment in North America also accelerated, with Huntsman and Olin announcing a merger of equals. The new company will be named “Olin Huntsman,” with the primary rationale being to achieve vertical integration across the chlor-alkali value chain and build core competitive advantages for Huntsman’s downstream businesses, such as polyurethanes and epoxy resins.

Another North American company’s strategic realignment has drawn even greater attention from industry insiders. On June 29, Honeywell announced its formal spin‑off into three independently operated public companies: in October last year, it had already separated its Advanced Materials business to form Soraa, which focuses on carbon‑neutral materials such as low‑carbon fluorides, next‑generation electronic materials, medical packaging, and environmentally friendly blowing agents; on July 6 this year, it also announced the $14.5 billion acquisition of a specialty chemicals firm. Honeywell Technology Solutions, centered on digitalization—including industrial automation, building controls, industrial software, sustainable energy solutions, and process control—announced on July 20 the £1.325 billion acquisition of Johnson Matthey’s catalyst technology business. Meanwhile, Honeywell Aerospace is dedicated to aerospace systems, encompassing navigation, flight‑control systems, auxiliary power units, and aviation‑defense equipment.

Building on its successive shutdowns of propylene oxide and polyether polyol plants, as well as several basic chemicals production facilities in Europe, Dow is now considering a strategic realignment of its European polyurethane business.

In addition, Mitsubishi Chemical is divesting its pharmaceutical business and has announced the spin-off of its basic chemicals division to focus on specialty chemicals; Sumitomo Chemical will sharpen its competitive edge in high-value-added products and accelerate its shift from bulk chemicals to specialty chemicals; Mitsui Chemicals has announced the consolidation of its polyolefin business; Evonik has declared its full exit from the global polyester business; and LG has sold its water‑treatment business to a private equity firm, concentrating on three new growth pillars: battery materials, eco‑friendly materials, and global pharmaceuticals.