China, SE Asia olefins outlook for 2026: A perfect storm of uncertain demand, oversupply, margin erosion, weak derivatives

Asia’s olefins sector is likely to remain under pressure in 2026, with poor profitability continuing to dominate the ethylene and propylene value chains. Structural oversupply, weak downstream demand, volatile feedstock costs, and increased geopolitical risks will weigh on margins across the region. Producers are likely to rely on supply discipline, including run-rate cuts and extended shutdowns, to mitigate losses.

Without a sustained improvement in demand, the prospects for price recovery are dim. Although efforts to eliminate older and less competitive capacities have begun in South Korea and Singapore, their impact on the regional supply balance in 2026 is expected to be limited.

Asian ethylene and propylene markets entered 2025 at relatively high levels but failed to recover over the course of the year. Prices trended progressively lower, punctuated by brief stabilization phases, before ending the year well below their starting levels across both China and Southeast Asia.

Oversupply to persist in 2026 despite South Korean, SEA consolidation

Most new olefins capacity scheduled for 2026 will be concentrated in Northeast Asia. BASF is soon set to start up a 1 million tons/year ethylene cracker in Zhanjiang, Guangdong, which includes 400,000 tons/year of propylene output. PetroChina Dushanzi is building a 1.2 million tons/year ethylene cracker in Xinjiang, due for completion by Q4 2026, with propylene capacity of 450,000 tons/year. Huajin Aramco Petrochemical plans to commission a Panjin-based cracker producing 1.65 million tons/year of ethylene and 700,000 tons/year of propylene by Q3 2026.Meanwhile, Aramco-backed S-Oil’s Shaheen project in South Korea will build the world’s largest steam cracker, producing 1.8 million tons/year of ethylene and 770,000 tons/year of propylene, with completion expected by H2-2026.

Oversupply was already a defining theme in 2025, when three new crackers were commissioned in China. Sinopec–Tianjin Ineos started up its 1.2 million tons/year Tianjin Nangang ethylene project in and Shandong Yulong Petrochemical launched operations at its 1.5 million tons/year cracker in November 2024, while ExxonMobil started up a 1.6 million tons/year steam cracker in Guangdong in April. Combined, new ethylene capacities added in 2025 and 2026 total an estimated 9.95 million tons/year, far exceeding both current and projected demand growth.

South Korean consolidation

The South Korean government has announced a restructuring plan to cut naphtha cracker complex (NCC) capacity by 25%, equivalent to roughly 2.5-3.7 million tons/year, in an effort to ease chronic oversupply. While this is expected to curb some excess export volumes in 2026, the impact will be partly offset by new supply from the Shaheen project, which will effectively replace much of the retired capacity.

SEA consolidation: ExxonMobil cracker to shut in H1 2026

In Southeast Asia, ExxonMobil will permanently shut its older steam cracker on Singapore’s Jurong Island from March 2026, with the wind-down process expected to conclude by mid-2026. The unit has capacities of 875,000 tons/year of ethylene and 476,000 tons/year of propylene. This move reflects broader structural realignments across Asia’s petrochemical sector as producers and governments respond to prolonged oversupply, margin erosion and China’s continued capacity expansion.

The ExxonMobil closure follows earlier exits by Shell and Chevron from Singapore. Shell completed the sale of its 237,000 bbl/day Bukom refinery and 1 million tons/year cracker to the Chandra Asri–Glencore joint venture—now operating as Aster Chemicals and Energy—in May 2024. Chevron Phillips Chemical exited its Singapore operations in June 2025 through the sale of its 400,000 tons/year HDPE plant to the same JV. These divestments underscore a broader retreat from high-cost, standalone assets in the region.

Run-rate cuts and extended shutdowns to continue

Amid persistent losses, regional producers have cut cracker run rates and extended shutdowns throughout the year. Taiwan’s Formosa Plastics shut its 700,000 tons/year Mailiao No.1 ethylene cracker in October, with no restart date confirmed. The 1.03 million tons/year No.2 cracker was restarted in September after a year-long outage, while only the 1.2 million tons/year No.3 unit operated for most of the year.

South Korean producers also ran at reduced utilization of around 70-80%, extending maintenance turnarounds for crackers and PDH plants into Q4. In Southeast Asia, several crackers entered extended shutdowns from late 2024 into 2025. Vietnam’s Long Son Petrochemical shut its 1 million tons/year ethylene cracker in October 2024 and restarted only in August 2025.

