Aromatics Market Outlook and PX Spread Trends

Santosh Navada: Hello everyone I am Santosh Navada, market analyst here at Argus Media. Thank you for joining us for today's podcast where we'll dive into the outlook of aromatics. Joining me is Ashish Kulkarni, our lead aromatics consultant.

We are going to unpack what's shaping supply and demand for para xylene across Asia Pacific this year brought some big developments. China's Anti Evolution campaign and South Korea's push for petrochemical rationalisation.

At the same time, global geopolitics played a role as well, with U.S. trade tariffs distorting trade flows, Russia Ukraine conflict dragging on, and US Venezuela tensions escalating as well. All these factors have influenced the Asian.

Aromatics market. So let's dive in directly. What's your thoughts on the Northeast Asia aromatics market? Could you share your thoughts on the pace of PX supply growth? How will the projected change in China's capacity expansions influence regional paraxylene operating rates and supply demand balance.

Ashish Kulkarni: Thank you Santosh for inviting me on this podcast and thanks for the question. So it's very interesting to note that NE Asia used to be substantially net deficit region, but that deficit now has narrowed to only around 2,000,000 tonnes, and that is primarily because of the significant capacity additions in PX that China has done over the last few years. In spite of this, China continues to be the largest net importer to the tune of around 9 Million tonnes annually and most of the sourcing happens from South Korea, Japan and Southeast Asia. Now, this deficit is expected to persist through the next 5 to 10 years for both China as well as the broader NE Asian region.

Because the upcoming capacity expansions in China in parasailing are projected to slow down, in fact they will be more or less aligned with demand growth going forward compared to the aggressive build out of the last 4-5 years.

Because of this balanced situation, this will probably support the regional paraxylene operating rates about the critical 80% threshold. Regional paraxylene demand is projected to grow at about 3% again. Primarily driven by China's anticipated growth rate in the range of around 4% or so. In fact, demand in South Korea, Japan and Taiwan, which are the other major countries in this region, is expected to remain flat or maybe even decline because of capacity rationalisations in their downstream, PTA and polyester sectors. It's pertinent to note that in the whole of 2025, no new paraxylene capacity came online, not only in the region, but even globally, resulting in a more balanced.

Supply demand outlook for the near term in case of mix xylene and toluene. Of course, China did add some capacity, so those intermediate products continue to be relatively long compared to paraxylene.

Santosh Navada: Interesting. Now just building on that itself, talking of spreads, how Asian aromatics market performed in 2025 compared to 2024 and looking ahead, do you expect any significant shifts or emerging trends as we move into 2026.

Ashish Kulkarni: Well, no doubt, the aromatics markets generally were softer in 25 compared to 2024. Benzene was the product that experienced the sharpest decline. Again, this was because of significant capacity additions, and we saw that the annual average spread over NAFTA for benzene fell from $306 per tonne in 2024 to only $150 per tonne in 2025. Similarly, toluene, which has a primary usage in gasoline blending, also saw it's spread over naphtha contract from $166/t to $90/t, whereas mixed xylenes spreads over Naphtha also narrowed from 183 to $116 per tonne. PX was the one product which registered the smallest decline going down only from $283/t to $237 per tonne year on year compared to 2024. And that relative strength, if I may call it that was again because we didn't see any new capacities coming into the market during the year.

As far as benzene is concerned, they faced a lot of pressure because production continued unabated in spite of poor margins, because the paraxylene margins remained fairly robust. And that resulted in the benzene supply continuing to outpace the prevailing demand in case of toluene. On the other hand, the anticipated demand surge during the summer driving season, especially in the Western Hemisphere, did not materialise to the extent that was initially expected by market participants and that combined with some capacity additions in China resulted in a supply demand imbalance for the product. And if you ask me, looking ahead to 2026, broadly similar dynamics, I would say the PX capacity additions are going to be limited. There are question marks over the start-up of one or two of the capacities which one expects to start in 2026.

