In the first half of 2026, Hengyi Petrochemical posted a staggering net profit of RMB 5.5 to 6 billion, a year-on-year surge of over 23 times. This is not a mere cyclical rebound but the culmination of years of overseas refining layout and full-chain integration.
Refining Business: Profit Engine from Southeast Asia's Supply Gap
The core driver is the Brunei refinery. Southeast Asia's refined oil market has long been in tight supply, with spreads far exceeding domestic levels. In Q1 2026, these spreads widened significantly, boosting refining margins. The Brunei plant, benefiting from tax incentives, market-based pricing, and low shipping costs, operated at full capacity with high per-ton profits.
In Q2, the supply-demand imbalance persisted, further releasing the project's profit elasticity. Hengyi's Q2 net profit reached RMB 3.5 to 4 billion, up 76% to 101% quarter-on-quarter. The refining segment alone contributed over 60% of incremental profits.
Chain Synergy: PTA and Polyester Recovery, Nylon Ramp-up
Beyond refining, Hengyi's PTA and polyester businesses are recovering. Industry de-escalation and capacity elimination have optimized supply-demand dynamics, gradually repairing PTA spreads. Although downstream textile demand recovery is slow, overall profitability is rising from the bottom. Nylon chain capacity release adds further increment.
For buyers and mills, this means upstream raw material costs are becoming more volatile. High refining margins may pass through to PX and PTA, affecting fabric and yarn pricing. Downstream players should monitor Hengyi's operating rates and inventory changes to lock in procurement windows.
Three Strategic Projects: From Refining Leader to 'Oil-Coal-Fabric' Integration
While profits surge, Hengyi is accelerating three strategic projects for long-term growth:
- **Brunei Refinery Phase II**: 12 million tons/year capacity, producing diesel, PX, and benzene, targeting completion by end-2028. Total Brunei capacity will reach 20 million tons/year, the only overseas capacity increment among private mega-refiners.
- **Xinjiang Coal-to-Glycol**: 2.4 million tons/year of fiber-grade glycol, expected online by H1 2028, reducing dependence on oil-based feedstocks.
- **Jingzhou Circular New Materials**: 300,000 tons/year using waste textiles as raw material, with an 18-month construction period, aligning with China's carbon neutrality and textile recycling policies.
Once operational, Hengyi will have three parallel feedstock routes—oil, coal, and fabric—effectively hedging against crude oil price volatility and enhancing profit stability across the chain.
Risks and Outlook: Can High Growth Continue?
From an industry logic perspective, Southeast Asia's refined oil supply tightness is unlikely to reverse soon, sustaining Brunei's high margins for the year. PTA and polyester capacity optimization is yielding results, with profit repair expected to persist. Nylon ramp-up will further boost earnings.
However, risks remain:
- Sharp crude oil price drops could trigger inventory write-downs and narrow crack spreads.
- Large-scale projects like Brunei Phase II and Xinjiang glycol face execution delays and funding pressures.
- Concentration of core refining in Brunei exposes operations to policy and geopolitical shifts.
- Weak downstream textile demand could slow polyester profit recovery.