In the Philippines, JG Summit shut its Batangas naphtha cracker in late December 2024 due to margin pressure. The unit, which produces 480,000 tons/year of ethylene and 240,000 tons/year of propylene, was initially expected to restart by June 2025 but remains offline. Industry sources now indicate the plant is likely to be permanently closed.

Major producers will want to keep a tight control on their production margins, which means run rate cuts will remain an optimal tool to maintain the olefin demand and supply balance in 2026, with producers deepening rate cuts for both crackers and PDH plants as production costs rise and margins decline.

Zero-to-negative naphtha cracking margins to prevail in 2026

With ethylene and propylene prices anticipated to stay at the $700s/ton CFR Asia level for 2026, naphtha will continue to be an expensive feedstock compared to ethane. Given the higher averages for naphtha throughout the year, plus production cost, most naphtha-based producers were faced with zero or negative margins in 2025. For December, with naphtha at $560-580/ton plus production cost, ethylene should be at $800/ton for margins to be at breakeven.

Ethane remains the most competitive feedstock, and Asia’s ethane imports are expected to rise further in 2026. China’s Wanhua Chemical is set to add three to five new very large ethane carriers (VLECs), enabling greater inflows from the US Gulf Coast. While this could push ethane prices higher in late 2026, landed ethane costs have remained $100-150/ton below naphtha through 2025, assuming crude holds near $60/bbl.

Meanwhile, an additional 2.32 million tons/year of new PDH capacity scheduled for 2026 will increase demand for propane, tightening feedstock availability for propylene production.

US-Asia ethane arbitrage to expand, ethylene flows remain limited

The influx of US ethane into China in 2026 will increase vs 2025, barring further US-China trade conflicts. There was a significant drop in the volumes of US ethane cargoes into China during the first-half of the year. The US-China tariff disputes from April to May saw the Trump administration imposing a hefty 54% tariff on Chinese polymer imports. Fears were heightened amid China’s potential counter of a 125% tax on US ethane imports. In June, the US Department of Commerce required export licenses from major exporters Enterprise Products and Energy Transfer to export ethane to China. There were negligible US ethylene and ethane cargoes shipped into China during Q1 and Q2.

By July , however, the flow of US ethane cargoes into China resumed, as all six ethane cracker owners import US ethane into China. Looking forward to 2026, with Wanhua Chemical’s additional new VLECs, ethane cargo arrivals into China are expected to exceed 2025 volumes.

The inflow of US ethylene into China decreased throughout the year due to falling prices in China/Asia. With the lower ethylene prices, the US ethylene cargoes shipped in 2025 were primarily contracted volumes. This will remain for 2026, as ethylene prices are likely to stay flat at the $700s/ton CFR or fall further.

Challenging derivatives outlook

Downstream markets, including polyethylene, polypropylene, monoethylene glycol, polyvinyl chloride and styrene monomer, are expected to remain under pressure in 2026 amid chronic oversupply and weak demand growth.

According to ChemOrbis Supply Wizard, China added around 6 million tons/year of new PE capacity in 2025 and plans to add another 3.2 million tons/year in 2026, followed by roughly 8 million tons/year in 2027. While policies aimed at retiring plants after 20 years may remove some capacity, the impact is likely to remain marginal compared with the scale of new additions.

China’s expanding PP capacity has also driven aggressive exports, weighing on prices across Asia. Southeast Asia has faced similarly weak fundamentals, with intensifying competition among regional, Northeast Asian and Middle Eastern suppliers—particularly for raffia and injection grades—further pressuring prices.

Geopolitical and logistical risks

Renewed US-China trade tensions, additional tariffs on Chinese polymers or restrictions on US ethane exports could disrupt olefins trade flows. Meanwhile, the Russia-Ukraine war continues to inject volatility into oil markets, while shipping disruptions linked to Red Sea security risks threaten higher freight costs, adding another layer of uncertainty to Asia’s olefins outlook.

Overall, 2026 is shaping up to be another difficult year for Asia’s olefins industry. Massive capacity additions, largely in Northeast Asia, will continue to outpace demand growth, while downstream consumption is unlikely to recover fast enough to absorb the surplus. As a result, producers will remain locked in margin-defensive mode, relying on run-rate cuts, feedstock optimization and selective shutdowns to limit losses, with any meaningful recovery hinging on stronger demand or deeper and more sustained capacity rationalization.