So on the whole PX spreads should have reasonable support, whereas the benzene supply growth, which will continue from the new naphtha crackers coming up in China is likely to keep the benzene market long and therefore the margins for benzene will probably continue to be under some amount of pressure.

Santosh Navada: Indeed, and in order to combat this, there has been a lot of talk about anti involution initiatives, that is, you know, grabbing the interest of a lot of market participants itself. So what is your perspective on that? How do you see that shaping the market going forward?

Ashish Kulkarni: Yes, the anti-involution initiative by the Chinese government does signal a strategic pivot from, you know, capacity curtailments driven top down towards a more market driven restructuring approach.

It is a fact that as far as the Chinese PET chem industry is concerned, the huge oversupply and the resultant competition has severely compressed profitability, not only for them but for the rest of the world as well. And in China, the petrochemical sector margins have come down to less than 5% in the first half of 2025 compared to around 8% in 2021. So these are very slim margins indeed. No wonder because since 2020, Chinese PX and benzene capacities have increased by a staggering 70% and 40% respectively, with a lot of crude oil to chemical large scale complexes being commissioned in that country.

And it's not restricted only to aromatics. Even China's ethylene and propylene capacity has surged by over 20 by over 50% in the last five years, fueled by aggressive investments in steam crackers and PDH units. So across the board, this rapid expansion has created significant oversupply and we see that that has compelled several facilities to reduce their operating rates or in extreme cases even go for temporary shutdowns to mitigate financial strain and rebalance the market fundamentals. So indeed it will be interesting to see how the anti-involution initiative develops in the new year and how it starts impacting the market supply, not only China even outside of China.

We see in, in, in markets like Japan, for example, their petrochemical sector is also facing sustained challenges and that is driving producers to explore a more aggressive and accelerated rationalisation strategy. In South Korea as well, most people would be aware that the government is prodding the industry towards very comprehensive restructuring initiatives, which again underscores the urgency for a realignment in the industry.

Santosh Navada: Indeed. And just building on that last point itself, what's your take on the rationalisation efforts in South Korea? It has been all the rage in the month of December. How do you see that play out over the next year or so?

Ashish Kulkarni: Yeah, I mean, South Korea's petrochemical sector is, certainly taking some decisive steps, I would say long overdue steps to tackle persistent oversupply and margin pressure in this year. Their Ministry of Trade Industry and Energy had asked 16 leading producers, including companies like LG Chem, Lotte, SKGS, Caltex, Hanwa Soil, Hyundai Chemicals to voluntarily come up with a plan to reduce output across the country’s major petrochemical hubs of Yeosu, Dyson and Usan, and the target is quite significant. They're talking of cutting between 2.7 to 3.7 million tonnes of NAFTA cracking capacity, which would represent between 20 to 25% of.

South Korea's total annual capacity. So there was an agreement in August where producers had committed to submitting a restructured, you know, rationalisation plan, including a plan to shut down older units, extending turn around schedules.

Decommissioning ageing crackers and to qualify for government support, companies are supposed to submit detailed restructuring plans by year end and many of them indeed have done so, and the incentives from the government side that are on offer include tax credits.

Regulatory relief, some R&D funding and also help with a streamlined closure process. Those companies which don't come out with credible plans would then risk losing access to these kind of benefits.

In fact, the policy measures go even further, allowing merger approvals to be exempt from antitrust constraints, tax breaks for mergers and acquisitions, and cluster level consolidation as well. A very good example is the recent announcement by Lotte and HD Hyundai, who are actively working on asset integration at the Dyson complex.

Santosh Navada: Indeed, that's one development we will definitely be keeping a close eye on, and if you have to look at the reason behind the recent PX search that we saw in Asia Pacific region in December, was there any specific reason behind it and do you think that going forward that price rally can be sustained into the next few months?

Ashish Kulkarni: Well, on that note, if we really step back and see for context, it's important to remember that the polyester sales and the year on year production growth in China in 2025 has been relatively weaker compared to the previous couple of years and that also reflects in the PTS spreads over PX values which this year are going to average somewhere around $36 a tonne only compared to an already low number of $50 return in 2024. So PTAPX margins in China have declined to very unsustainable levels even for the, you know, latest technology, Chinese plants.

