Introduction: In recent years, China's domestic ethylene and derivative capacity has expanded rapidly. However, the terminal market's ability to absorb the increasing supply is limited, pushing China's ethylene market into a painful phase of supply-demand imbalance. Due to the long-term non-cyclical prosperity of the industrial chain, ethylene has been characterized by weak supply and demand and sluggish prices. In 2026, market competition intensified and the demand side underwent rapid transformation. However, under the disruption of geopolitical events, ethylene's supply, demand, domestic and foreign trade, and price performance deviated from the norm, following a trajectory distinctly different from previous years.

Supply: Raw material replenishment becomes the core driver of changes in operating rates across ethylene production processes.

From Figure 1, it can be seen that in 2025, the naphtha cracking process was the production process with the lowest volatility in ethylene output, with operating rates fluctuating narrowly between 76% and 87%. The limited fluctuation in its operating rate is mainly due to stable raw material supply and well-integrated industrial chains. Enterprises maintain high operating rates to spread fixed costs and secure market share. Therefore, they mostly operate at high loads, with operating rate fluctuations rarely occurring due to factors other than routine maintenance or unexpected shutdowns. Other processes, such as MTO and light hydrocarbon cracking, experienced operating rate fluctuations of over 20% during the year. Among these, MTO operating rate fluctuations were largely constrained by changes in profitability, while fluctuations in light hydrocarbon cracking operating rates were more significantly affected by international trade relations. Entering 2026, the factors influencing ethylene capacity utilization rate fluctuations reversed. Under geopolitical influence, raw material replenishment from the Middle East was interrupted. Given that China sources 50%-60% of its crude oil and naphtha from the Middle East, and over 70% of its methanol from the Middle East, while feedstock ethane is currently not affected by Middle Eastern supply, raw material supply replaced maintenance, malfunctions, or profit margins as the most important factor affecting China's ethylene capacity utilization trend starting from March 2026. In April, the operating rate of naphtha crackers dropped to approximately 73%, the lowest level in five years. As this process accounts for over 70% of total ethylene capacity, it dragged the overall ethylene operating rate to its lowest level since mid-2022.

Demand: Differentiated profitability of derivatives leads to diverging ethylene consumption patterns.

As shown in the consumption volume change data in Figure 2, in April 2026, the consumption structure of ethylene showed periodic anomalies. The share of polyethylene in ethylene consumption dropped to 55%, the lowest monthly level since the start of 2025, while the share of styrene rose to 10%, the highest monthly level since the start of 2025. Changes in derivative profitability caused by geopolitics are the main factor leading to this shift in consumption structure. In March 2026, losses for polyethylene reached approximately 1,800 yuan/ton. Integrated enterprises reduced polyethylene load and sold ethylene monomer instead to minimize losses, leading to a decline in polyethylene production. Meanwhile, styrene benefited from increased orders and rising prices, leading to sustained profit recovery and a simultaneous increase in industry operating rates. However, it is worth noting that starting in May, the impact of geopolitical events on ethylene derivative prices gradually weakened. Extreme market conditions decreased, and market performance returned to being driven by supply and demand fundamentals, with the market demand structure essentially reverting to pre-conflict levels.

Import and Export: Increased domestic self-sufficiency partially substitutes import market share.

Figure 3 shows that in 2025, China's ethylene imports reached a high of 2.82 million tons. However, entering 2026, some downstream derivative enterprises that previously relied on imported ethylene via dollar-denominated cargoes are now able to secure ethylene supply through nearby pipeline transport or achieve raw material self-sufficiency. Domestic ethylene resources are further replacing import market share, leading to a significant decline in ethylene imports. Starting in March, geopolitical conflicts accelerated the pace of import decline. According to chempricehub information, during the most intense phase of the US-Iran conflict, roughly from March to mid-April, South Korean cracking units suffered from insufficient raw material supply, leading to widespread load reductions or maintenance. The lowest operating rate during 2026 was only around 56%. Consequently, the volume of ethylene available for export to China decreased significantly. In April 2026, China's ethylene imports fell to approximately 65,000 tons.

Price: From lows to highs, ethylene experiences extreme volatility under 2026 geopolitical tensions.

The year 2026 was extremely unusual for ethylene prices, with both recent highs and lows occurring within the year. Before the US-Iran conflict broke out, the continuous release of merchant volume from new capacity, coupled with low-priced deep-sea cargoes constantly entering the Chinese market, caused domestic ethylene prices to fall to a low of 5,650 yuan/ton. However, following the US-Iran conflict, ethylene became one of the products in the industrial chain suffering significant supply damage. Under continuous speculative buying sentiment, ethylene reached a maximum transaction price of 10,500 yuan/ton, an amplitude of 86%. However, starting from April 2026, the volume of domestic merchant ethylene reached its peak in recent years. Derivatives could not digest the extremely high ethylene raw material prices, nor could they absorb the increasingly ample ethylene merchant volume. Affected by this, the ethylene market departed from its previous high-level consolidation pattern and entered a rapid downward channel.

Geopolitical tensions gradually ease in June; ethylene pricing focus returns to supply-demand game.

Three months have passed since the outbreak of the conflict, and the fundamental aspects of the ethylene market are gradually returning to normal logic.

On the supply side, as China has successively imported crude oil and naphtha from non-Middle Eastern sources as replacements, units that reduced loads or shut down earlier due to raw material issues are gradually recovering. The logic influencing naphtha cracker operations is returning to routine maintenance or stable operation conditions. The ethane-based ethylene production process remains stable as raw material circulation efficiency and prices have not been affected by geopolitical factors. However, the impact of the Middle East situation on MTO units persists. With the Strait of Hormuz not navigable normally, the import of methanol supplies into the Asian market remains hampered. Under the dual constraints of insufficient raw material replenishment and high prices, multiple MTO units in Zhejiang and Jiangsu provinces have opted for maintenance to avoid losses.

On the demand side, in the early stages of the conflict, due to prominent profit margins from external ethylene sales, supporting polyethylene units actively reduced loads or halted operations. Subsequently, as the ethylene-polyethylene price spread returned to reasonable levels, operating rates in the polyethylene industry gradually recovered. The impact of geopolitical events on ethylene's demand structure is weakening. Polyethylene units are operating stably, while other major derivatives such as ethylene oxide, styrene, and PVC are adjusting their production pace rationally based on their comprehensive profitability, external sales orders, and unit stability.

In terms of prices, current ethylene prices have returned to being dominated by supply-demand fundamentals. In early June, the volume of domestic merchant ethylene decreased, easing external sales pressure. After two consecutive months of decline, the market found a turning point and resumed an upward trend. However, entering mid-June, the demand side once again became the core pricing factor. Impacted by the bearish shock of concentrated price declines in derivatives, ethylene prices re-entered a downward cycle.

Conclusion and Outlook: From 2025 to 2026, rising international trade frictions and frequent geopolitical conflicts have repeatedly blocked import raw material channels. Ethylene producers are increasingly aware of the importance of raw material localization and process diversification. Since 2025, nearly ten domestic cracking units have undergone feedstock transformations, using ethane to partially replace naphtha, promoting structural optimization on the raw material side. When fundamentals enter abnormal phases, enterprises can leverage their own advantages to mitigate risks and achieve long-term stable operation of their units. Against the backdrop of increasingly fierce industry competition, China is continuously optimizing the resilience of its ethylene industrial chain. While steadily increasing the self-sufficiency rate, it is also driving a competitive leap forward for China's ethylene industry through high-end transformation, steadily enhancing China's voice and influence in the global ethylene market.