Huachuang Securities: The optimization of the supply and demand pattern for PTA and MEG drives the recovery of processing fees.

Huachuang Securities released a research report stating that there is a long-term mismatch between the supply and demand of PTA, but there are no new capacity expansion plans for 2026, and the supply-side conditions for processing fee recovery are already in place. In terms of MEG, the supply-demand pattern has shifted from looseness to rebalancing, and profit recovery will require more time. The PTA supply-demand structure is expected to accelerate its evolution from structural balance to tight balance, with significant elasticity for processing fee recovery. Currently, MEG prices and profits are under pressure; pessimistic expectations are fully reflected, and there is considerable room for price elasticity recovery, making related assets undervalued. The main points from Huachuang Securities are as follows: PTA and MEG profits are under pressure, but the pace of supply-side improvement varies. 1) In terms of PTA, domestic capacity is expected to expand from 62.24 million tons in 2020 to 107.04 million tons by 2025, with a CAGR of 11.5%, while the demand growth rate during the same period is only 8%, resulting in a long-term mismatch between supply and demand; the average processing fee is projected to drop to 261 yuan/ton in 2025, a year-on-year decline of 26.1%, causing deep pressure on industry profitability. However, the supply inflection point has arrivedthere are no new capacity expansion plans for 2026, marking the first instance of zero production since 2019, thereby ending the seven-year expansion phase. PTA becomes the only link with zero production in the PX-PTA-polyester main industrial chain, and the conditions for supply-side recovery of processing fees are now in place. 2) In terms of MEG, domestic capacity is expected to expand rapidly from 15.54 million tons in 2020 to 30.30 million tons by 2025, with a CAGR of 14.3%; the industry is expected to remain in a state of long-term losses from 2022 to 2025, with gross profits bottoming out at -448 yuan/ton in December 2025; an additional 2.25 million tons of new capacity is expected in 2026, shifting the supply-demand pattern from looseness to rebalancing, with profit recovery needing more time. The conditions for self-regulation in the PTA industry are mature, and there is a strong certainty in the advancement against involution, making processing fee recovery foreseeable. 1) By June 2026, the CR7 of the PTA industry is expected to reach 67%. The combined capacity of the four leading companiesHengli, Rongsheng, Xinfengming Group, and Hengyiis nearly 50 million tons. In a duopoly, leading firms have low coordination costs; self-regulation conditions are the most mature among current chemical products. The zero new capacity in 2026 significantly alleviates concerns about production restrictions, enhancing the willingness and ability of leaders to actively coordinate the pace of capacity release. 2) In 2025, PTA imports are expected to be only 20,000 tons, accounting for just 0.03% of apparent consumption, with pricing power returning to leading enterprises; export channels continue to expand, with an expected export volume of 3.82 million tons in 2025, covering markets including Vietnam, Egypt, Oman, Russia, and Turkey, providing effective inventory digestion channels for leading enterprises during production limitations. 3) Demand-side support is solid; in 2026, around 5.6 million tons of new domestic polyester capacity will generate rigid demand pull. The supply-demand pattern is expected to accelerate its evolution from structural balance to tight balance, with significant elasticity for processing fee recoveryeach 100 yuan/ton increase in PTA prices is estimated to yield a profit elasticity/value ratio of 2.3% for Xinfengming Group and 0.9% for Hengli Petrochemical. MEG supply-demand is expected to shift towards rebalancing, but characteristics of a bottoming economy are evident. 1) Of the 2.25 million tons of new capacity in 2026, most will be launched in the second half of the year, with limited effective supply growth in the first half. Coupled with demand pull from the new polyester capacity of 5.6 million tons, prices are expected to strengthen in the first half of the year. In the second half, as capacity gradually reaches production, supply pressure will increase, and the expected trend is for prices to be higher initially and then lower. 2) From 2027 to 2028, the industry's supply-demand rebalancing pattern is expected to be gradually established; currently, MEG prices and profits are under pressure, pessimistic expectations are fully reflected, and price elasticity release has considerable space; the estimated profit elasticity/market value ratio of Jiangsu Eastern Shenghong in a scenario of a 1,000 yuan/ton price increase reaches 1.5%, with market value elasticity among leading firms being the most prominent. Recommendations for attention: Hengli Petrochemical, Rongsheng Petro Chemical, Hengyi Petrochemical, Jiangsu Eastern Shenghong, Tongkun Group, Xinfengming Group, China Petroleum & Chemical Corporation, PetroChina, Wankai New Materials, China Resources Chemical Innovative Materials. Risk warnings: 1. Risk of fluctuations in crude oil prices; 2. Risk of demand not meeting expectations; 3. Export risks; 4. Risks from adjustments in industrial policies.