That's what we have seen it throughout most of the fourth quarter this year and in response some of the PTA producers are going in for production cuts, hoping to rebalance the market. But then again in the last 12 months, four world scale plants started up in China, totalling nearly 10 million tonnes of capacity. So it's simply too much of capacity build in a very short period of time. Having said that, polyester sales did surge in in in the second-half of December.

Following the announcement of operating rate cuts, which were announced by producers and that kind of provided some immediate upward support to prices, especially going ahead of the Chinese New Year holidays which are in mid-February.

Now typically the downstream production cuts would exert some pressure on the upstream markets, but sales and margins spiked unexpectedly because market participants became a bit concerned that PTA inventories could also deplete rapidly.

Ahead of the Chinese New Year holidays because of all the PTA production cuts that have happened as well. Now, whether this rally can be sustained remains to be seen, particularly if you consider that there is every likelihood of.

Reduced operating rates in the Chinese polyester sector in in January as the market approaches the Lunar New Year in Feb. So if so, then these kind of run rate adjustments would definitely weigh on demand for PTA and therefore for paraxylene in the near term.

Santosh Navada: All right. And if we shift our focus to gasoline for a moment, how has gasoline market influenced the downstream paraxylene markets? And do you think the current crack levels that we have sort of seen in December?

Are they sustainable given the interplay of seasonal demand and the Chinese exports that is expected to be a bit subdued in the at least the first quarter of 2026?

Ashish Kulkarni: Well, of late, if you look at the last one month or so, we have seen Asian gasoline cracks, spreads softened after they reached their highest level in over two years, about a month or so back.

And that has happened because of rising regional supply and some belated weakness in the European gasoline markets. Before that, the strength in Asia's gasoline markets was largely driven by some maintenance as well as unplanned outages across the Asia Pacific region, which kept a significant portion of the gasoline production offline during the months of November and early December.

And also the Asian market mirrored the bullish trends which were seen West of Suez, where the European gasoline cracks surged to multi-year highs earlier in the fourth quarter. That in turn was supported by refinery closures.

And of course, the renewed uncertainty over supply which followed the US sanctions on Russia's Rosneft and Lukoil and also there was increased buying interest from West Africa, all these factors constrained the availability from Europe and indirectly it contributed to tightening the supply in Asia Pacific before we have seen the recent correction of the last few weeks also you know disruptions to Russian refinery operations because of Ukraine.

Drone strikes have indeed tightened the naphtha availability, and that has reduced a key light feedstock for gasoline blending across Asia and parts of the Western world as well. Now the Asian markets for gasoline continue to exhibit pockets of some fundamental strength and we do see that gasoline crack spreads are at unseasonably high levels if you consider that we are into the winter months. So even after the recent correction, they seem to be elevated, which defies the usual seasonal slowdown that is seen during this period in Asia Pacific, particularly Indonesia is a large gasoline importer.

And that market has continued to exhibit strong demand as it builds inventories ahead of the anticipated rising consumption during the year-end holiday season. In addition, there have been unplanned outages in South Korea and Taiwan.

One which have further tightened the regional supply and if you look at China then Chinese gasoline exports are expected to remain a little bit subdued in the first quarter, which again is a development that the market participants feel is a key factor in shaping price, direction and market dynamics for gasoline, at least in the early part of 2026.

Santosh Navada: I see. And one of the main focus areas this year has been tariffs. So how US tariffs affected the aromatics market in general and?

Will sourcing diversification strategy influence PX trade patterns going forward?

Ashish Kulkarni: Indeed, US tariffs has been a major factor throughout this year. In fact, for all markets. And if you look at the trade in aromatics, it has exerted pressure on supply chains, pressure on pricing as well as production decisions.

