Shenghong's semi-annual report forecast has laid bare the profit elasticity of the polyester industry. On July 5, 2026, Eastern Shenghong announced an expected net profit of RMB 4.2 to 5 billion for H1, a year-on-year increase of 987% to 1,194%. Just days earlier, Hengyi reported a growth of 2,326% to 2,546%. With polyester leaders collectively delivering 'surge' results, has the industry completely shaken off the shadow of overcapacity?
Dual Engines of Profit Explosion
Shenghong attributed its performance surge to three variables: improved supply-demand dynamics in the petrochemical industry, expanded product spreads driven by rising crude oil prices, and efficient operation of its integrated refining and chemical projects. Behind this lies a resonance between geopolitics and industrial policy.
In early 2026, the US-Iran conflict escalated, disrupting shipping through the Strait of Hormuz. Brent crude surged from $61/barrel at the start of the year to $118/barrel in March, stabilizing at an average of $99/barrel in Q2. Chinese refining companies, benefiting from diversified crude import channels, suffered less impact than their Japanese and Korean counterparts, instead gaining spread profits from oil price volatility. Shenghong, with annual PX capacity of 2.8 million tons and PTA capacity of 6.3 million tons, and total aromatics chain capacity exceeding 10 million tons, saw its vertically integrated advantages magnified during the oil price upcycle.
More critical is the structural clearing within the industry. Over the past two years, the PTA sector was mired in 'involutionary losses', with losses reaching RMB 200 per ton. But in 2026, no new PTA capacity was added, while obsolete capacity at home and abroad accelerated its exit, ceding market share to integrated leaders. Shenghong's Q1 net profit was RMB 1.432 billion, with Q2 growing 93% to 149% quarter-on-quarter and 60 to 78 times year-on-year. This slope far exceeds the oil price increase itself, indicating that profit increments come more from market share concentration and cost advantage realization.
Cyclical Dividend or Structural Inflection Point?
The market's key question is: how sustainable is this profitability? In the short term, geopolitical risk premiums are fading. As Strait of Hormuz shipping gradually recovers, Brent crude has fallen from the $118/barrel peak, and narrowing spreads will compress refining margins. While Shenghong's Q2 showed high sequential growth, a continued oil price correction could lead to a sequential decline in Q3.
But the medium- to long-term logic is more compelling. Institutional research indicates that the current round of PTA capacity expansion is nearing its end, with 'anti-involution' policies steadily advancing, shifting the supply-demand balance from 'oversupply' to 'tight equilibrium'. The profit surges at Hengyi and Shenghong are not merely accidental oil dividends but a natural result of capacity clearing over the past two years, which has restored the bargaining power of leading enterprises. This means that even if oil prices fall, leaders can maintain above-average profit margins through cost advantages and market share.
For downstream weaving enterprises, raw material cost pressure is re-accumulating. Polyester chip and filament yarn prices have risen with crude oil, while end-apparel demand has not recovered as robustly. The profit growth of Shenghong and Hengyi partly comes from upstream squeezing downstream margins. If oil prices remain high in Q3, weaving enterprises may face a 'revenue growth without profit growth' dilemma.