A semi-annual report from a leading chemical fiber enterprise has prompted the entire industry to reassess the value of integrating refining and polyester production. Hengyi Petrochemical expects a net profit attributable to shareholders of 5.5 to 6 billion yuan for the first half of 2026, a surge of over 23-fold year-on-year. This figure is not a simple cyclical spike but the result of years of overseas layout and full industrial chain cultivation.
Structural Support for Profit Surge
Hengyi's Q1 report already showed strong momentum, with net profit of 1.995 billion yuan, up 3,773.77% year-on-year. In Q2, the tightening supply-demand balance in Southeast Asian oil product markets further released the profitability elasticity of the Brunei refinery project, with quarterly net profit of approximately 3.505 to 4.005 billion yuan, a sequential increase of 76% to 101%. CITIC Securities analysis pointed out that the long-term shortage of oil product supply in Southeast Asia and the significant widening of price spreads in Q1 2026 directly boosted refining profitability.
The core advantage of the Brunei refinery lies in its location. As the only domestic chemical fiber enterprise with an overseas refinery, Hengyi benefits from the premium space of the Southeast Asian oil product market, along with local tax incentives, market-based pricing, and low shipping and insurance costs. During the reporting period, the Brunei refinery operated at full capacity with full sales, maintaining high per-ton product profitability. This structural advantage is difficult to replicate in the short term and is key to the company's performance surpassing peers.
In addition to the refining segment, the release of nylon chain capacity and the recovery of the polyester market also contributed to profits. The anti-involution push in the PTA and polyester industries continues to optimize the supply-demand landscape, making profit recovery sustainable. This means Hengyi's profit growth is not solely dependent on refining but is a combined effect of three lines: refining, polyester, and nylon.
Three Strategic Projects Reshaping the Industry Landscape
Alongside substantial profit growth, Hengyi is accelerating three major projects to reduce reliance on crude oil and build a new pattern integrating 'oil, coal, and fabric'.
The second phase of the Brunei refining project has been fully launched, with an optimized design capacity of 12 million tons per year, mainly producing high-value products like diesel, PX, and benzene, targeting completion by the end of 2028. At that point, the total capacity of the Brunei refinery will reach 20 million tons per year, making it the only overseas capacity increment among private large-scale refineries in recent years.
The Xinjiang coal-to-ethylene glycol project plans to produce 2.4 million tons per year of high-quality fiber-grade coal-based ethylene glycol, expected to be operational by the first half of 2028. This move expands the company's raw material sources from crude oil to coal, reducing dependence on a single fossil fuel and enhancing self-sufficiency in ethylene glycol to hedge against price fluctuations in the polyester chain.
The Jingzhou circular new materials project in Hubei targets waste textile recycling, with a planned annual capacity of 300,000 tons of recycled new materials, with a construction period of 18 months. This project aligns with the national 'dual carbon' strategy and waste textile recycling policies, potentially replacing crude oil with waste textiles as raw material, achieving both economic and social benefits.
Sustainability of High景气: Opportunities and Risks
The market is generally concerned about whether the current high-profit growth can continue. From an industry logic perspective, the tight supply-demand balance in Southeast Asian oil product markets is unlikely to reverse quickly, and the high profitability of the Brunei refinery is expected to persist throughout the year. The capacity landscape in the PTA and polyester industries has been substantially optimized, making profit recovery sustainable. Combined with the ongoing ramp-up of nylon projects, the annual profit center will be permanently elevated compared to previous years.
However, risk factors cannot be ignored.
- Volatility in international crude oil prices: A rapid decline could lead to inventory write-down pressure and narrowing crack spreads, directly impacting refining profitability.
- Project construction risks: The Brunei phase II and coal-to-ethylene glycol projects involve large investments and long construction periods, posing risks of delayed startup or capital strain.
- Geopolitical and policy risks: With core refining capacity concentrated in a single region (Brunei), changes in host country policies or geopolitical conditions could impact cost advantages and raw material supply stability.
- Downstream demand uncertainty: If textile end-user demand falls short of expectations, it will affect the pace of profit recovery in the polyester segment.