It has also driven some medium to long term strategic shifts in terms of realignments in sourcing as well as domestic capacity. On the whole, I would say the combined effect of tariffs and the downstream demand, which has been weakening, has prompted importers in the US to really diversify away from Asia and the Middle East because some of the Middle East countries have the lowest tariffs on them.

Those countries have emerged as a key alternative supplier. There was an expectation that the tariffs would substantially strengthen US domestic supply. But contrary to those expectations, the outcome has primarily been a reconfiguration of the trade flows rather than a very substantial increase in US production. As far as Asia is concerned, the arbitrage to export out to the US remained closed for most part of the year after the tariffs were imposed in early April, there were only the occasional set of cargoes seen going from Korea to the US.

In addition, you know PET resin was originally exempt from the tariffs, which allowed countries to continue shipping competitively priced PET to the US, but then in September, I think the US government revised their policy to include.

Both Virgin as well as recycled pet in an executive order in in, you know in early September I think now after that has come in most of the industry participants anticipate that.

The full impact of the tariffs on PT will become more evident in 2026. There have been some modest impacts in the fourth quarter, but I think the major impact will come next year once annual contract renewals happen.

And it's also important to realise that there have been substantial import volumes into the US for PT at least during the first nine months of the year, which means that there is inventory in the pipeline which the market will have to absorb and digest before we see the tariff driven adjustments in domestic production or imports getting fully reflected.

Santosh Navada: Indeed. And going forward, what key bullish and bearish factors could influence aromatics market prices? Just wanted your view on that.

Ashish Kulkarni: Yeah, I mean that's a that's a, that's a tough one to predict because there are so many factors which could impact. Let's look at the bullish side first. We are all seeing that there are geopolitical tensions.

There is friction between the US and Venezuela. The Russia Ukraine conflict still goes on. So both these factors would keep the crude oil prices supported, which in turn means that there will be a.

You know, kind of a floor put under the aromatics prices. We saw recently, the US blocking a couple of Venezuelan oil tankers, then the Russia Ukraine situation.

Is still unresolved though, though a lot of talks are going on so and in addition purely in terms of fundamentals, I think PX prices should find support spread should find support given the fact that there has been no capacity addition this year and.

One doesn't see any capacity addition, at least for the first half of next year as well as, on the economic side, the US Federal Reserve has been moving to lower interest rates, which might and so also the most of the other major central banks, are also moving in a similar direction. So that in general should be conducive for boosting petrochemical demand in general.

Now if you look at oil per southeast at the latest monthly meeting that OPEC plus producers had these eight countries who have been unwinding their voluntary production cuts from the years 22 and 23, committed to keeping their production unchanged in in the first quarter of 2026, so which means that they're pausing their unwinding process. They have cited seasonality, but I'm sure that the recent downward pressure on oil prices may have also influenced this move, so apart from these bullish factors, if you look at the other end of the spectrum, there are some bearish signs as well. And I think the most pertinent is the fact that China's economy continues to be in the slow lane. Demand is weak, particularly from the construction and real estate sector, and that is kind of trickling down into weak demand in a lot of downstream petrochemical derivative markets. Russia's ability to find alternative oil export channels could continue to put pressure on crude prices. There's also expected to be pretty robust supply growth from non-OPEC countries like Brazil and Guyana.

So that again is a downside risk for oil. Last but not the least, I think the polyester sector has underperformed even Q4, which is traditionally a strong period in China, was not all that strong notwithstanding the very recent rise in prices. And then there's the Lunar New Year holiday coming up in mid-February. So all these will definitely weigh on the near term demand outlook and most importantly if OPEC plus is unable to effectively manage market dynamics.

In the short to medium term, it might very well result in some additional softness and crude prices, which undoubtedly will exert downward pressure on aromatics prices as well.

Santosh Navada: Great. And that brings us to the end of this podcast. Ashish, thank you so much for your insights and thank you listeners for tuning in. To find more information about the Argus aromatic services, visit www.argusmedia.com.

Thank you.

Ashish Kulkarni: Thank you, Santosh.