China's chemical fiber industry saw its most striking H1 financial report from Hengyi Petrochemical. On June 25, the company forecast net profit attributable to shareholders of RMB 5.5-6.0 billion for the first half of 2026, a year-on-year surge of 2,326%-2,547%. This figure far outpaces domestic peers.
Refining Dividends Unleashed
Hengyi's Q1 net profit approached RMB 2 billion, up 3,774% YoY, setting the stage for H1 growth. In Q2, profit rose 76%-101% sequentially to RMB 3.5-4.0 billion. The core driver is its Brunei refinery project in Southeast Asia.
Southeast Asian refined oil markets have long been in undersupply. Cracking spreads widened sharply in early 2026, boosting refining margins. The Brunei refinery enjoys local tax incentives, market-based pricing, and lower freight costs due to geographic advantages, achieving full capacity and full sales. Compared to domestic refiners, this overseas capacity delivers a near-knockout profit advantage.
Meanwhile, years of anti-inventory competition in the PTA and polyester sectors are paying off, with improved supply-demand dynamics lifting product margins. Nylon chain capacity releases also contributed. These factors combined to make Hengyi's H1 net profit nearly equal to the sum of several previous years.
Three Megaprojects Reshape the Industry Map
More noteworthy are Hengyi's three strategic projects under construction. Once completed, they will fundamentally alter the company's—and China's—raw material structure and profit model.
The second phase of the Brunei refinery has fully started, with optimized capacity of 12 million tons/year, producing diesel, PX, and benzene. It targets completion by end-2028, bringing total Brunei capacity to 20 million tons/year. This is the only overseas capacity addition among private mega-refineries in recent years, giving Hengyi significant pricing power in Southeast Asian refined oil and aromatics markets.
In Xinjiang, a coal-to-ethylene glycol project plans 2.4 million tons/year of fiber-grade MEG, expected online by H1 2028. This reduces oil dependency and leverages China's abundant coal for cost advantages.
In Hubei, a circular new materials project targets 300,000 tons/year of recycled materials from waste textiles, with an 18-month construction period. Aligned with China's dual-carbon goals, it will create a unique 'oil-coal-textile' feedstock system, enhancing full-chain profit stability.
Risks and Judgment Amid High Boom
The key question: can this high growth last? Short-term, Southeast Asian refined oil tightness won't reverse within a year, sustaining Brunei's high margins. PTA and polyester industry optimization is progressing steadily. Combined with nylon ramp-up, Hengyi's 2026 profit baseline may permanently shift upward.
However, risks are real.
- A sharp oil price drop would trigger inventory write-downs and narrow cracking spreads, squeezing refining profits.
- Brunei Phase 2 and the Xinjiang MEG project are capital-intensive with long lead times, posing delays and funding pressure.
- Overconcentration in Brunei exposes operations to host-country policy or geopolitical shifts.
- Weak downstream textile demand could derail polyester profit recovery.