Asia energy and chemicals markets Report Interpretation

Overview

This monthly Asia Energy & Chemicals dashboard assesses refining margins, chemical supply-demand conditions, inventories, spreads and regional stock preferences. JPMorgan sees a favorable near-term refining backdrop and resilient PX economics, offset by softer broad chemical demand and pressure in selected downstream chains.

Core views

The report’s strongest near-term call is on Asian diesel. Asia diesel cracks rose 40% in September and climbed 7% after Russia was reported to have extended its diesel-export ban through end-October, taking the crack above US$90/bbl, the highest level since mid-April. Russian refinery throughput remained around 3.9mbd in September, roughly 1mbd lower year-on-year, as Ukrainian drone attacks persisted. JPMorgan estimates that absent Russian supply leaves a continuing 0.8mbd gap in global diesel exports, while Gulf product flows remain 45% below their pre-conflict level. China increased gasoline, diesel and jet/kero exports by 160kbd month-on-month to 850kbd in August, but the report stresses that a further increase depends on government approval because Beijing prioritizes domestic supply stability. Battery-material demand is a relative bright spot. China electrolyte production reached 303kt in August, up 5% month-on-month and 59% year-on-year; growth in the first eight months tracked 52% year-on-year. The report links this to global energy-storage-system battery shipments, which rose 6% month-on-month and 100% year-on-year, with 8M26 shipments up 97% year-on-year. An ICCSino survey indicated sampled ESS battery makers planned a further 3–4% month-on-month production increase in September, which JPMorgan expects to support another increase in electrolyte output. In the polyester chain, MEG inventories are unusually tight but underlying demand is weak. China’s methanol, benzene and MEG port inventories were down 20%, 12% and 44%, respectively, versus end-August. East China MEG inventory fell to a historical low of 120kt, down 70% year-on-year and 17% month-on-month, because higher domestic operating rates did not offset constrained Middle East cargo flows. MEG spot prices rose more than 30% from end-August and were up 85% year-to-date. However, elevated raw-material costs and weak demand pushed polyester utilization down to about 75%, 16 percentage points below a year earlier, even entering the September–October demand season. Supply risks are also building through a 360ktpa NPC restart in Taiwan and scheduled starts at Sino-Saudi Gulei, Xinrun, Hainan Refining & Chemical and Shenghong. PX economics have remained resilient because PTA operating rates recovered. China PTA utilization rose from below 50% in mid-August, a multi-year low and 25 percentage points below the prior year, to 71% in the week ended 11 September. Restarts at Yisheng Dalian and Sanfangxiang restored roughly 6% of China’s PTA capacity. This lifted PX demand and supported a 3QTD PX-naphtha spread of US$295/t, up 12% quarter-on-quarter, despite weak polyester end demand. For PX exposure, JPMorgan favors FCFC, SK Innovation and TOP. Other chemical signals are less supportive. China MDI and TDI spreads fell 14% and 15% month-on-month into September. For MDI, a 19% rise in upstream benzene costs outpaced a 9% domestic price increase. JPMorgan sees limited further downside if Wanhua delays the restart of its 1.1Mtpa Yantai MDI facility while margins remain weak, and expects its 2.2Mtpa ethylene cracking complex capacity to benefit from higher oil prices. The report’s China apparent-demand data also show 2026YTD declines across many products, including PE (-11%), PP (-11%), PVC (-4%), PS (-17%), methanol (-2%), PTA (-12%), PX (-4%) and textile products (-1%). Korean petrochemical restructuring is progressing but remains incomplete. The Yeosu plan confirms shutdowns of YNCC’s No. 2 and No. 3 crackers totaling 1.39Mtpa, while YNCC No. 1 and Lotte Chemical’s Yeosu cracker will be consolidated into a jointly owned entity. Together with Daesan consolidation, 2.5Mtpa of Korea’s 3.7Mtpa targeted NCC closures has been achieved, equal to 30% of national capacity according to the report. Support includes zero tariffs on relevant naphtha and crude inputs through end-2026, W450bn of financing, debt-repayment deferrals through 2029 and W20bn of import-insurance support. JPMorgan keeps its regional preference order unchanged. In China it prefers PetroChina, Sinocera and Wanhua over Sinopec, Hengli and Rongsheng; in Taiwan it remains Overweight on the Formosa group and ranks NPC ahead of FCFC, FPCC and FPC. In Korea it remains Overweight on both refiners but prefers SK Innovation to S-Oil. It also favors Reliance over ONGC in India, and Ampol, COSMO Energy and ENEOS in Australia and Japan.

Analysis framework

JPMorgan combines refining-margin and chemical-spread indicators with refinery throughput, trade flows, operating rates, inventories, capacity changes, apparent-demand data and company valuation comparisons. It then links these market conditions to regional company preferences and ratings.

Methodology notes

• Industry AnalysisSupply-demand framework

  Supply-demand analysis using exports, operating rates, inventories, capacity additions and apparent demand.

  The report explains price and margin movements through product availability, downstream utilization, trade flows and planned capacity changes.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Refining-to-chemical-chain spread analysis.

  It traces how crude and feedstock costs, PTA operating rates, polyester demand and end-market conditions affect PX, MEG, MDI and TDI economics.

• Industry AnalysisVolume-price decomposition

  Apparent demand measured as production plus net imports.

  The report uses this convention to track chemical demand but explicitly notes that it does not capture inventory draws or builds.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• SK Innovation (096770.KS)

  Preferred Korean refiner and a favored PX-exposure name.

  Strengths

  JPMorgan remains Overweight and prefers it to S-Oil; PX exposure is highlighted.

  Comparison

  Preferred over S-Oil within Korean refining.

• Lotte Chemical (011170.KS)

  Top avoid and participant in the Yeosu cracker consolidation.

  Weaknesses

  JPMorgan rates it Underweight.

  Comparison

  Less preferred than Korean refiners, particularly SK Innovation.

  Risks

  Chemical-demand weakness and restructuring execution.

• PetroChina (601857.SH, 00857.HK)

  Preferred China energy holding.

  Strengths

  Rated Overweight and included among top longs.

  Comparison

  Preferred over Sinopec, Hengli and Rongsheng in China.

  Risks

  China product-export policy and domestic supply priorities.

• Sinocera (300285.SZ)

  Preferred China chemicals holding.

  Strengths

  Rated Overweight and included among top longs.

  Comparison

  Preferred alongside PetroChina and Wanhua over Sinopec, Hengli and Rongsheng.

• Wanhua Chemical (600309.SH)

  Preferred China chemical company despite weaker MDI/TDI spreads.

  Strengths

  JPMorgan expects its 2.2Mtpa ethylene cracking complex capacity to benefit from higher oil prices.

  Weaknesses

  MDI/TDI spreads weakened and the shares underperformed the SHCOMP by 8% in the prior week.

  Comparison

  Preferred over Sinopec, Hengli and Rongsheng.

  Risks

  Persistently weak margins could delay the Yantai MDI restart.

Key data

• Asia diesel crackAbove US$90/bblUp 7% after the reported extension of Russia’s diesel-export ban; up 40% in September.
• Russian refinery throughput~3.9mbdAbout 1mbd lower year-on-year; global diesel-export gap estimated at 0.8mbd.
• China electrolyte production303ktUp 5% month-on-month and 59% year-on-year in August.
• East China MEG port inventory120ktHistorical low; down 70% year-on-year and 17% month-on-month.
• China PTA utilization71%Week ended 11 September, recovering from below 50% in mid-August.
• PX-naphtha spreadUS$295/t3QTD level, up 12% quarter-on-quarter.
• China MDI spread-14% MTD versus August averageUpstream benzene costs rose 19% while domestic MDI pricing rose 9%.
• Korea NCC shutdowns achieved2.5MtpaAgainst the government’s 3.7Mtpa target; stated as 30% of Korea’s total capacity.

Impact & implications

The report argues that diesel supply disruption and the PTA utilization rebound support refining and PX-linked names in the near term. Conversely, broad demand weakness, lower polyester utilization, rising prospective MEG supply and compressed MDI/TDI spreads temper the outlook for much of the chemical complex.

Risks

• China’s product-export expansion depends on government permission, with domestic supply stability remaining Beijing’s priority.
• Weak polyester end demand and utilization near 75% could limit support for the chemical chain.
• New and restarted MEG capacity could ease the current inventory tightness.
• MDI and TDI margins remain vulnerable to feedstock-cost inflation that outpaces product-price increases.
• Korean NCC restructuring depends on consolidation, self-help measures and implementation of government support.

What to watch

• Russian diesel-export policy, refinery throughput and the resulting global diesel-export shortfall.
• China’s product-export approvals and monthly gasoline, diesel and jet/kero export volumes.
• September ESS battery-maker production plans and electrolyte output.
• PTA and polyester operating rates, PX-naphtha spreads, MEG port inventories and new MEG capacity start-ups.
• Progress toward Korea’s 3.7Mtpa NCC shutdown target and execution of the Yeosu consolidation.